Proceedings of the Standing Senate Committee on Energy, the
Environment and Natural Resources
Issue 1 - Evidence
OTTAWA, Tuesday, October 21, 1997
The Standing Senate Committee on Energy, the Environment and Natural Resources
met this day at 10:00 a.m. to organize the activities of the committee.
Ms Line Gravel, Clerk of the Committee: Honourable senators, I see a quorum. As
clerk of your committee it is my responsibility to preside over the election of
the chairman today. I am here to receive any nominations to that effect.
Senator Carstairs: I nominate Senator Ghitter.
Ms Gravel: Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
Ms Gravel: I declare the motion carried. Senator Ghitter, you are the chairman
of the committee.
Senator Ron Ghitter (Chairman) in the Chair.
The Chairman: I with to thank members of the committee for their confidence in
electing me chairman. I am pleased to do it, and I thank you very much for the
I welcome Senators Watt and Butts to our committee. It is very nice to see you
here. I look forward to working with you.
Senator Carstairs, you are always welcome to join us at any time in your busy
Honourable senators, you have before you a number of motions which must be
passed to get our committee moving. The first is the election of the deputy
May I have a motion to that effect?
Senator Carstairs: I move that the Honourable Senator Taylor be made the deputy
chairman of this committee.
The Chairman: If there any no other nominations for deputy chairman, nominations
Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
The Chairman: I declare the motion carried.
The next motion which we need concerns the Subcommittee on Agenda and Procedure.
Senator Spivak: I move:
That, the Subcommittee on Agenda and Procedure be composed of the Chair, the
Deputy Chair and one other member of the Committee to be designated after the
That the Subcommittee be empowered to make decisions on behalf of the Committee
with respect to its agenda, to invite witnesses and schedule hearings; and
That the Subcommittee report its decisions to the Committee.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: The next motion concerns the printing of the committee's
Senator Carstairs: I move:
That the Committee print 500 copies of its proceedings and the Chairman be
authorized to adjust this number based on demand.
The Chairman: Is it your pleasure, honourable senators, to adopt the motion?
Hon. Senators: Agreed.
The Chairman: I require a motion with regard to the holding of meetings and to
print evidence when a quorum is not present.
Senator Carstairs: I move:
That, pursuant to rule 89, the Chairman be authorized to hold meetings, to
receive and authorize the printing of the evidence when a quorum is not
present, provided that a representative of each party is present.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Will someone move the next motion on the agenda, please.
Senator Carstairs: I move:
That, pursuant to rule 104, the Chairman be authorized to report expenses
incurred by the Committee in the last session.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: The next item on the agenda in item No. 7.
Senator Carstairs: I move:
That the Committee ask the Library of Parliament to assign a research officer to
That the Chair be authorized to seek authority from the Senate to engage the
services of such counsel and technical, clerical and other personnel as may be
necessary for the purpose of the Committee's examination and consideration of
such bills, subject-matters of bills and estimates as are referred to it.
That the Subcommittee on Agenda and Procedure be authorized to retain the
services of such experts as may be required by the work of the Committee; and
That the Chairman, on behalf of the Committee, direct the research staff in the
preparation of studies, analyses, summaries and draft reports.
The Chairman: Is it your pleasure to adopt the motion, honourable senators?
Hon. Senators: Agreed.
The Chairman: The next motion needed is one for authority to commit funds and
Senator Carstairs: I move:
That, pursuant to section 32 of the Financial Administration Act, authority to
commit funds be conferred on the Chairman or in his absence, the Deputy
That, pursuant to section 34 of the Financial Administration Act, and Guideline
3:05 of Appendix II of the Rules of the Senate, authority for certifying
accounts payable by the Committee be conferred on the Chairman, the Deputy
Chairman, and the Clerk of the Committee.
The Chairman: Is it your pleasure to adopt the motion, honourable senators?
Hon. Senators: Agreed.
The Chairman: The next item concerns travel.
Senator Carstairs: I move:
That the committee empower the Chairman to designate, as required, one or more
members of the committee and/or such staff as may be necessary to travel on
assignment on behalf of the committee.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: May I have a motion with regard to the next item on the agenda?
Senator Carstairs: I move:
That, pursuant to the Senate guidelines for witnesses expenses, the committee
may reimburse reasonable travelling and living expenses for no more than two
witnesses from any one organization and payment will take place upon
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The Chairman: Item 11 is with respect to electronic media.
Senator Carstairs: I move:
That the Chairman be authorized to seek permission from the Senate to permit
coverage by electronic media of its public proceedings with the least possible
disruption of its hearings; and
That the Subcommittee on Agenda and Procedure be empowered to allow such
coverage at its discretion.
The Chairman: Is it agreed, honourable senators?
Hon. Senators: Agreed.
The committee adjourned.
OTTAWA, Wednesday, November 5, 1997
The Standing Senate Committee on Energy, the Environment and Natural Resources
met this day at 7:00 p.m. to examine such issues as may arise from time to time
relating to energy, the environment and natural resources generally in Canada
Senator Ron Ghitter (Chairman) in the Chair.
The Chairman: Honourable senators, I wish to thank our witnesses for coming this
evening. They are probably in great demand these days as global warming seems
to be the topic on everyone's minds with the Kyoto conference on the horizon.
Prior to the Kyoto conference, we are endeavouring to look into what the
solutions may be and what the practicality of the issues are, recognizing that
global warming is with us and that it is a serious matter. We take that for
granted, therefore you need not persuade us as to the problems facing the
planet at this point in time. It is a case of finding what we can do in a
positive and practical way to deal with them.
Members of the committee would like to hear about that, recognizing that after
Kyoto we will be continuing our hearings by bringing in groups and government
officials to ask them questions about what has been achieved in Kyoto.
Please introduce yourselves and make your presentations. After that, we will
enter into a dialogue with you.
Do senators have any questions before we begin?
Senator Spivak: Given what we know about Canada's position, would you give us
your reaction to it in terms of its impact on ameliorating climate change? I
have heard that by the year 2010 it will be too late.
Ms Louise Comeau, Climate Change Direction, Sierra Club: Honourable senators, I
will start with the very point raised by Senator Spivak. Environmentalists are
very concerned about the length of time that governments are proposing to take
before they begin to reduce greenhouse gas emissions. There are two points with
which most folks simply are not in tune and which prevent them from feeling the
sense of urgency which they should in fact feel.
Most of the scientific work done on climate change is based on assuming a
doubling of carbon dioxide concentrations in the atmosphere. A doubling was not
selected because scientists assumed that is all we would do. It is simply that
they required a number in order to do modelling work. They presumed a doubling
and then commented on what would happen.
We are now 30 per cent above pre-industrial levels. We expect a doubling to
occur around the year 2050. Some folks say it will be sooner; some say it will
be a little later. Because these gases are very long lived, if we are to avoid
a doubling, then we must have significant reductions by 2020. We are dealing
with something which simply must begin within our lifetimes as parents in order
to create a situation that is safe for our children in the future.
The first point is that significant reductions are required earlier than later.
The second point is that the scientific community, particularly the
intergovernmental panel on climate change, recently released a technical study
which clearly states that the rate of emissions growth does affect the rate of
warming. It is very important, therefore, that we begin to consider how fast we
are allowing emissions to grow in the atmosphere because that will affect the
rate of warming -- which leads me to the third point.
I believe we are undertaking very risky behaviour by allowing emissions to grow.
Atmospheric concentrations are increasing for two reasons. The first is that we
are burning fossil fuels. The second is that we are cutting trees and
converting land for agricultural purposes and for the building of cities faster
than trees are growing. Of the 7 billion tonnes of carbon that went into the
atmosphere last year, just over 1 billion tonnes are as a result of
deforestation and land use changes.
The biosphere has a natural carbon cycle. Therefore, there is a natural exchange
between carbon in the atmosphere, carbon on the land and carbon in the oceans.
This carbon cycle will be affected by the warming.
I mentioned to you this issue of a doubling; there is a presumption on the part
of the governments that the atmospheric space between where we are today --
which is 360 parts per million -- and 550 parts per million, belongs to us. I
would argue that that is a dangerous game.
Senator Spivak: Would you remind repeating that, please?
Ms Comeau: Today we are at 360 parts per million of CO2 in the atmosphere. A
doubling of that would amount to about 550 parts per million. The presumption
is that that is atmospheric space that humans can use. As we increase the rate
of warming -- and we are now at about one-half of a degree per decade -- we are
seeing an increase in the number of forest fires. We are seeing an increase in
melting in the north. We are seeing an increase in CO2 coming from the biosphere
as positive feedback.
The faster we allow warming to occur, the more we will see a positive feedback
from the dying of trees through burning, pest infestation and melting of the
Arctic. That atmospheric space could be quickly taken up by a positive feedback
from the biosphere, leaving little room for human use of the atmosphere. That
speaks strongly to making significant reductions early to allow us maximum
flexibility in the longer term. We simply must slow the rate of warming.
We argue that Canada's position, which essentially calls for stabilization by
the year 2010 and for small reductions following that period, is inadequate and
inappropriate. It is not addressing atmospheric protection. I want to spend my
time talking about some of the things that we need to do as a country in order
to become more confident about this problem.
While I am heartened at the moment to see so much political attention to this
issue, we are actually in a state of hysteria. I would like to calm everybody
down. Let us look at this as it really is and not as folks would have us
believe so that we are scared off.
The first thing we must come to terms with is that Canada has an identify
crisis. We have a perception of our economy that is still based in the 1950s.
Our sense of ourselves has not caught up to the economy of the 1990s. We hear
this all the time in the excuse-making that goes on around why we use so much
energy and why our emissions continue to go up so significantly. We are told
three things on a regular basis: It is cold, it is a big country, and we travel
a lot. I would like to go through those quickly.
Yes, it is a cold country. I have been around the world quite a bit, and I
realize that, yes, we are one of the few populations that live in a cold
country, so I can see the point. However, that is not necessarily the reason we
use so much energy for heating and cooling. The reason is that our homes are not
insulated well. If we compare our standards to those in Sweden, for example, we
are far below them. We are doing a pretty good job on new homes and new
buildings, but Natural Resources Canada does have a new energy code for homes
and buildings that the provinces are resisting adopting. This national code is
voluntary, in the sense that provinces can voluntarily adopt it but, once they
have adopted it, it is law. We need those provinces to adopt that code and move
The second most important thing we need to do is to retrofit the buildings we
have today. The significant dollar savings that can be achieved through
retrofitting commercial buildings, and institutional buildings in particular,
are a real boost to the economy. I will discuss those numbers later.
I talked about cold; I talked about buildings. The third thing we hear is that
it is a big country. In reality, Canada is one of the most urbanized countries
in the world. Eighty per cent of our population lives in cities, and most of
our car travel is within cities. We have no excuse for the level of
transportation that occurs in single-occupancy cars except to say that our
land-use policies have produced a reliance on the private vehicle. We do not
have sufficient access to public transit. If we are going to do something about
this issue, we have to invest in public transit and other transportation
alternatives, and make changes to our land-use planning to make our cities more
liveable, walkable and so on. Mr. Ogilvie will speak to that issue.
We hear that we have an energy-intensive economy and that Canada relies on
exports. I would like to take you through this chart, if I could. I had a bit
of fun with the numbers and I think I discovered something. Canada argues that
it has an export-based economy. Thirty per cent of our GDP comes from exports.
We also hear that we have a high level of dependency on fossil fuels in our
exports and in our energy-intensive products. That is one of the reasons we are
so energy-intensive and have such a high level of emissions.
I listed here the countries that have similar levels of reliance on GDP for
exports. Then I examined the numbers for fossil fuel exports and share of
energy-intensive products as part our exports.
I will concede that Canada has a higher level of fossil fuel exports than many
other countries, but let us look at the Netherlands. Netherlands have a high
level of GDP based on exports. Eight per cent of its exports are
fossil-fuel-based, and 30 per cent are energy-intensive, similar to Canada at 28
per cent. Look at the difference in emissions intensity of GDP. There are 212
tonnes per $1,000 of GDP compared to 161 for Canada. Yet the Netherlands, with
much higher reliance on exports for GDP and energy-intensive products was
willing to take on a reduction target of 10 per cent by 2010.
Let us look at Norway. It has the same level of reliance on exports for GDP.
Almost 50 per cent of its exports are fossil fuels. Almost 70 per cent of its
exports are energy-intensive products. Look at its emissions intensity per GDP
-- 83 tonnes per $1,000 of GDP. That difference between 83 and 222 is
After seven years of working on this issue, I finally figured out the answers.
There are only two things we need to do. It is really very simple. We need to
eliminate coal from electricity, and we need to redesign the vehicle to
eliminate the internal combustion engine. That will clear the air, deal with
acid rain, smog, particulates and climate change. The key for Canada is to use
the opportunity of electricity deregulation and a more competitive electricity
market to ensure that the regulatory framework requires, as is the case in many
European countries and in many U.S. states, introduction and inclusion in that
market pool of renewables and investments in demand-side management.
Getting coal out of electricity is absolutely essential. I will speak to the
issue of Alberta which is very coal-based in terms of electricity production.
We have a huge opportunity in Alberta since 75 per cent of its electricity
capacity will be coming to the end of its useful life in the next 15 years. All
of that can be converted to natural gas at almost no cost and with significant
The Canadian Energy Research Institute in Alberta did a study called "Repowering
the Electricity Sector in Alberta" and found that this had significant
savings for the province. The story is not about a crisis or a panic; it is
about a plan to move the electricity sector off coal.
The Chairman: Could I interrupt? I do not mean to challenge you, but I have
trouble understanding your point when you compare a country like Netherlands
with a country like Canada. First, the size is certainly different. Second, we
must consider the number of wells and refineries that we have. Third, we must
remember that those refineries and wells cause a lot of emissions in Alberta.
Some 200 million tonnes are being emitted from the flaring and vents and so on.
We could certainly be doing a better job in Alberta, but when I look at your
comparables, I question how much reliance we can place on them, because of the
concerns I have just mentioned.
Ms Comeau: We need to look at it. I laid out the numbers and I am trying to sort
out the reasons. Let us take Netherlands as an example. Rotterdam is a main
port for all fuels. It deals with a significant amount. It is the main port in
Europe for fossil fuel shipping.
The Chairman: They are not producing it.
Ms Comeau: But they are shipping it.
Senator Spivak: On that point, we visited Syncrude, Suncor. Look what they have
done in terms of eliminating emissions. It is a question of technology, not of
size. It may be a question of cost, though; it may not be painless. We are told
there are oil companies which have saved a great deal of money by changing
their methods of production. I do not have that information but I will try to
get it for you.
The Chairman: Please go on.
Ms Comeau: I wanted to make the point on size again. On the issue of freight, I
will concede that we are shipping product over long distances. Obviously, in
the case of natural gas, it will not go by rail, but the real issue for Canada
in the freight sector, where emissions are up significantly, is that we are
shifting from rail to road. That is a significant problem, and it is a trend we
must reverse. The worst thing that happened for the environment was the move by
industry to just-in-time production. We literally put inventories from
warehouses on to the road with no social responsibility at all.
My point is that the big issue Canada must look at is the issue of electricity.
The second one is the issue of the vehicle. In our study, we have a rational
energy program that we spent a fair bit of time working through. We had EnerCan
and Natural Resources Canada help us with the analysis, and we hired
Informetrica to do the full economy-impact analysis. We found in that study
that if you increase fuel economy standards in cars, you could reduce emissions
in Canada by 26 million tonnes. That eliminates all the growth in emissions
projected from the transportation sector by 2010.
However, since doing that study, I have come to the view that we might as well
move to the heart of the issue and deal with the engine itself. I am much more
convinced now that fuel economy standards are important, but I think issues
related to fuel cells, hybrid vehicles, the use of flywheels, and so on, should
be the priority.
Industry Canada and Finance Canada need to take a lead on the climate change
file. We need to move some of the domestic responsibility from Natural
Resources Canada. I have two issues in this regard.
Industry Canada is already investing in a U.S. research and development program
called Partnership for a New Generation of Vehicles. They have already funded
Ballard fuel cells, with Ford as part of that program, to build a prototype
car. I am told by industry folks that if governments were willing to push now,
we could have these new technology vehicles on the road within seven years.
Senator Spivak: What fuel would they use?
Ms Comeau: It depends on the technology. If it is an electric vehicle and you
have battery technology, it depends where the electricity comes from. If it is
fuel cells, at the moment, they are fuelled with natural gas. However, over
time the energy could come from a variety of sources, whether it is solar,
hydrogen or bio-fuel.
The Toyota vehicle is a gasoline hybrid. It has a very small gasoline engine
generating electricity on board.
Amory B. Lovins' hypercar is a combination of a small motor with a flywheel.
There are all sorts of options and technologies here that could significantly
The package you have has an article about the Toyota vehicle, which uses 3.5
litres of gas per 100 kilometre. The average today is 8.2. That is a
From an research and development point of view, Industry Canada needs to be
pushing, and we need to be working with fleets in Canada.
One of the things I have been pushing is that all levels of government and all
companies that participate in the voluntary challenge should be committing to a
certain percentage of fleet purchases in the advanced technology area. Finance
could offer a tax incentive to get those cars into the market.
I am also proposing the same thing on renewable energy for electricity. If 10
per cent of electricity purchases come from green power, they could
significantly open the market for renewable energy.
We are looking for Paul Martin to consider in his next budget an inventive
approach. Let us try to be positive on this issue. Our studies showed clearly
that we do not need a carbon charge to stabilize emissions. We believe a carbon
charge may be required in the longer term.
In our study, we had two revenue-generating streams. We increased the gasoline
tax modestly. What is important to know about these tax initiatives is that it
is not so much about the amount, and it should never be done as a single
application. What matters and what changes consumer behaviour is having a
charge imposed at a regular basis and that consumers know that it is coming on a
regular basis. For example, Paul Martin may stand up and say: I am raising the
gas tax two cents this year and two cents every five years.
That kind of change generated activity in our study. We generated about $26
billion in revenue accumulated to the year 2010, which we used in the context
of the study to invest in public transit, rail upgrades and so on. I am not
asking the minister to earmark because I know that is not on. However, I am
asking him to generate revenue and to spend revenue. He can do it some other way
if he would like, but that is one instrument we used.
We also imposed a small carbon charge in the year 2000 and in the year 2005. We
used the revenue from the carbon charge to reduce the GST from 7 per cent to
5.5 per cent. The combination of investment in building retrofits, public
transit spending and rail upgrades created 550,000 jobs to the year 2000. The
use of the carbon charge and reduction of the GST generated a further 1 million
person-years of work by the year 2010.
I am saying that 1.5 million person-years are possible if things are done in a
smart way. That is the point we want to make. You can be smart about this, or
you can be dumb about this. You can plan to reduce emissions in a way that is
good for the economy.
Informetrica found that at no time did any negative or positive impact on the
GDP occur of more than 1 per cent either on a provincial basis or on a sectoral
basis. In terms of growth by the year 2010 -- which is expected to be about 30
per cent -- at no point, even in Alberta, was there a decline in the GDP from
that base case of more than 1 per cent. In fact, studies showed that we
increased employment in Alberta.
It is possible to do, but I do not think we need to scare folks in terms of the
tax hysteria. We need to look at an incentive approach. Paul Martin could
possibly look at offering a tax inventive to encourage folks to install
high-efficiency windows in their homes if they are doing retrofits. Many
responsible things like that can be done. Canadians would begin to build
confidence in how to save energy. We are not used to doing that in Canada.
Senator Spivak: Did you look at the effect of taxation on railroads versus
roads? I am speaking of the subsidies-tax issue. Railroads are taxed in ways
that roads are not, and the roads are subsidized.
Ms Comeau: That is right. It is the right-of-way issue. It is included in here
as an instrument, but it is not the kind of instrument from which you can model
an impact. I will leave a copy of this with you.
The Chairman: If your approach is taxation, there is a lot of taxation in gas
right now. Why would you not take it as government policy? If there are areas
in which to spend, they should just spend it. Why would you penalize a sector
of the economy when it is in the interest of all Canadians that this occur? Why
would you not come forward and say, "The government must spend money in
these areas"? The more you get into earmarking, the more you get into
Ms Comeau: Yes. We are not proposing earmarking.
The Chairman: You are really proposing that, from the government's point of
view, more money must be spent for the things you mentioned. Why do you
pinpoint it to a tax, which scares people?
Ms Comeau: I do not want to create that impression.
The rational energy program includes a combination of voluntary measures,
regulatory measures and economic instruments. It is a balanced program. We look
at a national building retrofit program. That is voluntary. We choose to do
that, but we are offering facilitation in order to get that going.
Energy-efficient mortgage rates and other things were part of our considerations
We proposed fuel economy standards for vehicles, higher building standards in
buildings, and so on. There are many regulatory aspects in terms of higher
standards for products, motors, buildings, cars, et cetera.
Taxation initiatives were a small element of our study and are not needed
initially. When I started this study, we were not in a surplus situation in
terms of our national finances. This study was released in September of 1996.
As far as we were concerned, we were well away from any surplus. We were
concerned about suggesting that we undertake any spending initiative without
looking at the source of some of the revenues.
We do not believe it is essential to tax to get these reductions. However, we do
believe that there must be incentives. We do believe that we must focus on
electricity, particularly coal, and we must focus on transportation. We are
very keen to see a national building retrofit program, and we do need
regulatory initiatives in terms of whether we want to deal with vehicles or
If they do not want to go for some other programming initiatives, we can only
proceed with what we are told is the economically efficient thing to do.
Economists clearly say that the most economically efficient thing to do is a
carbon tax. We realize that is not politically viable here. However, what will
probably happen, instead of a carbon tax, although the impact will be the same,
is a national cap. A stabilization target by 2010 is a cap. We will likely have
emissions trading. The Americans are proposing it on an international level and
they will establish a national trading program. It is unlikely that Canada will
ignore that. We will also pursue a national trading program and probably a
bi-national one with the Americans.
A cap and a trading program will raise the price of energy. You cannot escape
the fact that we have the second lowest energy prices in the OECD. It spurs
over-consumption. It is sending the wrong message to consumers. That was the
point I was trying to make about our economy. The economy of the 1990s is
composed of 70 per cent services. Less than 30 per cent is represented by
industry and only 30 per cent of our exports are energy-intensive.
The energy-intensive component of the economy is shrinking. The vast majority of
the Canadian economy consumes very little energy and is neither conscious nor
aware of its energy-consuming behaviour. It will not look to energy costs as an
operational advantage. Companies will not say, "Let us reduce energy
costs." They must be told and encouraged to do so because it is not
expensive. Labour, rental costs, building costs and those kinds of things are
where the billing costs arise. Energy costs represent less than 10 per cent for
almost every company in Canada, except for the energy intensive commodities.
Chemicals, cement, pulp and paper, and so on, represent a small component of
You must do something about price to generate the message to consumers. Price
does not mean higher bills. Environmentalists have argued this over and over
again. Economists tell us that the price signal will encourage investment in
energy efficiency and that reduces bills. A higher energy price does not
automatically equate to higher energy bills for consumers. If you have higher
gas prices and you buy an energy efficient car you are not paying higher
prices; you are using less gasoline over all.
When we were in Rio in 1992, we talked about the fact that we had to become more
sustainable. We had to change the way that we were living and our current
lifestyles were unsustainable. This is where the rubber hits the road. This is
what it is all about. It is about changing the way we live, the way we make
products and the way we use resources. Academic literature talks about the
transition to sustainable resources and reforming "the four E's" <#0107>
the economy, energy, equity and the environment.
Energy is the fundamental pillar in the transition to a sustainable society. We
have no choice but to move from fossil fuels to these new technologies. It will
be difficult and challenging. People will be insecure, but we must face that
challenge and move through this in order to become sustainable and to protect
both the atmosphere and the environment for our children. We have no choice.
Senator Spivak: A lot has changed since Rio in that some industry has
internalized this and is living it.
Ms Comeau: Yes, some have, absolutely.
Senator Spivak: Yes, and they are happier for it because their costs are lower.
Ms Comeau: Paul Hawken and the Natural Step group is doing some good work, but
it is not widely applied in the Canadian context.
Senator Spivak: Maybe not.
Senator Cochrane: About six or seven years ago, a program was introduced called
the R-2000 home. What happened to that program?
Ms Comeau: It still exists.
Senator Cochrane: I do not hear much about it. These homes were energy
efficient, had glass roofs, and so on.
Ms Comeau: R-2000 homes are significantly more energy- efficient than the
building code's base case home, and the advanced home is more energy-efficient.
Natural Resources Canada has promoted this as a performance standard. Builders
must be certified to build these homes and so on. There is demand for these
homes but promotion is not aggressive enough to ensure that they make up a
larger component of the building market.
The R-2000 home tends to be built by small custom builders and the tract
builders are the ones fighting hardest to lower standards. That has been
happening in Ontario. Builders are arguing that energy efficiency standards on
buildings increase the costs to them and they want efficiency standards lowered
in buildings. That is one of the challenges that we face.
As consumers, we always look at the capital costs and do not pay attention to
the operating costs. In our consumer context, we call it "first cost"
and "second cost." When we buy a car or a home, we are fixated on the
first cost, the capital cost, and we are not paying attention to the second
cost. In the case of a builder, it is a split incentive. Builders want to build
the houses that are the most profitable to them. They do not care what it will
cost to operate them. The consumer foots the energy bill in those homes.
Government must require the higher building standards to protect consumers from
excessive energy consumption and excessive energy bills.
Our view is that the R-2000 home should be the building code standard. We are
getting close, but we are still not there on full-height basement insulation,
the full recycled heating-cooling systems and so on. We are getting closer and,
hopefully, it will happen over time.
The new building code, which is much improved over the old one, is not being
picked up by the provinces. The R-2000 program is still there.
Mr. Robert Hornung, Pembina Institute: I should like to make one comment on the
R-2000 program. Since it was created in the 1980s, only 7,000 homes have been
built in Canada for the R-2000 standard. Last year was a successful year for
the R-2000 program. Approximately 2 per cent of the homes were built to that
standard. It is a good program, but it is not being picked up.
The problem we face in terms of dealing with climate change is not a technology
problem. We already have technologies to reduce emissions. The question is: How
will we get those into the marketplace?
The Chairman: Mr. Hornung, tell us about your institute. My colleagues are not
aware of the Pembina Institute.
Mr. Hornung: The Pembina Institute is based in a little town in Alberta called
Drayton Valley. It was created in response to a huge natural gas blow-out that
happened in a nearby town called Lodgepole. The institute is the community
group which responded to that event in terms of seeking changes to regulations
on those wells.
At this point we have 16 people working on the institute, the majority located
in Drayton Valley, but we also have people working for us in Victoria,
Edmonton, Calgary, and now in Ottawa. Our main areas of focus are environmental
impacts of energy production and the use of economic issues to deal with
The Chairman: Where do you get your funding?
Mr. Hornung: We are a non-profit organization. We receive some funding from
grants and from foundations but most of our funding comes from non-profit
consulting work, with a variety of clients, sometimes governments, sometimes
companies, and sometimes other environmental organizations.
I am pleased to be here. I am glad that we are not having a discussion about
science. Having worked on this issue for seven years, this is actually
progress. However, when you open The Globe and Mail today and see the
advertisement by the Coal Association of Canada, you may wonder if we have made
any progress at all.
The debate today has shifted from science to economics. In the media we have
seen the debate on how much it will cost us to deal with this problem. I want
to take a moment to rebut the doom-and-gloom scenarios.
We have heard a lot of scary numbers being thrown around by a number of
different people across Canada who are saying that stabilizing greenhouse gas
emissions at 1990 levels by 2010 will reduce GDP by 3 per cent. That involves
billions of dollars and it sounds very scary. We are talking about cumulative
GDP between now and the year 2010. A 3 per cent reduction means that instead of
growing by 30 per cent, it will grow by 27 or 28 per cent.
One of the handouts I prepared for the media was all about, "What Ralph
Klein forgot to say about greenhouse gas emissions."
The debate about economics is very different from the debate on science as it is
portrayed in the media. When climate change is discussed, there is uncertainty
about whether change is really happening. When we talk about economics, it is
as if we are talking about real numbers and numbers that are not uncertain in
themselves. Frankly, that is ridiculous.
Economic models for the year 2010 are no better than climatological models when
one forecasts to the year 2050. Ralph Klein and others are using one subset of
results that come from models. They go to the worst end and say, "This is
what will happen and it is big and scary." There are models that indicate
that stabilizing greenhouse gas emissions would have a net benefit on GDP. There
are a wide range of results. In all models, including economic models, one must
The World Resources Institute in the United States did a study which looked at
162 model results. They were investigating actions to reduce greenhouse gas
One may get the sense that this is an over-studied topic.
Results were obtained across the board, from very positive to very negative. How
are those differences explained? They found they could explain 80 per cent of
the difference in the results through seven assumptions common to all the
models. The general rule was, if you made positive assumptions, you got
positive results; if you made negative assumptions, you got negative results.
Senator Comeau: That makes sense.
Mr. Hornung: This leads one to wonder to what extent can one have any faith in
these numbers. I would argue we cannot put much faith in them.
However, certain assumptions can be made about economic modelling which will
give us some comfort in moving ahead and dealing with climate change. First,
economic models on the positive or negative side underestimate the benefits of
taking action. There are a couple of reasons for that. If we take no action,
there will be costs. There will be costs attached to either adapting to or
mitigating climate change.
If we take action, presumably we avoid those costs; however, those benefits are
never considered in the modelling exercise. If action is taken to reduce
greenhouse gas emissions, we are not only dealing with that problem but also
with other problems at the same time. The effects of reducing emissions which
lead to urban smog and acid deposition are not included in the models.
We can say with some certainty that we know they underestimate the benefits; we
do not know by how much. Most of these models overestimate costs.
When the Montreal Protocol was being negotiated, the econometric modelling said
that this would be the end of the chemical industry. That is why the industry
was up in arms and fought the treaty for some time. In the end, the treaty was
signed, and the chemical industry got smart. The industry designed all the
chemicals which would replace the ozone-depleting chemicals, sold them for twice
as much and made a profit.
In the United States, there is an emissions trading program to eliminate or
limit sulphur dioxide emissions in electric utilities. When that program was
designed, the economic models came out and said that it would likely cost $600
per tonne to buy one of these permits and the effects would be arduous.
Eventually, the system was set up; the permits started trading. Companies became
innovative, found ways to save money and now a permit can be obtained for $60
One thing we cannot model well and which we consistently model poorly is our
ability to be innovative and to bring new technologies into the marketplace
once we have incentives to do that. This area is always underestimated in
The Chairman: However, if that is done, one may be shifting economic resources
and the profits to which you refer from one region of the country to another.
The dislocation which occurs in Alberta may be replaced by profit in Ontario,
but one can understand why Albertans would have something to say about that
dislocation. There may be profit, but it may be somewhere else. How do you
overcome that? To finish what you are saying, that is an important ingredient.
Mr. Hornung: Can I come to it later in the presentation?
The Chairman: Of course.
Mr. Hornung: I will speak later in the presentation about some of the
opportunities available to deal with this, including opportunities in Alberta.
I want to conclude this question about economic modelling by saying that results
are entirely dependent upon how the model is designed. A carbon tax can be
designed that is really stupid, that sucks money out of Alberta, puts it
somewhere else, wipes out the Alberta economy, causes all kinds of problems.
Presumably, we could be more creative. We could impose a tax on carbon, reduce
other taxes so there is no net revenue gain to the government, design the model
in such a way so that the tax reductions occur so that revenue is not shifting
to and from different regions of the country. A model could be designed so that
profits are maintained in that province.
Canada has spent so much time spewing rhetoric about the climate change issue
and lobbing bombs across the country that we have not moved from the discussion
of whether something can be done to how to do it. When we do arrive at
implementation, designing solutions to be creative and innovative, we will
likely find some interesting solutions. I am concerned that other countries are
already moving down that path.
In the United States -- which I will not argue has a particularly progressive
position on climate change -- they have had about 40 people in the Department
of Energy and the Environmental Protection Agency working on emissions trading
systems for the past year.
We are not doing that sort of work in Canada. We have not started analyzing and
assessing different response strategies. We have clung to the attitude that the
way to go is voluntary and so we have stopped looking at other options.
I will return to the issue of voluntary action, because we have done significant
work in that area and we have faith that this area could achieve results if it
were better designed.
There are economic opportunities. Energy efficiency must be a key part of a
climate change strategy. We know that energy efficiency, compared to
investments in energy supply, is a big job creator.
We did a survey of all the economic literature which had studied this question,
and we found that, essentially, the general conclusion was that if you invest
$1 million in new energy supply, whether oil sands, coal mines or whatever, you
generally create three to four times fewer jobs than if you invest $1 million
in energy efficiency.
The first reason for this discrepancy is that energy efficiency is very labour
intensive. For instance, people are retrofitting houses and buildings,
employing people down the line.
The bigger gain is achieved by the implementation of an energy efficient
retrofit; one saves money whether for a business or a home-owner. Most of the
time, the money saved is spent in the service industry. The service industry is
even more labour intensive. That will create more economic activity and will
create more jobs. Energy efficiency is actually a job creator. It makes a lots
of sense that way.
Renewable energy technologies are another opportunity area. Canada is currently
lagging behind in terms of developing those technologies. There will be a
growing market for these technologies as constraints on greenhouse gas
emissions increase over time and as people grow increasingly concerned about
other forms of air pollution.
We are starting to see some interesting developments. In Germany, the government
has put in what they call the electricity feed law which essentially guarantees
wind power access to the market at a specific rate. That led, in 1995, to more
wind power being installed in Germany than in any other country.
That is not my main point, however. The interesting point is that the second
country in the world in terms of installed wind power capacity in 1995 was
India, and all the technology used in India was German.
We will see more and more examples like that. In the developing countries, there
will be a booming demand for electricity. Urbanization is increasing at a great
rate in developing countries, but the percentage of people in rural areas in
those countries is still much higher than in most of the industrialized world.
It is very expensive to build a central electricity grid that will service all
those people, so they will be looking for decentralized technologies that are
inexpensive and that you do not have to attach to the grid -- windmills, solar
panels and things like that. It is a growth area.
With regard to the fossil fuel industry in Alberta, I do not think this is a
horror story for Alberta at all, primarily because we are not going to get out
of fossil fuels overnight. This will be a transition, and it will be gradual in
all likelihood. We will see a few things in Alberta.
First, it will become a more competitive marketplace because carbon will have a
value. The people who succeed in that marketplace will be the producers who can
produce with the least carbon intensity. With regard to competing oil sands
developments, it will eventually make a big difference if you can produce in
the oil sands with the least carbon.
We will see a boom in demand for natural gas. Natural gas has been booming
throughout the early 1990s and it will keep going. Ms Comeau was talking about
getting out of coal. There is a huge possibility for natural gas to expand its
markets in the U.S. and within Alberta as well.
I was surprised but pleased to read an editorial in The Edmonton Journal
essentially pooh-poohing Ralph Klein's view of the economic Armageddon. They
said that to address climate change in Alberta we presumably have to move out
of coal-fired electricity production. The odds are that means we will move into
natural gas electricity production. It seems pretty likely that the natural gas
will come from Alberta. Will that necessarily be a big problem for the Alberta
There are opportunities even outside of Alberta for Alberta companies. In terms
of getting the oil out of the ground and doing the oil sands work, I imagine
that Alberta companies are pretty efficient compared to others in the world.
We know that we have leaky pipelines in Eastern Europe and inefficient
production facilities in developing countries. There is a tremendous
opportunity for Alberta companies to sell their technologies in those markets.
Frankly, the Canadian government could be doing more to assist them in making
You wanted to talk about specific measures. I handed out a list of 15 measures
that we have pulled together where we feel the federal government could make
commitments in the short term to help us address this problem. I will not go
through them one by one. There is a mix in here. We are talking about
strengthening the current voluntary program.
I am probably one of only two people in the country who have read every one of
these voluntary action plans. We have prepared an annual review for the last
two years of all the action plans that have been submitted. I will tell you
where I think the problems are in terms of trying to describe this program as a
healthy, happy program.
The Minister of Natural Resources says that we have 600 companies participating
in the voluntary challenge. He will not say that 300 companies have done
nothing more than submit a letter saying that the voluntary challenge is a good
idea and that they will get around to doing an action plan.
They say that they have 280 action plans to reduce greenhouse gas emissions.
They do not define what an action plan is. We decided to do that for them and
generously say that a company must know how much greenhouse gas emissions it
produces -- which seems fair enough in order that it can deal with the problem
-- and it must have made a commitment to do one thing in the future to deal with
Suddenly the 280 action plans became 73. We looked at the 73 action plans with
45 criteria. We gave them a score out of 100. We dealt with the level and
quality of information they provide, the type of actions being taken and the
forward-looking nature of the action plan. We passed 11 out of the 73.
Frankly, this program is in big trouble. It is in trouble for three main
reasons: First, there are no solid reporting standards, so companies are not
actually required to provide a lot of information. Second, there is very little
in the way of support given to companies to participate in the program, so if
you do not have a big environmental staff in your company you are in trouble.
Finally, there are no incentives to participate. The government essentially
asked these companies to help it figure out this climate change problem. Most
of the companies said they would, but soon it became priority number 38 and
they never got around to it.
We need to provide more incentives and more support. As an example, there is a
very good program at Natural Resources Canada called the Energy Innovators
Program. It is designed to help companies exploit energy efficiency
opportunities. It is a good program and has done some really good stuff. The
problem is that there is one person in the program who is supposed to deal with
all the municipalities in Canada. There are two people who are supposed to deal
with industry. Frankly, not a lot is getting done. It is not that they do not
have the right idea, it is that they do not have the resources to make anything
We also talk about a number of economic incentives that we should be using to
reduce greenhouse gas emissions. Ms Comeau was absolutely right when she said
that it is vitally important that we get the price signals right. We have to
send the economic message that greenhouse gas emissions are bad and that
reducing them is good. There are number of ways to do that.
We can start by simply levelling the playing field. Two years ago, the
Department of Finance and the Department of Natural Resources released a report
called "The Level Playing Field" in which they looked at how the tax
system treats different investments related to energy. They found that the tax
system actually provides the most favourable treatment for investments in new
energy supply and that, compared to a system where you did not have any mucking
around with incentives or anything as all, the tax system actually penalizes
There was a clear recognition of a discrepancy there, and there is a need to
rectify that and to provide the same sort of incentives or energy-efficient
investments as we do for energy-supply investments. In these documents there
are three or four examples of initiatives that would move to that end.
This document also talks about some use of regulation. Ms Comeau talked about
the building codes. We actually spent two years between federal and provincial
governments negotiating these national building codes that no one has
implemented, which would make a significant difference to greenhouse gas
We will need to improve the fuel economy of automobiles. As Ms Comeau said, it
is not the full solution, but it is an important part of it. We have actually
seen the fuel economy of automobiles decline in recent years. We do not have a
lot of public pressure for improving fuel efficiency because, when you account
for inflation, the price of gasoline is less now than it was twenty years ago.
We must start sending different types of signals through the marketplace.
Research, development, demonstration, commercialization support -- I become
frustrated when I talk to people in industry who say, "We are now in this
era where government cannot intervene in the economy. We cannot support much R&D,
and we have deficit problems." I always think it is a miracle that we have
a wind energy industry at all in this country given the level of support it has
received compared to other technologies. We would not have a nuclear power
industry if it were not for forty years of government support. We have an oil
sands boom going on in northern Alberta, but it took twenty years of work to
produce the first barrel of oil that they could actually produce for less than
they could sell it for.
The Chairman: There was quite a bit of government involvement.
Mr. Hornung: That is right. It would never have happened without it.
We are saying that there are new technologies on the horizon that the rest of
the world will be shifting to, and perhaps it is time for the government to
make some strategic investments in these technologies. We do not have to pick
winners. We do not have to pick wind over solar or anything like that. We
should fund a suite of technologies.
To give credit to Anne McLellan, she did start to shift the priorities in terms
of research and development spending towards renewables and energy efficiency.
The problem is that she was doing that with a constantly smaller pie. It gets
more money, but in actual terms it gets less money than it did when it was a
We mention public education and the need for the government to invest more
effort in that area. It is always amazing to me that we made a commitment to
control greenhouse gas emissions in 1990, that we signed a document in Rio, and
that we have not actually done much to tell anyone about it or to inform them
about ways they could help us solve the problem and what individuals could do to
In 1995, when Canada released its national action program on climate change,
federal and provincial governments made a commitment to launch a national
education program on climate change. I have not seen it. It is not out there,
as far as I know.
I will conclude by saying that the government in place now is one that likes to
talk about its step-by-step approach to doing things. It pats itself on the
back for its step-by-step approach to dealing with the deficit. I would be
happy to see a step-by-step approach to climate change. I would even be happy
to see the first step, which means putting some resources on the table and
saying we are going to do something and setting some targets and saying we are
going to try to meet those targets and that we will monitor our progress
towards those targets.
An independent review was done on Canada's National Action Program on Climate
Change last year where the reviewers had to conclude that they could not tell
whether it was working or not because it was not clear what was in the National
Action Program on Climate Change. The measures which make it up are not well
defined. Those that they could identify have almost no performance targets or
objectives, so they could not determine how we were doing.
The other day, the Auditor General released a report indicating that they looked
at Natural Resources Canada and the energy efficiency programs in that
department. Even they could not tell what was being contributed towards
Canada's efforts to reduce greenhouse gas emissions.
All of this indicates to me that we have not dealt with this problem seriously.
The one simple thing which I hope Kyoto forces us to do, no matter what the
commitment is, is to come back and take these issues seriously.
The Chairman: I suppose the fact that we are meeting tonight and committees
across the street are meeting continuously shows that Kyoto is doing something
to the Canadian psyche. That is always positive. I hope it is not forgotten
Mr. Ogilvie, would you like to tell us about Pollution Probe?
Mr. Ken Ogilvie, Pollution Probe: Pollution Probe was formed in 1969 on the
University of Toronto campus in response to some fairly gross industrial
pollution issues covered in the Varsity Press by one of our founders who
happened to be editor of the Varsity Press. It was formed by students and
cross-linked with faculty, Dr. Donald Champ being the first chairman of the
board for Pollution Probe.
Today, Pollution Probe is an organization with a budget of about $1.5 million,
evenly split between a donor base and project financing from governments,
industry and foundations. We do raise money through galas, special events,
bequests and so on. We have a diverse funding base.
The foundation of Pollution Probe was based on trying to use good science and
not going beyond the science. That is still prevalent in how we operate today.
In the early days, it had a strong public education component, and in fact
Pollution Probe predated the ministries of environment and the Department of
the Environment. It dealt with press and public via that mechanism. It evolved
as ministries took on new roles and we had policy champions and so on.
Today, it is an organization with 10,000 active donors, and 30,000 members who
do not donate annually but are on our membership list. Those 10,000 donors are
our main support list, in reality. We just finished a survey of 15,000 active
and inactive members. It turns out that it is a bit of niche market. We were
not aware of this, but 80 per cent of our members have post-secondary education
and 50 per cent have combined family incomes of $60,000 or more. Our high-end
donors, those who give the most, are concentrated in the female category,
especially those 40 years old and above and educated.
We asked about their concerns. Their main concerns were toxic chemicals, air
quality and forestry. We do not do any forestry work at Probe, but those were
the three main issues.
Climate change did not make it. We knew from previous work that the public was
having trouble understanding and buying into this issue. Last year, we did a
conference in which Ms Comeau and Mr. Hornung made presentations. I will table
the document for you. We just finished printing it now. It is called "Climate
Variability, Atmospheric Change and Human Health."
It says "and Human Health" because we try to tie just about everything
we do into human health and economics. We were trying to get to the public the
health dimension of the climate change issue. We have a very good write-up as
to some of the potential effects. They are still speculative, but they are
threatening in some ways.
This report also contains good material which has already been referred to on
the voluntary challenge and on some of the ideas under the rational energy
program Louise mentioned. I will table this because it is a good read. We put a
great deal of effort into producing a readable story on the science and the
human health aspects in particular, the policy scene from the national level
right through the provincial and local levels and into the industry levels, as
well as the need for research.
I emphasize that we must get to the lynchpin of the connection between the
economy and the environment. We must start looking at prices very seriously. At
Pollution Probe, if I drank this cup of coffee in a non-recyclable container, I
would pay $1 every time I did it. At 200 working days per year -- although it
is closer to 400 days, if I did it twice per day -- that would be a lot of
money, so I would not do it -- or Probe would have an enforcement problem
because I would sneak it in. We do not do that because there is a linkage
between the price we pay and our actions. The public responds to incentives
In the case of climate change, I agree with what Robert and Louise said. The
technology is clearly there. There is a problem of pricing in terms of getting
that technology put on the market in competition with other technology as well
as problems getting the consumer to accept the technology when it is out there.
Over the past two years, we started to look at economic instruments,
particularly pricing issues.
Before I went to Pollution Probe two years ago, I was with the National Round
Table on the Environment and the Economy. We did a report, which I would like
to table, entitled, "A Strategy for Sustainable Transportation in Ontario."
At that time, we looked at pricing mechanisms, costs, externalities, et cetera,
and discovered that was an essential tool if we ever wanted to shift the public,
as well as the infrastructure decisions that governments make, toward what we
would call more sustainable forms.
We did 10 background studies, two of which I would like to leave with the
committee. They are good reports which were vetted by multi-stakeholder
committees. One is entitled, "Full Cost Transportation and Cost-based
Pricing Strategies." In it, we look at all of the subsidies and some of
the externalities of air pollution emissions and some of the costs associated
with health care and so on. We did a very conservative estimate of some of the
external costs, which can be significant. We also did a policy instruments
working paper in which we looked at a huge range of policy instruments that
could be used to affect transportation behaviour and to push transportation
Much of this information has been out for a number of years. At Pollution Probe,
we are in favour of continuing the research discussion on economic instruments
and getting specific instruments on the table for the public to debate.
The problem with getting attention on an issue like climate change, although it
may have changed in the last month with all the press activity, is that people
are not being told what they must do to deal with the issue in a serious way.
If you tell them they may face increased gasoline costs or other types of
costs, or that those costs may be shifted from gasoline to lowering income tax
or GST or something else, they start to take the issues seriously because they
start to calculate where their interests lie.
I want to focus on transportation because the transportation collaborative which
I have given you was a multi-stakeholder effort at the very senior levels of
industry, government and environmental groups. We are talking senior VPs, CEOs
of companies, city administrators, university presidents and so on. They spent
a year looking at transportation, in particular urban transportation, as well as
a brief look at freight movement in Ontario, particularly in urban settings.
Some 30 out of the 32 members of that collaborative signed on to the document
which I have distributed. They concluded that if we are to shift transportation
behaviour, there is a whole pile of things that have to be done.
I have copied out for you the recommendations of the collaborative. One of the
things we discovered is that even if we did all the things to which the
collaborative agreed, we would still see rising CO2 levels in an area such as
greater Toronto where the population is growing so rapidly. Nevertheless, there
was a great deal of interest in making sure that if we tackle the issue of
transportation that it is done on an integrated basis and that we go through
everything from education through to the use of economic instruments.
The key message in the report is that we can build horizontal stakeholder
support for some fairly aggressive recommendations which helps break through
some of the political problems of implementing policy. There will always be
groups which do not sign on. The implication of a fuel price increase was
enough to cause Suncor a great deal of difficulty. It was one of the dissenting
companies. Nevertheless, we can build strong coalitions of interest around
moving policy in some areas.
I know that the concern Alberta has with regard to the fuel price increase is
very topical. However, I would like to mention that that is an issue which I
think we should look at seriously. The economic instruments policy work that we
did showed that a fuel price increase, particularly in concert with a corporate
average fuel economy -- or CAFE -- standard will drive both technology and
behaviour on transportation probably better than any other set of instruments
at which we can look. The evidence is fairly strong on the fuel pricing and
there is some good analysis around the CAFE standard.
In some ways the auto sector is supporting the fuel price increase concept. The
CEO of General Motors recently endorsed the need for a substantial increase in
fuel price if consumer behaviour is ever to shift in the United States. I think
he was talking about 50 cents a litre. In his opinion, the automobile makers
would put more fuel efficient vehicles on the market more rapidly in response to
a strong fuel price increase.
In a recent special issue of Time magazine, Toyota was the only advertiser
throughout. In this issue, there is an interesting article in which it is said
that the consumer will get this new car in December of this year. They will put
it on the market and they think the consumer will buy it because the net cost of
the capital and the operating cost is a clear savings to the consumer over the
life of the car. The initial capital cost is somewhat higher but not much
higher than a conventionally powered engine. They say that the sticker price is
only a little bit higher and that the car they will launch in Japan in December
will be cost competitive with conventional cars in its class, but that is in
Japan where gasoline costs three times as much as in North America. On a
life-cycle cost basis, we may not be able to convince a consumer to purchase
the new technologies if there is an additional cost and if the fuel costs do not
compensate the consumer for driving behaviour and purchasing of that vehicle.
Despite the desire to avoid the issue of a gasoline tax, I would table that as a
serious issue to be looked at in this country. I challenge the Minister of
Finance to work with provincial ministers in considering the consequences of a
fuel price increase.
The Ontario collaborative document which I circulated contains some gross
calculations based on the evidence around the world on what a fuel price
increase would do. Basically, it concluded that about a 2-cent-per-litre
increase per year, extending over 20 years, would probably get to stabilization
in the greater Toronto area, for instance, by about 2010 to 2015. You would need
about 3 cents per litre in order to push the fuel consumption lower which, in
turn, would lower the greenhouse gas emissions. We are talking about fairly
significant shifts and fairly significant revenue-raising.
It turns out that there are about 30 people administrating the fuel tax in
Ontario. You would not need to add one more person to increase the fuel tax.
Therefore, there is no government overhead or other costs. The issue would be
the distributive impact on oil producing provinces such as Alberta, et cetera.
Rather than go on about the transportation side of things, I will shift quickly
to the electricity market and the coal-fired utilities. We are within three
weeks of producing a document prepared by Pollution Probe in concert with the
Institute of Environmental Studies of the University of Toronto. In it we
consider all the coal-fired utilities from the U.S. midwest through to the east
coast. We break the area up into four zones, principally the Ohio Valley area
and the Great Lakes States, Ontario and the rest of eastern Canada, and the
northeastern U.S. What we looked at was the potential scenarios that could
occur under a competitive energy market if there were no environmental controls
in place or if there were various levels of environmental control in place.
These are not predictions, just scenarios. We looked at key pollutants, not
just CO2 but SO2, NOx, particulate matter and mercury.
What is shocking about this is that 90 per cent of the emissions that are coming
from the whole midwest through to the east coast are coming from the Ohio
Valley-western Great Lakes states. Conceivably, those emissions could go up by
50 per cent for every one of those pollutants with a shift under a competitive
energy market. That is not assuming any growth in energy demand at all; it is
simply shifting to lower-cost, marginal producers which are poorly controlled in
terms of pollution.
The only scenario in which we can get all five pollutants down, including CO2,
is to retire some of the older plants that are highly polluting. We did a
scenario where we retire plants built before 1970. That is the only scenario
out of seven in which we can get all five pollutants down.
There is enormous opportunity for Alberta and any gas-producing province in
Canada to sell into that market, if we can get the Americans to put proper
controls under Clean Air Act amendments and under competitive market structures
which are being put in place at the moment.
The Chairman: I remind you that Alberta is a big exporter of coal.
Mr. Ogilvie: The coal exports would not fare too well.
The Chairman: Everything you are saying zeros in on one small sector of this
country which is right near Drayton Valley.
Mr. Hornung: To be fair, many of the coal exports are exports which are used for
metallurgical purposes and steel, not for utilities.
Mr. Ogilvie: There are many Alberta companies, like TransAlta, showing up in
Ontario, trying to market gas and technologies. There are economic benefits for
Alberta to sell even into the Ontario market with its current fiasco. To expand
natural gas production and serve a market like the U.S. Midwest, you need a
mechanism for getting some credit for doing that, and emissions trading offers
one possibility for an economic return to Canada for that type of export.
The Chairman: Can you explain emissions trading for the committee? There has
been a lot of reference to it.
Mr. Ogilvie: Within a month and a half we will have a report out on emissions
trading. We have been studying that for over a year. Let us compare two
polluting plants emitting sulphur dioxide at the rate of 100 tonnes. If both
plants are forced to reduce that tonnage to 50 tonnes, each would have its own
cost curve for reduction. One could likely do it more cheaply than the other,
depending on the industrial processes. Emissions trading would allow the
higher-cost emitter to purchase reduction capacity from the lower-cost reducter
rather than putting in more technology at the expensive plant. You can work out
the math fairly quickly to show that the average cost between the plants would
be lower if you allowed a trading scheme to be used than if you forced both
plants to reduce equally.
The Chairman: We saw that in California, but is there a concept that crosses
international borders anywhere? That is what you are talking about here.
Mr. Hornung: It is certainly on the table in the Kyoto negotiations. The United
States has made it clear that it has no intention to sign the treaty in Kyoto
unless that is part of the agreement.
Ms Comeau: And there is no precedent for a global trading system.
The Chairman: How would you envision that working on a global basis?
Mr. Hornung: The answer is it is a design issue because there are many ways it
could work. There is not one simple way, necessarily. It could be just trading.
You could have caps for countries, and then countries adjust balance sheets at
the end of the year and perhaps say: We have too much; we must shift $100
million to buy Russian credits and then we will be back in line.
You could allow trading between companies. There are different views on whether
you need an international administrator of this or whether it can be
self-regulating. There is no simple answer, and those questions will not be
answered in Kyoto. What is likely to happen there is an agreement which says:
We have this target, partly to be met by emissions trading, and we will spend
the next three years designing that emissions trading system.
The Chairman: Would Canada get credit within that concept for exporting clean
fuel to the United States which then takes advantage of Canada's clean fuel?
Similarly, would Canada be penalized for exporting coal which is causing
pollution somewhere else in the world? To me, this concept is mind-boggling.
Mr. Hornung: I think you can design a system to do that. There are some
concerns, particularly in the west. The petroleum industry has said: We ship
this natural gas down there, we are helping the U.S. solve their problem, and
so we should get credit for that.
Do I think there are ways to set up a system to provide that credit? Yes. Will
it all be a good-news story for Canada? Not necessarily. As soon as we ask for
credit for something, every other country will be asking for credits as well.
Yes, we export natural gas. We have a logistical problem in the sense that we
put natural gas in a pipe and we hope it helps to reduce emissions in the U.S,
but we do not know exactly where it ends up, so there is a problem trying to
figure that out. If we could figure it out, some countries will come back and
say: We produce energy-intensive products; we have to produce a lot of
greenhouse gas emissions to produce this manufactured product for you; we ship
it to you and you use it; we do not use it, and we should get credit for that.
When you start looking at that, and then move from energy itself to energy
intensity, things get more complicated. I am not saying it is impossible but it
will take three years of work to figure it out.
In principle, yes, we can design such systems, but there is no global system
like that at this point, and this would be really breaking new ground to do
Senator Spivak: Everybody looks at emissions trading as a panacea, but they
forget that, every year, that ceiling has to come down. It is not painless.
Ms Comeau: Neither is allocating your initial carbon quota.
Senator Spivak: Perhaps the reason people accept it is because it seems to them
more efficient and more fair. It allows people to work among themselves to
figure out how to get to that lowering of the ceiling.
As far as the technicalities of it, I have a lot of confidence in Yankee
ingenuity because what we saw in Los Angeles was mind-boggling. They could
monitor everything on computers. They were not physically going out to the
plants. They were not physically looking at statements. It was all being done
on computers and it seemed to be working well. That was one year ago. If it
could work in a city like Los Angeles with a huge number of companies, I do not
see why it could not work elsewhere. I do not see why capitalist,
free-enterprise-thinking people think that emissions trading is so great,
except that it allows them more freedom. In the end, it must come down.
Mr. Hornung: You have hit the nail on the head. This is an example that shows
that we have not thought much about this in Canada. If you nudge people at the
Canadian Association of Petroleum Producers, if you get them away from the
microphone and their public position and talk to them about emissions trading,
all of a sudden you hear that they think a carbon tax sounds pretty good. They
are worried that emissions trading sets a quota as to what they can produce.
They are even more afraid of quotas than of price increases. They know that if
there are price increases, they have to be more efficient to compete in the
marketplace, but if there is a quota, that is set. There are concerns about
that. It has not been not thought through yet in Canada.
I talked earlier about the amount of work that has been done in the United
States. Frankly, the reason it will take three years to negotiate after Kyoto
is that the United States is 95 per cent there in terms of knowing how the
system will work, and everybody else is only 5 per cent there.
Senator Spivak: We have stayed away from the science and the global climate
impact, but it is important for people to understand what will actually happen
if we do nothing. There could be devastating results for our resource
industries, the boreal forest and agriculture. If you do not have a market into
which to sell your gas and oil, what do you have? Hard-headed, successful
businessmen are long-term planners, and they understand the concept of markets.
I cannot believe that if the oil and gas industry actually saw some of these
things, it could not be made aware of what it is we are facing.
I like what the Prime Minister has said about not targeting any region. That is
important. However, people must collectively understand the consequences. That
is what happened with the ozone layer. People actually knew that this was
something serious and that something had to be done.
Ms Comeau: I have been saving this document for this very moment. Shell
announced, not that long ago, a $500 million investment in a solar division for
its company. They claim here that by 2020 alone, sales of renewable energy,
such as wind power, bio-mass, recycled biological material and solar, are
expected to reach $248 billion from less than $10 billion at present. This is
the quote. President Jim Dawson told a press conference: "We are not doing
this for the hell of it. We think there are commercially viable opportunities."
BP has a head start in the renewable energy race with an established solar
business, which is expected to have sales of $1 billion by 2010.
Senator Spivak: Despite my quarrel with Shell and what they are doing with the
Ogoni, I must say that Shell's stock has gone up like crazy. The people running
Shell are not stupid.
Mr. Ogilvie: We must look at the trading concept to see what it really means. I
understand a credit-based system has been discussed at the federal level.
I agree with Mr. Hornung. We do not understand it well. We spent a year and
one-half looking at the six major trading systems in the United States for
sulphur dioxide and nitrogen oxide, including the California scene. We will be
publishing on that subject shortly.
We have spoken to environmental groups in the U.S. and we have talked to
industry across Canada on this issue. At the end of the day when industry sees
what is required for a trading system, they realize there is a regulatory
backdrop that the U.S. has in place. They have an architecture in their
regulatory system that allows certain areas to go into this type of trading
which Canada lacks. In fact, we have been deregulating in the environmental
area. We do not have the institutional backdrop to get into credible trading.
There is not much trading in the United States. The sulphur dioxide market is
active, but the other pollutants are not being traded actively. Yet, the United
States is keen on this tool and will do everything it can to make it work.
However, less than 5 per cent of the nitrogen oxides are traded in the most
Trading has shown how cheaply reductions can be had. That is what is interesting
to a lot of people in the United States. It is pricking the balloon of certain
industry people who say that this will cost a disastrous amount of money to
accomplish. It has more significance in small markets in showing how cheaply
reductions can be had than it does as a policy tool that will take over all
other policy tools. It will probably only still be a sliver of the market.
However, putting it in place demonstrates that people can buy reductions from
others when the money is on the table. This is showing how rapidly we can shift
because the technologies are there.
There is a symbolic significance to this which probably transcends its active
trading significance, although for greenhouse gases, that might be a different
story depending on the scene put on the table.
I am aware of one international trade, between Ontario Hydro and Detroit Edison
with respect to nitrogen oxides. That is part of Ontario's pilot emissions
reduction trading program, which has been underway for about a year and a half.
Pollution Probe is part of that.
There has been some experimental trading. Hydro is purchasing reductions. There
is some experimentation going on, but there is no precedent yet for
trans-boundary trading to show how it would work.
Senator Comeau: Let me go to the politics of this issue. The government has been
tackling one problem at a time. Identify the problem, identify the solution and
implement it. Then we go on to the next problem, identify it, find a solution
and implement it. This fits very well, by the way, with how Canadians like
their governments to tackle problems. You do a poll to find the hot issue so you
can go out and fix it.
Unfortunately, you will find that, on the one hand, this is very effective and
responsive to what Canadians want their governments to do. On the other hand,
there is then no linkage whatsoever of what I think you are proposing to us
this evening -- the big picture.
If you fix an economic problem, it may be positive for the environment and you
can tackle many things. However, it needs an extreme amount of courage and
leadership. Rather than waiting to find out where the public wants you to go
and you run in front of the public leading the parade, you must instead take
the public by the hand and get them there. However, we are not getting this.
Politicians are seeing this and saying: "Oh, is this how you become the
government? If that is the case, let everyone do it this way."
I am suggesting that there may not be much hope of arriving at where you want
the Canadian public to arrive because the Canadian public does not want to
solve problems in this way.
How do we tackle this? What is the next step to get any government to make
Mr. Ogilvie: That has been Pollution Probe's style of business. We usually take
one or two issues and work them for years until we get what we need in terms of
public education, stakeholder support and economic analysis. A good case in
point is the vehicle inspection and maintenance program announced by the
Ontario government. We have been pushing that for four years, and finally we
have a government policy commitment. There will be a mandatory program for 4.5
million cars in Ontario starting next year, if they ever get their proposal out
and get the private sector investing in it.
What happened there is that we could juxtapose smog -- which has been the number
one public issue in the last couple of years in Ontario, especially with Health
Canada research on premature mortality -- against the fact that the public
believed, and still does, that the automobile is the largest contributor. In a
local sense, it is the largest contributor to the smog problem. Then you
institute something like vehicle inspection maintenance where the public
understands that their car is contributing to a problem that they want solved.
You press and press and get the support of the auto sector, the Petroleum
Institute and the Lung Association.
Senator Comeau: Is that the solution for Kyoto? Will that be enough?
Mr. Ogilvie: That is a one-off kind of solution. How do you take this broad
array of things and put them in front of the public? That is an excellent
question. I am not sure and will look to my colleagues for an answer to that.
Certainly the education component has been emphasized for years. We were
promised an education program that was not delivered. We are seeing the results
of the hysteria around the debate now. The public is not educated, and the
press is having a feeding frenzy. We certainly need that component.
I also feel that general education, without telling the public what you are
demanding of them, is not a good way to debate the issue because they do not
know what you are talking about. We try to get the actual issue in front of the
public any way we can in terms of very specific instruments, such as the
vehicle inspection program. With respect to how you do that on broader issues, I
will turn it over to Ms Comeau. She has the answer.
Ms Comeau: I have also been working on this issue since 1991. I probably have
done more public education on it than most. Politics is about meeting a range
of agendas. The solutions must work for a broad range of people in terms of
what they are looking for.
If you look at the Throne Speech of the government, they talked about the need
for strategic investments, the issues of technology, creativity, training,
education, health and job creation. They talked about the need to support
communities. The climate change agenda addresses all of those. It is an issue
of communication. If you are looking to the issue of positioning the Canadian
economy for the 21st century, you simply cannot avoid the incredible
revolutionary opportunities that are here in terms of technology development.
In terms of the public, our focus group testing and polling has clearly shown
that the public is concerned about what is happening to the atmosphere. It is a
mistake to talk about these issues as if they are separate.
Acid rain, smog, climate change and particulates are having an impact on the
environment and on human health. They are all primarily caused by fossil fuels.
The issue becomes one of bringing the agenda together. The strategy of becoming
more efficient and investing in renewable energy is about clean air, health
protection and climate protection. We must do a better job of positioning.
I have been approaching this agenda by merging the issues in terms of atmosphere
and the impact of air quality on human health together, because the individual
ties it all together. In terms of my politics here in Ottawa, I have been
focusing on the multiple agendas. This is why you hear us talking about job
creation and technology elements. The building retrofits are all about community
economic development. Ms Karen Kraft Sloan is working non-stop to promote a
national green communities initiative which would focus on residential
retrofits to give the federal government a higher profile within communities.
All of these agendas fit well into these areas. It is our job as communicators
to ensure that senators and members of Parliament know that, and that this is
about achieving your goals. It is not about adding on a new problem. I do not
see it that way. I see it as achieving the government's agenda. That is what we
are trying to do in terms of our communication.
Mr. Ogilvie: There are big issues on the table and we can either get it right or
wrong. The Ontario government is looking at a competitive energy market and may
include some provisions to tilt the playing field on the energy mix in Ontario,
as well as the access area for imports, which is a big trade issue.
There are many ways to do that. The white paper is coming out shortly in
Ontario. If the government goes to a complete competitive market and takes the
low-cost, marginal producers, there will be a rapid shift into Ohio Valley
coal-fired plants. There is no question about that. There was a 5 per cent
shift last year towards coal-fired production in the U.S. in terms of opening up
the markets. They are low, marginal producers and old plants supplying peaking
power but by increasing their utilization from 30 to 50 or 60 per cent you also
increase the production of pollution. Good investments such as natural gas and
so on are then crowded out of the market. That is a huge problem. We do not have
time to educate the public about that; it is coming right at us.
The other issue concerns the greater Toronto transportation plan. For the first
time in 30 years, there is a transportation plan for the Toronto area.
Approximately 4 million people will grow to 6 million 20 years from now. If a
model comes out building more roads to nowhere and subsidizing urban sprawl,
you can kiss your greenhouse numbers goodbye until we have a complete revolution
in auto technology. It is completely out of the question that we will ever
control emissions that way.
There are big decisions facing the government. Presently, the government has
eliminated the subsidies for transit. Pollution Probe has shifted its emphasis
from cleaning up the automobile to transit and land use planning. We must go
head-to-head on that issue. If those decisions are taken and the moneys go in
those directions and the markets are opened up without the government talking
about the pollution side, we may have taken decisions that will take us a long
time to unwind and we will never reach our greenhouse targets or other targets
for mercury, acid rain, pollutants, smog and so on. They will blow through the
Ms Comeau: New scientific analysis states that in order to meet critical loads
for acid deposition -- that is, in order to protect sensitive areas -- and
because of the increased awareness that sulphate particles are the primary
cause of human impacts, scientists are calling for further cuts in sulphur
dioxide emissions of 50 per cent. Nitrogen oxide emissions must come down a
further 50 per cent to deal with smog.
When you get into these kind of reductions and you combine the climate aspect
with it, there is simply no choice but to try to phase out the use of these
fuels and bring in alternatives. The costs will be there. To get the further 50
per cent, there will be costs. You cannot keep adding end-of-pipe technology,
which decreases efficiency. If you add a flue gas de-sulphurization unit or
catalytic converter technology, in every case you reduce the efficiency, use
more energy and increase CO2. We cannot continue as we have, for example, with
CFCs. We are now replacing non-ozone depleting chemicals. Yes, HFCs are good
for the ozone layer, but they are 13 times more powerful as a greenhouse gas
than carbon dioxide. Every ad you see for ozone-friendly cars is filled with HFC
134-A. CFCs were already significant, but it is being replaced with even more
significantly powerful greenhouse gases. We cannot continue to replace one
environmental problem with another. We must stop going end-of-pipe and meet the
problem head-on in terms of prevention. Pollution prevention is what this is
about. The agenda that we are talking about goes into one package. Hopefully,
the government can look at it that way, namely, one package that takes us into
the new millennium.
Senator Taylor: I notice one submission concerned a carbon tax. I do not want to
take the traditional Alberta or oilman's view of this, but I wonder why it
remains in anyone's vocabulary as a method of curing anything. A tax on
anything, be it cigarettes or whiskey, simply allows the rich to afford it
whereas the poor cannot. There is no evidence that it cuts down consumption. We
already have a carbon tax. When you buy a litre of gasoline, approximately 65
to 70 per cent is already tax. It is the most heavily taxed liquid in the world
outside of perhaps Johnny Walker's. Why is a carbon tax even being considered?
Where does it cut anything? You must go to limits. Everyone will be paying the
same carbon tax. My occupation takes me to many countries where the price of
gasoline has not resulted in fewer cars and cleaner air.
One of the three witnesses included the carbon tax in their presentation. That
is an outmoded arsenal. Would you agree with that statement, or are you
dragging it along because it was there 20 years ago?
Mr. Hornung: No, I do not think it is an outmoded arsenal. It keeps coming up
because every economist who studies reducing greenhouse gas emissions comes up
with the conclusion that the most economical and efficient way to do it is with
a carbon tax.
There is no doubt that price makes a difference. The extent of the difference is
something that is debatable. I will give you an example which indicates there
is a difference, but they must send a strong price signal.
Approximately four countries now have a carbon tax and Norway is one of them.
This will sound like heresy in Canada, but gasoline taxes in Norway have gone
up 70 per cent in the last five years.
The Chairman: That is absolute heresy.
Senator Taylor: I agree, but there is more gasoline per capita being consumed
now than there was then.
Mr. Hornung: No, the use of gasoline in Norway fell 8 per cent in that period.
Senator Taylor: I do not think you are right.
Mr. Hornung: I do not know if the Norwegian government is lying, but in their
official submission to the climate change convention they indicated those
Senator Taylor: They said they had cut the use of gasoline?
Mr. Hornung: Yes, by 8 per cent.
Senator Taylor: And what was substituted?
Mr. Hornung: They either used more efficient vehicles or drove less.
Mr. Ogilvie: One of the reports I passed around on full-cost pricing has more
information on that.
Senator Taylor: The more efficient automobile is the cause for less gasoline,
not the gasoline tax.
Mr. Hornung: No, the gasoline tax causes you to buy a more efficient automobile.
Senator Taylor: Do you think that whether or not half a dozen Norwegians will
buy cars influence Mercedes and General Motors to produce a different car?
Ms Comeau: Yes.
Senator Taylor: They could not care less about them because they represent such
a small portion of the total automobile market. I agree that less gas is being
used, but I disagree that it has anything to do with the tax because it
represents such a small niche of our automobile market.
Mr. Ogilvie: One of the documents I passed around looked carefully at tax, the
elasticity of demand, and what it did to stimulate the purchasing of more
fuel-efficient cars. You end up with half and half. Half of the gain comes from
more fuel-efficient cars and half of it comes from less driving.
The evidence is fairly strong on the gas tax relative to other instruments for
which there is not as much empirical evidence. There is a thorough discussion
of that in one of the documents which I circulated.
The Chairman: Two cents a litre will not discourage anyone from driving their
Ms Comeau: No. The point I made at the start of my presentation, and which must
be made clearly, is that it is not the amount in and of itself, it is the
signal that consumers get that the price of gasoline will increase over time in
increments, at regular intervals. That is what triggers the increase of more
fuel efficient vehicles. It is not just the amount, it is the fact that the
amount will increase on a regular basis every two, three or five years. That is
what economists say triggers the change in behaviour.
The Chairman: What does that mean though?
Senator Taylor: I think your logic is faulty. Let us take it to another step. If
it is so important, and the government has already taken 70 per cent of the
value of a litre of gasoline in taxes, why does the government not transfer to
a carbon tax? What is the government using carbon taxes for now? In other
words, when you pay 50 cents for a litre of gasoline, 35 cents goes to the
provincial or federal government. What are they doing with it? Why should they
not pay for what you are talking about? I do not understand why putting another
nickel on the 35 cents will suddenly turn this into nirvana. I do not follow
Mr. Hornung: I will make two points. First, I realize that you were not here for
the whole presentation.
Senator Taylor: No. I do not think I missed anything though.
Mr. Hornung: No one here, and no one in the environmental community, would argue
that a carbon tax is the solution on its own. It is one element in a strategy
that must include a whole range of measures to address this problem.
Second, taxation of energy in Canada is totally screwed up. I totally agree with
you when you say "look how much tax is paid on gasoline." As an
example, if you imposed a $25-per-tonne carbon charge, that would increase the
price of gas of 1.5 cents. It would double the price of coal for TransAlta.
We must decide what sort of signals we are sending in the economy now with
taxation. Why do we tax gasoline more than we tax coal, if coal is much more
environmentally harmful? Let us look at that question first.
The second point goes to your point about what to do with the revenues. That is
a critical question. Frankly, there are hundreds of things you could do with
the revenues, and it has a great impact in terms of what benefits or problems
you get with the tax.
If you impose a carbon tax that raises $5 billion and just leave it sitting in
the government coffers, that will not be much of a benefit. However, there is
more and more economic research being done that says we should not be talking
about imposing new taxes to raise new revenues, that we should be talking about
shifting the tax burden. We all want certain things from the economy. We all
want employment growth and economic activity. There are things we do not want,
like pollution. The argument is that we should shift our taxes so that we tax
pollution more and we tax things that we want to encourage less. We could
encourage investment and employment by reducing payroll taxes. We could
encourage spending by reducing income tax.
These studies have found that if that form of tax shift is undertaken, benefits
are achieved in terms of reducing the pollutant, but you great bigger economic
benefits overall because you provide incentives for more hiring or more
When industry talks about a carbon tax these days, they paint the worst case
carbon tax scenario. They say that all the money will come from Alberta.
Frankly, I think we can be much more creative than that.
Senator Taylor: I do not think we are worried about a carbon tax in Alberta,
because 50 per cent of the gasoline in Canada is not even made from Canadian
crude. We ship it south. You easterners always want the cheapest crude in the
world so you bring in this lousy sulphur stuff from Algeria and run it through
50-year-old refineries in Montreal, then you blame Alberta for selling you lousy
gas. We have not been selling you gas for years.
To corner you a bit, it seems to me that carbon taxes and quotas are the only
methods which could be used, outside of prayer. Are you suggesting a mixture of
those or would you rather have one than the other?
Ms Comeau: A quota is equal to a carbon tax in the sense of how it will resolve
Senator Taylor: That allows people to operate.
Ms Comeau: I realize that, but it will affect the price of fuel. That is just
the way it is. In fact, much of the economic modelling uses a carbon tax as an
instrument that is essentially a default for any kind of instrument that
eventually increases price.
A permit trading system will affect the price of energy, and it will be equal to
just a carbon tax. A cap is fine by us if it will lead to reductions. A tax
shift could also be an approach to take. They are potentially equally as
Senator Taylor: I have been in oil and gas production in 20 countries around the
world. If you told me that you were going to impose a carbon tax instead of
allowing me to put sulphur up, I would put up more sulphur to sell more crude.
If I could get rid of salt water in ditches, I would put the salt water in
ditches and pay the penalty.
My point is that usually the only thing which purifies things is a quota. In
other words, you can only put up so many tonnes in the air, or so many grains
of sulphur; you can only put up so much salt water. In other words, there must
be absolute regulations on emissions, otherwise you go ahead and pay the
penalty and pass it on to the consumer.
Ms Comeau: There is a fundamental difference between carbon and other
pollutants. Any other pollutant that you are trying to control does not
fundamentally change the product. If you are trying to filter out sulphur
dioxide, nitrogen oxide or particulate, you are still selling coal, you are
still selling oil. If you control carbon, you are not selling oil, you are not
selling gas, you are not selling coal.
Senator Taylor: Wait a minute. When natural gas comes out of the ground the
carbon dioxide can be separated out. We normally ship it down south or put it
up in the air.
There are two types of carbon. There is a carbon which is produced and then
emitted into the air. The other carbon is produced when you combust the
Ms Comeau: That is what I am saying.
Senator Taylor: You are speaking like an easterner. Out west we think of the
stuff we put in the air. We are not as worried about what you burn.
Mr. Hornung: Senator, you say "which instrument."
Senator Taylor: Yes, that is what I am trying to find out. We are going to
Kyoto. There will be talks taking place and we have carbon tax and we have
Mr. Hornung: As Ms Comeau was indicating, there are more than two ways to deal
with the problem. Those are the two broad-based instruments. I grant you that.
There are some places where trading makes sense. It makes a lot of sense to set
a quota on a few big industrial sources, such as utilities, and allow them to
trade. Trading does not make sense to me at the level of the consumer or the
A trading system and quotas could be applied at the very top, on petroleum
producers. That means we would not have to worry about it lower down, because
it would be at the top of the cycle, but they would scream bloody murder about
Senator Taylor: They are used to that system. They have quotas now on
Ms Comeau: You try putting a quota on carbon and you have a different game.
Senator Taylor: I want to move on. We have been talking about Kyoto. There will
be many small nations there where they have average per capita incomes of
perhaps $1,500 while ours is ten times that.
Ms Comeau: Our average income is $18,000.
Senator Taylor: What is your solution to carbon emissions? Do you expect them to
cut the same amount as we would? What would you like to throw in? Should they
be allowed to be dirty up to a certain percentage and then we would start
cleaning beyond that, sort of like our income tax system?
Ms Comeau: The issue of developing country participation in the convention is
clearly going to be a deal-breaker in Kyoto. The Canadians have set it up that
way and so have the Americans.
We have many concerns about the approach which is being taken. The convention
requires certain things to be done. The climate change we are facing today is
as a result of emissions generated by developed countries from the beginning of
the Industrial Revolution to this point. The convention recognizes this
historical responsibility and takes the perspective that we have differentiated
responsibilities, that we are required to take the lead, that we are required to
take first steps.
The convention also acknowledges, and we would all agree, that developing
countries do have to take on emissions commitments over time. In fact, my view
is that the economy runs on energy services and that those services should be
coming from a variety of sources and that we do not want investments in
carbon-intensive economies. That is dangerous. The developing countries do have
to come on stream.
The problem is, we negotiated, in April 1995, something called the Berlin
Mandate. Kyoto will be the ultimate completion of this negotiation. The
negotiation clearly laid out the parameters for this negotiation. It said that
developed countries -- the OECD -- and the economies in transition would take
on new reduction targets and that all parties, including developed and
developing countries, would advance their implementation of the general
provisions of the convention. Those would include doing inventories and action
plans, public education, identifying adaptation and technology transfer. There
is a whole slew of these initiatives that we are advancing in terms of the
This round, which completes in Kyoto, is not to include new emission reduction
commitments for developing countries. We expect, if it is done properly, that
we will begin negotiations in Kyoto; we will launch something called the Kyoto
Mandate. We will move from Kyoto with two trains leaving the station. The first
track essentially would be to negotiate developing country commitments; that
may be designed to end, for example, in 2005. The second track would develop the
details as Mr. Hornung has suggested, how would trading work, and how would
joint limitation work?
Eventually, those two tracks will merge. The issues of how to transfer
technology and financial resources to developing countries to help them meet
their commitments will come out in the debate and in the negotiations on
developing country targets. Trading and implementation would lead to technology
and resource transfer to these countries.
The Americans clearly require, before they go to the Senate, a protocol that
sets out their commitments and a concurrent agreement that would define how
trading would work, how joint implementation would work and how
developing-country commitments would work. They want that to be complete before
they go to the Senate.
The big question in Kyoto is whether we can encourage developing country
participation in the convention and will that be enough to allow the Americans
to say that developing countries have targets.
On the table at the moment is a proposal called Article 10. Keep watching
Article 10; it is very important. That article establishes within the protocol
a voluntary opt-in to the convention. Any country that chooses to do so may
take on commitments voluntarily.
To entice voluntary commitments, they have developed something called joint
implementation which allows Canada, for example, to invest in another country
and to take some of those emissions reductions that they may get from that
investment and deduct it from its domestic emissions base. The protocol text at
the moment says that only countries that have emissions commitments can benefit
from joint implementation.
Senator Taylor: You are talking about quotas again and only those countries that
have established quotas?
Ms Comeau: That is right. Essentially, it is an enticement for countries, if
they want technology transfer, to take on some level of commitment. We know
they will not be the same commitments that the developed countries will take
on. This will be a slow process. We will establish some emissions commitments.
It will obviously take into account per capita emissions. China is a high
absolute emitter but we are talking a half-tonne per capita compared to 21
tonnes per capita in Canada. These are important factors.
The targets will not be the same. We will have this voluntary opt-in, if we are
successful in Kyoto, as well as a longer term negotiation on developing country
It is a fundamental part of the deal and the end game, but our view is that
achieving emissions reductions globally does require that developed countries
take the lead for several reasons. One, we have historical responsibility for
doing so. Second and more important, it will drive technology development
domestically. That will then translate into exports into the global economy. It
is a matter of doing stuff at home as well as encouraging activity in
developing countries. We support that. It is just a matter of timing, and we do
not want it to be the reason why governments blow up the Kyoto protocol.
The Chairman: We are still the biggest polluters.
Ms Comeau: Yes, we are.
The Chairman: Within that context, there is a very important "third."
The United States is the biggest polluter by far and we are not far behind.
Senator Taylor: Ms Comeau made an interesting statement of exporting technology
to cut emissions and you brought up China. I used to work in China and they
have dirty coal and dirty power. What do you think of the Canadian government
exporting nuclear reactors to China which would cut down the use of coal and
Ms Comeau: I think it is irresponsible.
Senator Taylor: How could you say that after making the statement that you want
to export technology?
Ms Comeau: I am very confident in making that statement. Our view is that the
response to climate change should be a least-cost response. We should not be
pursuing energy sources which have been proven not to work from a technological
point of view and are far more expensive than you need in order to generate
In China, where most communities are not even on the grid, all of the renewable
technologies are cost-effective, even solar photovoltaic in a situation where
there is no great connection yet. The least-cost approach to reducing
greenhouse gas emissions is to use renewable technologies, not nuclear. I am
absolutely terrified at the prospect of sending CANDU reactors to China when we
cannot even make them work in Ontario. It is irresponsible and I am ashamed of
the Canadian government. I simply cannot tolerate what is happening here from a
Canadian point of view. I am ashamed.
Senator Taylor: Yet you are willing to agree that technology will improve a
hydrocarbon to the extent that there could be hardly no pollution, but somehow
you feel that atomic technology has been frozen in the past and will not
improve to where it is as safe as you would like it to be.
Ms Comeau: If we cannot make nuclear technology work in Ontario or in New
Senator Taylor: That is pretty old machinery in Ontario.
Ms Comeau: The fact is that the CANDU reactor that we sell to China is the exact
same reactor that is now running in Point Lepreau and it has been shut down for
the last three years. It is not working. The technology does not work. I am
terrified at the prospect of what will happen with the nuclear waste. We do not
know who will be responsible for the training of staff over there or for the
maintenance of those operating units.
If you cannot maintain your maintenance schedule in Ontario, I do not know how
you plan to maintain it in Romania, Turkey and China. This will come back to
haunt us. There will be a nuclear disaster in the world and we will pay. I am
convinced of it.
Mr. Ogilvie: Nuclear capacity is being withdrawn in the United States. They are
packing in plants now just for cost reasons.
Senator Spivak: They will still sell nuclear reactors to China.
Senator Adams: I wish to return to Ms Comeau's presentation. You mentioned the
retrofitting for new energy efficiency in housing. Do you have an idea of the
price difference in today's market when it is built with all the new
Ms Comeau: An R-2000 home costs about $5,000 more than a typical base building.
Senator Adams: And the R-2000 standard has been here since 1980?
Yes, that standard has been around since the 1980s. However, if you are building
that home today, it is between $3,000 and $5,000. I will give you the $5,000 as
a round number. Essentially, it takes five years to generate the energy savings
to compensate for that. The payback is there.
They have also found that the resale value of an R-2000 home is much higher than
a conventional home. That would be in a newly built home, building it from
scratch, not retrofitting to an R-2000 standard.
Senator Adams: In 1980, it may have been $5,000. Today, with high efficiency
windows and all, one may retrofit and it may not cost you over $500 or $1,000.
Ms Comeau: That is what I am saying.
Senator Adams: The $5,000 retrofit of a new house does not do very much for the
efficiency. Instead of using 2 by 4s, you are using 2 by 6s, and it doubles the
Ms Comeau: There has been much work done which shows two things. One element is
building the home efficiently to begin with. That is the key. Do it right to
The second element relates to --
Senator Adams: You have many things there.
Ms Comeau: I wanted to discuss the utility.
Senator Adams: It could also depend on the furnishings, such as the type of
light bulb you buy. Comparing a 90-watt bulb to a 60-watt bulb, the 60-watt
regular should last up to 1,000 hours, and the new 90 watts provide the same
light as the 60-watt but last up to 10,000 hours. That is $24 for one light
bulb compared to the regular 60-watt light bulb which may cost you $1.50. Oil
efficiency can also be effected by furnishings by about $1,000, whereas a new
one will cost you over $3,000.
Ms Comeau: There are several ways to go about this. The issue is that the
paybacks are there. When you make the investment, the payback is there. One
compact fluorescent light does cost you more to purchase, but it is like buying
an appliance. The light lasts several years, and within three years you have
paid for the light and your energy is free in terms of the extra cost you paid.
One of the ways of moving forward on retrofits is something called on-bill
financing. The utilities need power to supply customer needs, and that power
can come from a variety of sources. There is something called integrated
resource planning which says that if you need a certain amount of capacity and
you are supplying a customer base, there are different ways to supply that
energy. You can build a new coal plant or a new nuclear plant, or you can
invest in demand-side management and reduced energy consumption. It has been
found that the investment in energy efficiency is the lowest cost way for
utilities to generate electricity supply that they can then resell to customers.
There are jurisdictions which are, in fact, lending money to their customers to
do the retrofits, and the loans are paid back from the energy savings. It is
all done through your actual Consumers Gas bill or your Ontario Hydro bill.
Ontario Hydro is not doing on-bill financing at the moment, but Toronto Hydro is
doing it for some solar stuff. You would undertake the retrofit and your
electricity bill or heating bill would remain at the level it was before the
retrofit for the period until the loan is paid back from the energy savings.
The consumer puts out no money whatsoever up front. The utility finances the
loan. The loan is paid back from the energy savings. The retrofit is done. The
utility has the extra energy it needs. When the payback is complete, the energy
bills decline significantly.
That is called on-bill financing. It is operational in some jurisdictions, and
that is the kind of activity that we are proposing because, of course,
consumers, if they are looking at ways to spend their money, will not
necessarily look for the energy efficient stuff first. This is a way to help
facilitate that market.
Senator Adams: I was interested to find out what the public felt. If I went to a
bank and said I needed a retrofit, someone would come along with an estimate
and say it will cost $20,000 to retrofit my house. How long will it take to pay
that back? My concern is that it is nice to have something telling you that you
will save energy, but it is another thing for consumers to get the money. I
cannot afford $20,000. Where would that money come from?
Ms Comeau: That is what we are talking about in terms of the utility providing
the financing in order to do that.
Mr. Ogilvie: There is some very innovative work going on at the Toronto
Atmospheric Fund in terms of putting up the capital in order to get the
retrofitting going, not in houses so much but in street lighting and so on. The
rate of return they are earning back on the money is excellent. They are
getting all their money back plus interest, and they are lending out more the
next time around. There is a bit of a threat with the amalgamation as to
whether that fund will continue, but it is making money.
Someone must have the capital or a technique for taking away from the consumer
who does not understand life-cycle costs and so on and making it easy for them.
Even with industry, there are many energy saving opportunities; however, there
is the question of capital availability. Governments could really push this
along with some innovative programs and get their money back as well. It would
not cost anything.
Senator Adams: What happens if Ontario Hydro starts losing production of power?
Will they raise the rates?
Mr. Ogilvie: Ontario rates have been frozen by the current government. I am
waiting to see how they will resolve that. However, Ontario Hydro has never
asked for demand-side management proposals. For the first time, they have gone
outside of Hydro. They hired consultants to do a survey to determine how one
would put out a proposal to save energy because they were so worried about their
loss of capacity with the nuclear plants and the need for some reserve capacity
and so on. They are actively trying to get out of their export agreements and
find ways to save energy. They are starting to pump money into this area. It is
not in response to altruism; it is in response to their current panic
situation. Nevertheless, they are doing it. You will see the utility do that
fairly soon and fairly aggressively.
Senator Adams: You mentioned wind-generated energy. I was in Quebec City last
month for a conference. It was quite interesting. I live in the Northwest
Territories in a big wind spot area, and we are paying very high kilowatt hours
up there. We pay residential up to 45 cents per kilowatt and commercial up to
49 cents per kilowatt hours, and we cannot negotiate with the Northern Power
Commission in the territory because they are run by the government. In the
meantime, the staff have big salaries and so on. They do not care. I have a
small business and I pay over $3,000 a month for a power bill.
There are not many wind generators in Canada and the United States. Most of the
information comes from Germany and Denmark. They are building windmills
throughout these areas. How do you push Canada and the United States on this
issue? There are windmills operating in California, but they only generate 1
per cent of the energy.
What is your approach with the public on this issue of wind generators?
Mr. Hornung: A variety of tools which can be used and have been used in other
parts of the world. For example, in the United Kingdom, when they deregulated
their electricity market, they created something called the non-fossil fuel
obligation. They said that if you are a utility and you wish to participate in
this market, you must ensure that a certain percentage of your electricity comes
from renewable energy sources. It can be done that way.
Another way is what I talked about earlier in terms of Germany. In fact, it
happened in Alberta. The Small Power Research and Development Act granted a
certain number of small power projects guaranteed access to the grid at a
specific rate. There is more renewable energy and wind energy in Alberta than
anywhere else in the country as a result of that program. The federal government
has done something on a small scale, which also helps, called the Green Power
Procurement Program. The federal government said, "At our Environment
Canada facilities and Natural Resources Canada facilities in Alberta, we want
to buy electricity from renewable energy sources. This is how much electricity
we will need." They put out a contract, essentially a bidding process. They
received several bids and they took the least-cost one. There were two
windmills put up near Pincher Creek last week to facilitate that. That is only
nibbling at the edges.
In Alberta, there are now companies that are actively promoting green power.
People come from the wind energy industry and say, "If you want to buy
electricity from wind, I can produce it for you. You make this commitment and
this is how much it will cost you." They are starting to have some success
in that as well. The Town of Pincher Creek just agreed to get all its
electricity from wind power.
There are a variety of different approaches, whether it is regulatory, market
signals or voluntary, with green power, to try to get this stuff into the
Currently, Canada has a tremendous opportunity to push this forward. We are
looking at deregulating all these electricity markets in the country over the
next 10 years. Essentially, we are rewriting the rules. We have a chance to put
in new rules. If we want renewable energy to be part of our future, we can
design a system that will encourage that.
Mr. Ogilvie: The second phase of our coal-fired study, which we are now
starting, is a survey of all the different ways in which environmental
components have been put into competitive markets, including the British case
and some of the northern states that have talked about quotas. They have been
saying, "You can supply power to the grid, but 5 per cent of it must be
from renewables. Whether you produce it or whether you purchase it from someone
else, you do not get into the grid unless 5 per cent is renewables." That
is intended to drive the technology.
There is a market for green power. Ontario Hydro approached Pollution Probe
approximately a year and a half ago before all its problems and said, "We
are interested in trying to sell power from a 600-kilowatt wind turbine
generator that would be put on the western end of Ontario Place. The power
would be sold to the Toronto Hydro rate base. Toronto Hydro was willing to
approach its customers. There are 100,000 customers on the rate base. Evidence
in the U.S. is that you can sell green power at a premium to members of the
public who are interested in the environment, as long as they trust that you
are actually producing green power.
Some polling and some focus group work was done. One of the things that came out
is that you have to have credibility, and one way to do that is to team up with
an environmental group or somebody else known in the area. Hydro approached us
on this matter. It turned out that there was a market for about 5 per cent of
the rate base, or some 5,000 customers, which would produce about $300,000 per
year. The public did not trust Ontario Hydro. They would rather have had
Pollution Probe offer it as a trust fund or something of that nature. However,
there was a market even within that context. The educational opportunity of
having a wind turbine generator at Ontario Place where millions of people pass
through would have been great.
When the company suddenly felt that it would be in a competitive market, it came
back and said, "Even with the premium, we cannot sell this at a
competitive price, so it is all off." Someone has to make them do it.
Someone has to set a quota and say, "It is only a small per cent of the
mix, but find ways of producing it and selling it." The technologies are
there. With more mass production, the costs will come down. It is do-able.
Mr. Hornung: One other approach which has often been used to bring renewables
into the marketplace is an effort to try to price the environmental
externalities of the conventional fuels. It essentially works from the theory
that when we are burning coal, or some other traditional fuels, the price we
are paying for that does not actually reflect the full cost because the
environmental costs are not considered. Therefore, we will add this much to
reflect the cost of that. That charge is not then applied to the renewables
because there are not those environmental impacts. That has been another way
that some jurisdictions have used to get this into the marketplace.
The Chairman: Another subject I found intriguing comes out of recommendations
from the C.D. Howe Institute, that well known, non-partisan, non-biased
research group that gives a slightly different point of view to us. They seem
to take the position that there is no rush. They say that we can wait. They
argue that an economically efficient and equitable way to reduce emissions would
be for all countries, some time after 2015, to begin to impose a common
fee-for-emission permits which would apply initially only to permits for GHG
emissions over and above the level they reached in the year 2000.
As you go through the report, you are led to the conclusion that we are really
overreacting. We can wait 20 years before we move into this, and then we will
have something in place that will take care of it.
Would you care to comment on what the C.D. Howe Institute tells us we should be
Ms Comeau: The point I started with earlier was that the rate of emissions
affects the rate of climate change. The Intergovernmental Panel on Climate
Higher earlier emissions and implied higher concentrations and rates of
concentration increase may disrupt the physical and biogeochemical processes
governing the flow of carbon. This may mean that emissions must be lower than
expected to meet a certain stabilization target. In addition, higher earlier
emissions will lead to faster rates of climate change, which may be costly.
Pathways that imply higher emissions initially may have a more rapid transition
from increasing to decreasing emissions, which tends to increase mitigation
The point is that if you allow emissions to grow now the reductions that will
have to be made later must be made much more rapidly and will therefore be more
costly. Our view is the opposite of C.D. Howe's. That is to say, the delay is
the one that is dangerous.
C.D. Howe is basing its argument on the base of capital turnover, as if there
were some magic date in the future where all capital will turn over at the
stroke of midnight and then everything will be newer and cheaper and we will
move on with this. The reality is capital turns over every day.
In that regard, I want to focus on the other point the IPCC made. There are
three working groups in the IPCC. They look at how the atmosphere works, the
impacts of climate change and the economics of climate change. They state that
to reduce the cost of any stabilization target, the intergovernmental panel
stresses the need to focus on new investments and replacements at the end of the
economic life of plant and equipment. The focus on new investment does not
imply doing nothing. Acting too slowly, not even undertaking low-cost measures,
may increase the cost of a stabilization path by requiring more rapid action
What they are saying is that every piece of equipment that turns over every day
needs to be the most efficient today. The issue of the next light and the next
motor that are being installed, or the next home that is built, needs to be
efficient today is because these are long-lived products.
The C.D. Howe argument that capital turnover or technology will automatically be
cheaper 20 years from now, with no reason behind it, is not based on fact. The
reality is that in order to ensure that technology evolves and that the cost of
it is reduced over time requires implementation today as capital is turning
The Chairman: The C.D. Howe Institute also says that, in this light, allowing
emissions to rise over the next 15 to 20 years would not be incompatible with
maintaining reasonably low GHG concentrations in the atmosphere thereafter,
provided we can be sure that eventual declines in annual emissions will
compensate for the initial rise.
Ms Comeau: That is right. This is where we get into this argument. This is not
scientifically based. Essentially what they are saying is that we can go like
this and drop like this. What the scientists are saying is, yes, if you allow
that increase to occur, this kind of reduction is going to be required and it
will be more expensive.
They are also saying that this kind of path is the safest because this path
slows the rate of warming and it is absolutely critical that we not continue on
this path which is accelerating the rate of warming. We have to slow the rate
of warming if we want to protect atmospheric space. Theirs is simply based on
looking at things on an economic basis, which I would challenge, but it is not
based on a scientific approach in terms of environmental protection.
Senator Spivak: I have not read that particular document the chairman is reading
from, but is their assumption that global warming has not yet started?
The Chairman: The C.D. Howe Institute says some of the same things that are in
the document that came out of our research branch, entitled "Greenhouse
Theory and Climate Change," that speaks in terms of an increase in average
global temperatures of one to two degrees Centrigrade over the next century
which it says could have both beneficial and negative effects in different
regions. This report speaks about the common thought being that there is an
increase in hurricanes and storms. This document belies that. It says that
between 1991 and 1994, we have not had that. There is over-rhetoric as to what
is going on with global warming.
Ms Comeau: One must be careful with the way people are playing with data. There
are two important factors which must be clear. That was released in 1995 and it
only includes research up to 1992. In that scientific assessment, it said that
there was not enough data available for them to determine whether or not there
had yet been a change in extreme events. That is only one element of climate
The real issue of climate change is precipitation. If you have more heat energy
in the atmosphere, since the earth is 70 per cent water, you have more
evaporation both from water and the land base going into a warmer atmosphere
that can hold more precipitation, more moisture. For each precipitation event,
one gets more intense snowfall or rainfall, and that has been proven. Both
Canadian and American data show about a 20-per-cent increase in extreme
precipitation events. In fact, Dr. Jim Bruce, who just received the Order of
Canada, showed yesterday at the NDP forum that we attended that not only has
precipitation increased but extreme winter storms have also increased in
Canada. It is that kind of information that is very strong. The issue of whether
we are seeing an increase in the number of hurricanes is still open for debate
and discussion because it is not clear if we were on a low point in terms of
the period that we were in.
What is clear is that there has been a significant increase in the amount of
property damage from extreme events. We have gone from insurance claims of $1
billion a year to basically $1 billion a week. There has been a significant
change there. The insurance industry is very concerned with what is happening
with extreme events. Terrence Corcoran does this all the time. They repeat the
quote from the IPCC which says we do not have enough information to say whether
or not hurricanes are increasing. That is very different from saying that they
are not increasing. They said they did not have enough data to tell. The next
scientific assessment will very clearly show that there has been a change, and
that will include all the new research from 1992 right through to 1998.
The Chairman: We did not want to get into the science but all of a sudden C.D.
Howe comes here, and Senator Spivak asks about the assumptions and we are drawn
Senator Spivak: One does not really have to get into the science because what
the scientists said at the first conference is that we are into an uncontrolled
experiment. There is uncertainty. However, what is the harm of a no-regrets
approach? There may be many benefits. That is the point.
Some people will never believe and will continue to insist that the majority of
scientific evidence is not what it is.
Ms Comeau: We are pushing an insurance policy approach. Let us be safe rather
than sorry. These are initiatives which need to go forward for many reasons.
Mr. Ogilvie: To comment on capital stock turnover, the study we have done on the
American utilities shows that about half of the 100 largest utilities are 30
years or older. That stock does not turn over rapidly, nor does urban
infrastructure turn over rapidly. If we do not take the decisions now to start
to turn over some of the stocks, it does not matter in 2015. We will be another
30 years before we turn over some of that stock; 40 or 50 years unless someone
does a very drastic sunsetting type of thing. We are climbing the hill higher
and higher. It is a question of how high we want to be when we have to jump. It
is much better to start mitigating that now so that if we do have to jump hard
some time in the future, we will only jump a little ways. That stock lasts a
long time. We are running locomotives that are 40 or 50 years old on the rails
right now. It is a silly concept. Some stocks turn over rapidly, like
automobiles, on average every eight years. It takes 14 years to clear the stock.
Other stocks do not turn over. The large infrastructure stocks, such as urban
infrastructure and the coal-fired utilities and so on, are the stocks we must
start turning over right now. We cannot do it quickly.
The Chairman: When this committee went to California and looked at the
deregulation of the electrical industry, we did see stranded assets, stranded
when the companies were compensated highly and got off the hook for the
investments they made. It was a way of getting rid of outdated, outmoded and
inefficient assets as the industry changed. I suspect that may still happen in
Canada with some of this capital equipment that is now outmoded and not
appropriate. How do you compensate those people for it? That is the battle they
had in California, as I am sure you are aware.
Mr. Ogilvie: That is going on in the northeast with the nuclear power plants
going down. Ontario is facing that right now.
Ms Comeau: In fact, I would argue Ontario is investing in it. Some of us believe
that the reason Ontario Hydro announced its investments in nuclear just at this
particular moment was, in fact, to incur those costs into the base so that they
can claim stranded assets.
Senator Taylor: I have a short question: Have any of the three committees done
any work on carbon sequestration or carbon absorption?
Senator Spivak: Are you speaking about agriculture or forestry?
Senator Taylor: Whatever.
Mr. Ogilvie: Unfortunately, I have not done much work on sequestration. I know
the debate is on and there are some attractive things to comment upon.
Mr. Hornung: I know Ms Comeau will comment on this as well. In theory, carbon
sequestration is certainly one part of the tool kit in terms of dealing with
climate change. However, there must be some care in how we use that tool and
how we account for the gains that we are getting from that.
There is no doubt that planting trees will be a good thing, from a carbon
perspective; it makes sense. However, we still have a tremendous amount of
difficulty quantifying what is actually happening. It is much worse in
agriculture. We have had some discussions with TransAlta Utilities. They are
very interested in soil sequestration, trying to sequester carbon in soils.
They have put great effort and analysis into that because they saw that as the
great low-cost option to deal with climate change. They had some independent
people examine that for them, and they said it was not very expensive to
sequester more carbon in the soil but if you want to monitor it and get an
understanding of how much carbon, that actually costs a lot of money. All of a
sudden, it started to look a lot less competitive.
I will give you another example. New Zealand is a country that in its national
action plan proposed that carbon sequestration will be a large part of their
solution to this problem. When they released the first instalment to their
national action plan, they wanted to meet about 60 per cent of their target
through sequestration. The problem was that half way through that three-year
period for the first action plan, their scientists came back to them and said
they screwed up on the sequestration matter. The trees would only sequester
only about 30 per cent or 40 per cent of what they thought. That level of
uncertainty is so much bigger around those numbers in terms of sequestration
compared to numbers related to energy production and use that environmentalists
have significant concern about trying to equate the two and hold them in the
same balance sheet. You are not really talking about apples and apples; it is
apples and oranges because of the different levels of uncertainty.
The Chairman: I thank your organizations for the work they are doing for
Canadians in alerting us to these problems. Your three organizations are well
known. On behalf of my colleagues, I wish to congratulate you for your work and
taking your time to be here this evening. Your testimony has been very
illuminating. You have challenged our thought processes and contributed to our
understanding of these issues.