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

Issue 11 - Evidence - Afternoon meeting


Thursday, December 1, 2011

CALGARY, Thursday, December 1, 2011

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 1:01 p.m. to study the current state and future of Canada's energy sector (including alternative energy).

Senator W. David Angus (Chair) in the chair.

[English]

The Chair: Good afternoon. The Standing Senate Committee on Energy, the Environment, and Natural Resources resumes its hearing in the great city of Calgary. We are delighted to welcome Mr. Nathan Armstrong, President of Motive Industries Inc. Mr. Armstrong has circulated a nice slide deck.

Mr. Armstrong has, for over 16 years, been in the transportation, design, engineering business in both aerospace and the automotive sectors. Prior to establishing Motive in 2004, he worked for Boeing and Arrowhead projects on the International Space Station, Delta Rockets, and Joint Strike Fighter programs.

In 1996 Nathan moved to automotive engineering, working for metal crafters, an area group in Southern California, where he managed the engineering and construction of a vast array of vehicle products, including over 30 production vehicles, over 100 concept vehicles, and close to 1,000 clay models, interior models, and scale models.

He taught automotive engineering at the prestigious Art Centre in Pasadena and has taught product design at the Alberta College of Art and Design here in Calgary, which is his home town. There are many more good things on his CV, which we are all free to read. It is in our binders.

Nathan Armstrong, President, Motive Industries Inc.: Thank you very much. It is an honour to be here to talk about a few things I am passionate about.

When I met Senator Elaine McCoy at the Global Energy Conference, I had just given my presentation on oil work, what we are doing in Calgary here and also on the biomaterial work that we are doing. I am going to focus the presentation around those two items a little bit. I have brought in some of the work we are doing with Project Eve, which is a nation-wide consortium of technology companies. We are looking to get some of those projects off the ground. That is essentially what the presentation is going to be about.

If you open it to the first page, a little bit about me. A few things in here I did not mention. I am also an advisory board member for the Lethbridge Technology Commercialization Centre, which is a new centre in Lethbridge to try to get more activity in Southern Alberta going. Recently a cofounder of the Calgary Chapter of the Canadian Space Society, which is another new interesting thing we are starting here. Motive Industries and Project Eve are the main focuses these days.

There is a little bit about Motive Industries on page 3. We are essentially a vehicle design engineering company and have been around since 2004 predominantly working in the niche markets of electric vehicles, fuel-cell vehicles, hybrids, and natural gas vehicles. About 50 per cent the work is for the large companies and 50 per cent for the smaller, startup companies, which is an interesting place to be because you get to see the size of the technological curve.

We do a lot of work on composite materials. I work on low cost manufacturing, finding market solutions, so helping some of these newer projects actually find a home.

We are also very active in taking technology that is trying to find a project to live in. If somebody has a natural gas engine or has a fuel cell, for example, we will find a vehicle project to put this in. We are very good at matching up technology with actual client projects, so a lot of time is spent on that type of stuff.

On pages 4 and 5, you can see the engines of some of the projects we have done over the years. Like I said, a little bit of aerospace is in there still. We are working on an aircraft project right now, a Canadian six-passenger amphibious aircraft. The blimp in the centre of the page is also a Canadian-based project, a good one.

On page 5 is a list of some of the projects we have done over the years. You can read through those. There are a lot of big company names, but also a lot of smaller, start-up company names as well. We get to play with the whole lot.

If you turn to page 6, I want to show you this project real quickly. This is called the Kestrel. This was a project that came out of a series of IRAP funding that was awarded to us to advance biomaterials. In fact, I will pass these around.

I will talk a bit more about biomaterials at the end of the presentation. In Alberta, about a $35 million investment is needed to get the biomaterial sector off the ground.

Essentially, they came to us and said, "Can you help from the industry side to get this material into actual projects." IRAP awarded us a series of grants, and from that, this car is designed. It was designed as a byproduct of the research. We determined that in order to really understand the material, we would have to actually build something with it. That is the reason we are building this car.

This is now an Alberta-based project. It is nationwide now. The NRC Industrial Biomaterials Flagship Program is involved; CIC in Manitoba is involved. There are quite a few groups behind this program, but it is essentially to try and demonstrate that we have the capacity and the resources to do this in Canada. Canada is an independent state. We do not need any American big car company to do this. We have the technology to do it here, especially if we are talking about natural gas vehicles or electric vehicles.

It is not really well known, but in Canada we are actually one of the world leaders in technology in both those spaces, and we have companies here that are the best in the world. We are ramping up now into production. We are at about 10,000 units per year production with a lot of these technologies.

It is exciting, so we are really hoping that this project helps solidify the idea that Canada can get involved in the automotive sector as a major player and not have to rely on other countries to do this.

If you look at the Canadian economy, I believe that about $150 billion a year is energy, and automotive manufacturing is about $65 billion. Everything else is done at the $1 to $3 billion range below that. It is still the second largest industry in Canada, and we are at risk of losing that right now as the American car makers are pulling more work out of Canada.

This is an opportunity for Canada in not having a car company and not having the legacy of having car companies. If electric vehicles and natural gas vehicles are going to be predominant, this is an opportunity for Canada to really get into the game without a huge amount of investment. We are talking about these alternative materials and technologies. We are not talking about the traditional business model of $1 billion to launch a vehicle. We are talking more around the $10 billion mark to launch a vehicle.

Again, this is quite interesting stuff. At page 7 is a project that is about two years old. Project Eve was born out of IRAP, essentially, and it was an interesting conversation where they said we have got 200 clients around Canada, and everybody has the same struggles and the same problems. If you could all just get together and act as one big group, perhaps you have a bit of a critical mass do some interesting stuff. It was coerced into existence through IRAP.

Another reason was the electric vehicle technology roadmap published by Electric Mobility Canada about three years ago. It had a bullet point to identify the feasibility of a Canadian brand OEM. Again, this was brought together as a way to become a virtual OEM, we call it. There is not one company in Canada that could actually be a car manufacturer, but as group of companies we have the resources to do this. That is the reason for Project Eve.

On page 8, you can see some of the people that we have as members. There are some very big names. MacDonald Dettwiler is a big member; 3M; BCIT; SAIT; Deer College; University of Toronto; University of Waterloo; University of Windsor. They are all involved. TM4 is a subsidiary of Hydro Québec. We are just about to take delivery of a brand new battery from the new Hydro Québec battery manufacturing facility. It is not widely known that it is in existence. Hydro Québec is actually about to start producing lithium polymer batteries on a very large scale. We will have that resource in Canada as well, so it is pretty cool stuff.

We just received our first order, or we are about to receive our order, from a group of municipalities that came together to give us a group order for vehicles. We are going to be developing a small pickup truck for park and recreation use that uses biomaterials. It is going to be an electric vehicle, and it is going to be designed and built in Canada. It will be the first, I think, true modern example of a vehicle designed in Canada. It will be quite exciting and we are hoping that one works out well.

That is about it on Project Eve. There is a website. There are a few other things you can look at if you want to dig a bit deeper into the project, but it seems like it is finally getting some legs and should do some really good work now.

Page 9 is on the WWF. It is a new sustainable transportation department, so it was started within WWF about three or four months ago. They are looking at EVs and how they can affect policy and how they can actually help the adoption of electric vehicles in Canada.

This seems to be a fairly good program, and there seems to be some good people behind it. I think they will be making some good progress with that one. I just wanted to bring to your attention that that is actually happening.

If you go to page 10, this is kind of a side slide, but I did want to bring this to your attention. We are actually involved in a project to develop two different wind turbines. They are both Canadian designs, using Canadian technology. The one in the picture is a vertical axis; the other one is a horizontal axis. A whole group is working together at the moment. It came out of a project in Calgary called Wind Walk, which was a development by Mike Holmes to do a green development. The group that was doing the energy system for the project spun out the model into a much larger model. We are looking at a different way to look at smart grids, utilizing more electric vehicle technology as a backup and how to look at two-way energy flow.

What you are seeing here is a schematic of the Wind Walk system where you have several islands such that you can isolate different levels of the grid right down to the point where you can actually have the electric vehicle providing power to the house. Nissan and Mitsubishi are both bringing out electric vehicles that have two-way power flow. You can run your house off your vehicle for a certain amount of time.

I think the figure there was that 1.5 million electric vehicles would carry more energy than the entire U.S. grid. The numbers do add up very quickly when you talk about using electric vehicles as an energy resource and as an energy storage device as well.

A lot of work is going on with the smart grid side of things to see if we cannot get that moving ahead. It is really a regulatory challenge at this point. We are putting the model together, doing a lot of work with CSA, actually getting the two-way power flow standards and working with groups out of Sweden to make it happen. It is looking like it is going fairly well as well.

The crux of what I want to talk about relates to biomaterials, which is on page 11. This is actually turning into a very interesting space for Canada at the moment. We were approached by a group called the Alberta Biomaterials Development Centre, which is a kickoff of Alberta Agriculture and also the Alberta Research Council. Between the two groups we had about $32 million to $35 million in this sector in Alberta. The work so far has been to prove the fact that we can replace traditional materials with biomaterials and also build the infrastructure to get these materials produced at a level that industry can actually start using them on some meaningful level so we have enough product to actually start doing real projects with. That is what the work has been toward so far.

If you turn to page 12 and 13, you will see a few quick facts on composite materials. It is about a $50 billion industry worldwide. In 2006, about 183 million tonnes of fibre material was used. We see a growth of between 12 per cent and 20 per cent over the next 20 years. Really, it is quite a healthy industry.

Page 13 is a very interesting pie chart from the University of Toronto, which essentially demonstrates that 2.5 per cent versus 70 per cent generates the same wealth. It is an astonishing number. It demonstrates the potential for biomaterials. It is absolutely astonishing how much potential there is within this industry.

We keep hearing all the time about this global bio-economy. A lot of people are talking about biofuels and biogas, but biomaterials represent the third big sector in that regard. Canada at the moment is the world leader in biomaterials. This is, again, not really well publicized.

We are getting requests weekly from Australia, Costa Rica, India China and Japan to help them get their biomaterials industry off the ground. They ask if Canada can supply fibre.

The work that has been done has been to try to see if we can get this off the ground. In the last six months it has really taken off to the point where it looks like all we are going to be doing in the next couple of years is biomaterial development and applications.

If you turn to the next two pages, 14 and 15, it is the same centre. We are just making the point again that we are the only developed nation without an automotive company. I think it was Warren Buffet who said that if you want to be wealthy in this world, you have to be in the automotive game. It is the only sector that actually has numbers big enough to maintain any real industry these days. If you consider that if you sell 10,000 vehicles and you make $10,000 profit on each one, that is $100 million profit. The numbers can be quite staggering. There really is not any other industry that you can sell 10,000 of something or make $10,000 profit on each unit. It is a unique industry, and it is very important that Canada stays active in this game.

We think that the biomaterial sector is Canada's play here. If we get a request from Ford to supply materials and panels from Canada, I think we are in a pretty good position to keep this moving ahead.

A few key things have happened. The ABDC, with the Decortication Centre in Vegreville, we have the only operational processing plant in North America to take the agriculture fibre and take it into the composite material.

Senator Banks: What is decortication?

Mr. Armstrong: Decortication is the process of stripping the fibre from the plant. It was a process invented by Thomas Jefferson. He refused to patent it because he thought it was too important, so he kept it public.

That is actually a very important one. With that facility we can process a tonne per annum. It is a very big facility. It was about a $5 million investment to get it in place.

The other one that is a big one is the NRC's Industrial Biomaterials Flagship Program. I believe $40 million or $44 million was recently awarded within NRC to do more research into biomaterials and industry applications. This whole flagship program is all about industry participation. The project does not get funded within the NRC unless it has an industry partner and actually an industry project for it to go into. It is a bit of a change of direction for the National Research Council.

In Alberta and Manitoba we are looking at four or five larger scale processing plants being considered for construction by companies from Europe and the United States.

Number 4 is the Composites Innovation Centre in Manitoba. It was through a federal fund, about half a million dollar fund to do the first full structural analysis on the biomaterials. It is world leading in the fact that nobody else, even Mercedes, has done that level of analysis on this material.

Number 5 is interesting. We are actually co-sponsoring the first one there, which is a project to look at beef protein for the plastic part of the composite. That is a waste product from the cattle industry. The other project we are looking at is lignin based, which is a waste product from the pulp and paper industry. They are both going quite well.

Number 6 is probably the biggest one for Alberta where we are saying now that oil-based products work the best. The bio-based products work well, but the oil-based products work the best. This is an opportunity for the oil companies to start looking at using oil as a product rather than as a fuel. The numbers are big enough to support that in quite a good way. We are hoping that bioresearch on the plastics side will kick start the oil companies to do a bit more research on their side to see if they cannot stay ahead of that game, which would be fine, quite frankly. It would be okay to do that.

Senator Banks: If we use beef protein, we will have "mad car disease".

Senator Mitchell: We have had "mad car disease" for a few years.

Mr. Armstrong: Page 16 is a graph showing the strength of these materials, and we are about the same as steel in tensile strength. The University of Alberta is about to take up a four-year project to take the development even further, and we are hoping that we can be to the level of S-Glass fibre within three or four years with this material.

On page 17, I show some of the trends that we are seeing worldwide in the increase of the use of the material.

On the last page, there are a few examples and a letter from ABDC talking about the work we are doing.

Again, this is a good opportunity for Canada to really get into the biomaterials game in a very big way. We are hoping in the next couple of years to advance this even more. It is an odd situation in that overseas companies are coming here to take advantage of the resources, and we are not doing this ourselves. That is an area that a few people that are involved in the development side of things are concerned about. For example, if we do see a very strong market demand for this material, how are we going to be able to step up on the supply side quickly enough and with enough resources to make it happen properly? That is one of the concerns at the moment, because if we falter at the critical time, then we will lose the opportunity there. Australia and Canada are the countries that are best poised to really jump into this game.

The area of biomaterials is a very significant market for Canada, especially if we are talking about energy and the environment. Again, using the vehicle market as an example is a good application for it.

The last page shows some of the panels of the Kestrel that we have currently built. It shows the Lotus Eco Elise, which was built as a concept car several years ago, and of course Henry Ford back in 1941 with his hemp-body car. We know also that the 1918 Ford Model T prototype was also made out of hemp. There is a pretty good legacy in the industry of using the material.

One last thing is that of all the fibres that we found are useful, hemp is not the best. Linen-based flax, linen-grade flax is the best. Right now in Canada we use a lot of seed-grade flax. A lot of that fibre is burned in the field and not actually used for anything. That has pretty good properties, but right now Agriculture Canada is looking at a study on linen-grade flax and whether we can grow it in Canada and what the economics will be around that. That is kind of the last piece of the puzzle.

The Chair: You circulated two samples. Would you like to just describe them? They have gone around the table.

Mr. Armstrong: This one is from Canada. This is material processed in Alberta.

This one is about two years old. This was done in some of the initial research, and this was what a lot of it was based on. We got such good results from this. We are better than fiberglass at this point. It could be used in the marine sector; sporting goods; hot tubs; showers; shipping containers; garbage cans; sinks; kitchen countertops; canoes. There are so many applications for the material, it really comes down to whether we in Canada are interested in being on the materials side or actually getting the last piece of value added and being on the manufacturing side. We can export both. It really depends how far you want to get into the final value-added stage of things.

The nice thing about composites is that it is very low cost to set up the manufacturing facility. You essentially need a vacuum pump, some hand tools and you can get into production. There is a lot of uptake from different companies to start playing with it. Now that we have a good supply chain in Alberta, we can actually start sending out the material for the larger scale stuff.

Senator Massicotte: What is the basic ingredient?

Mr. Armstrong: This is a petroleum-based resin where this is flax together with a polyurethane foam.

This sample here is actually from Hong Kong. We got this sample from a group that made kitchen countertops and shipping pallets from the material. They brought the material from Canada. It is quite astonishing that they build these in Hong Kong. They are looking to ramp up. They want to actually build the Kestrel in China using these materials in Hong Kong. They are coming to us for the research, so it is quite phenomenal at the moment.

To toot Canada's horn a little bit here, we are actually in a very good spot now, and we would like to try and keep it that way.

Senator Mitchell: You do work on cars, some of which could be or are electric. What do you think the world will look like 10 years from now? Are electric cars going to become a significant proportion of the cars in the world, or is this a passing fancy?

Mr. Armstrong: That is a very difficult question. There are so many drivers pushing that one. If battery technology makes some really good advances, which it looks like it will, that could make a big difference. One of the issues is around safety ultimately. When you are carrying that much energy around in a battery, if you have an accident, and no matter how you deal with it, you have got to discharge that energy somehow. As people demand more range, that is one of the drivers from the market side. It just becomes an increasing safety issue. That is a challenge.

The hybrid style where you have a small battery and an onboard generator is probably the most likely technology, and that kind of leaves the door wide open for different types of fuel on the generation side. The only issue there is cost, so that becomes a more costly system.

If you look at natural gas vehicles, for example, that is probably the most logical next step for us to go, but that is a challenge of infrastructure. If we go from zero infrastructure today to work we do with EnCana on natural gas vehicles, they are saying they need 30,000 filling points in North America to make it a viable business on their side. That is a big leap, from zero to 30,000 filling stations.

If we are going to make a big leap in technology, chances are electric vehicles will be the choice. Natural gas is still competing with gasoline, and it is not much of an improvement. It is some improvement, but not a drastic improvement.

Like I said, electric cars offer a two-way power exchange with electricity grids so that power can actually be sent back from the cars to the grid. Not a lot of people know this, but the reason electric cars made a bit of a resurgence was because in 1999 a study published in California said that if 150,000 electric vehicles were plugged into the grid in California, they could put the power back into the grid during the peak hours of the day and then feed from the grid at night. They could close down 15 per cent of the coal burning power stations in California immediately. That got people excited about electric cars again. A lot of designers started kicking out electric car designs, but the two-way power exchange got left behind. That is starting to pick up again now and will be significant.

There are also "rare earth" materials. For example, how do we get enough cobalt? China has the market cornered. That is going to play into it in a big way. It is really an impossible question to answer.

Senator Mitchell: With respect to the energy implications of biomass materials, am I to take it that they are light?

Mr. Armstrong: Yes.

Senator Mitchell: They are strong, so they could reduce the weight of automobiles, for example.

Mr. Armstrong: Yes.

Senator Mitchell: A second implication is that rather than burning or just laying to waste what are now waste biomaterials, like the stalks of whatever, you would actually be able to increase efficiency because you could use them for this as well.

Mr. Armstrong: Yes. The challenge there is really the economics around moving the fibre. Obviously, the value added down to the farmer has to be maximized. We do not want to be transporting fibre from Manitoba to Alberta, for example, for processing. It really comes down to infrastructure and getting that whole thing built.

Senator McCoy: David Keith was one of our earlier witnesses, and his advice, and I think David Emerson's advice as well, was to invest and invest big and find the next $2 or $3 billion dollar industries, heading into a carbon- constrained future. Am I hearing you correctly to say that the auto manufacturing industry could be one of those?

Mr. Armstrong: Absolutely, yes.

There is actually an interesting one. There is a change in the industry where we are moving away from people owning cars to car sharing. There are several new models around public transit systems, so we are working right now on a rubber wheel rapid transit system that picks you up at your house and takes you where you want to go. We are working with tracked rapid transit systems. We are even working with a technology called "evacuated tube transportation" where you run a vehicle through a tube with a vacuum in it, and you can travel at supersonic speeds.

If we look at what is going on worldwide, there has been a 35 per cent drop in new drivers' licences in Tokyo and London. In America now, the average age of new driver's has gone from 16 to 21. Young kids are not too interested in buying cars anymore.

The automotive industry is still very strong. It is about $65 billion in Canada right now. It is a challenge and an opportunity as far as where the industry is going to go. However, because we do not have a legacy and we have these new technologies and materials, it is an opportunity for Canada to change direction.

Senator McCoy: It was not so clear to me exactly about the possibility of the biomaterials industry. I take it you are talking about opportunities along the whole chain. Did you quantify the size of that industry?

Mr. Armstrong: The bigger it is, the more efficient it runs. I think 50,000 tonnes a year was the number I heard as far as what would be needed to be processed to be sustainable. That is, I think, what we burn every year in flax stalks right now, about 50,000 tonnes.

Senator McCoy: Did I also hear you say that it would be distributed in a sense? It is not something that you have to aggregate in one place. It could be something that could be distributed right across Canada in various regions?

Mr. Armstrong: We looked at that model for automobile manufacturing, and that is how India is doing their new vehicle manufacturing now. It is kind of you make bodies here, we make chassis here, and we ship each other the parts and build the same product.

There has been plenty of discussion about doing that in Canada, and that seems to be a pretty good option. You are essentially talking about either material manufacturing or end product manufacturing. We might find that we get more aerospace in Quebec, Manitoba and Ontario. We might find out that this is where we get more agricultural.

It really depends. We have to kind of look back, work our way backward from what manufacturing resources we have, and then ask what that supports and what we need to support that and look at export as well and see if we can export these materials.

One of the nice things is that the value added to the farmer, the price of the crop in the field, is four or five times higher than you would get for food crop. It is very, very good for the farmer as well to supply to this market.

Senator McCoy: I was talking to a farmer who was looking for an opportunity like this. I will put you in touch with him and him with you.

Senator Banks: I am tempted to ask you what went wrong with the Joint Strike Fighter.

Mr. Armstrong: That was not my fault.

Senator Banks: You said that the likelihood of the replacement of gasoline by natural gas is unlikely because there just is not enough of an advantage. How about hydrogen as an internal combustion fuel?

Mr. Armstrong: We built two or three fuel-cell vehicles, so we have played with the technology.

Senator Banks: But not hydrogen fuel cells. I am talking about hydrogen as a direct, internal combustion fuel, exploded in cylinders.

Mr. Armstrong: You can do it. The issue with fuel cells is to keep the hydrogen clean enough. If you are doing internal combustion, it does not have to be that clean, so you can use it.

Hydrogen has a supersonic wave front. In order to maximize the usage of it, you need to redesign the engine specifically for hydrogen. If you put natural gas in your vehicle today, you are going to get less performance. If you design the vehicle for natural gas, you will get better performance. It is the same with hydrogen. If you want to do that properly, you need an engine that can take the speed of the explosion and use that power. You need a Wankel engine or something of that sort.

Senator Banks: We had several of these operating on the Senate buses on the Hill. They were internal combustion engines burning on hydrogen fuel.

The Chair: They are all in layout.

Senator Banks: They are in the wintertime.

Mr. Armstrong: It does work and it could be another potential.

A group in the U.K. is working on carbon nanotubes as a storage device for hydrogen so you can store hydrogen in a liquid form at ambient pressure. That looks quite promising as well. A few breakthroughs there might help.

Senator Banks: Where will you manufacture the Kestrel?

Mr. Armstrong: Most likely in Ontario, Niagara.

Senator Banks: That material is moldable.

Mr. Armstrong: Yes.

Senator Banks: By extrusion, or do you put a sheet in and stamp it?

Mr. Armstrong: The bigger panels you do with a resin infusion process. You put them in a mold and inject the resin, and the smaller panels you can actually thermoform, so you do a bulk-molded compound and you compression-mold it.

The second last page is a picture of a hood and a door, and those are both infused. Tooling is very low cost. You are looking at less than $200,000 to tool the entire vehicle.

Senator Banks: What about the safety aspect?

Mr. Armstrong: It far surpasses metal. We have not done a full-size vehicle test with this material yet, but with the regular composite material, one of the things we found is that if you compress it, it will pop back to its original shape. .

Senator Banks: You can put the body shops out of business.

How soon can I buy one?

Mr. Armstrong: Two or three years ago, I think. It looks like the pickup truck is going to move ahead of the Kestrel because more of the Canadian interest is around a pickup truck.

The Chair: Are you going for a Kestrel?

Senator Banks: I might even buy a pickup truck. I will hang a small plastic gun in the back window.

Senator Neufeld: We are just doing a little joking between us there, Mr. Chair.

You bring forward some interesting things, and I appreciate it very much. It is always refreshing to listen to some of these ideas, but the problem is usually how to get it to commercialization? You are facing that with all the things you work with.

I was interested in natural gas powered vehicles because when we were in British Columbia we went to a firm and had a tour that is actually using natural gas in diesel engines. It has the same performance and the same horsepower.

You were saying that you would not get the same performance and the same horsepower if you used natural gas, or did I misunderstand you?

Mr. Armstrong: I am assuming that you are talking about Westport?

Senator Neufeld: Yes.

Mr. Armstrong: Natural gas is about 110 or 115 octane, so the potential to get better performance is innate in the fuel itself. From my experience, if you take a regular engine and use natural gas, you do not get the same performance. If you upped your compression ratio one or two or three points, you get the same performance.

Senator Neufeld: I am not an engineer on engines, but I understand them a bit. They did not change the compression; they changed the injectors. They had pumps to pressurize the natural gas in the tank to 5,000 pounds.

I just wanted to say that in response to what you had said about not getting the same horsepower. They claim you will, and there will be a lot of those heavier trucks on the road soon.

Secondly, when you talked about electric vehicles, my personal thought is that electric vehicles will be used more in the city for commuting, for people going back and forth to work every day. You compared it a bit to natural gas, saying EnCana said they would need 30,000 outlets to be able to service Canada. I understand that, and that would be expensive. However, if you were to use that same analogy and say we were going to have all electric cars, you have got to build the electricity.

If you just add that to the end of it, because you do not have enough electricity today to do that, you actually would have to build that infrastructure. Either way, when you look at it there are other competing things. Electric would be great because you have no emissions, but you have got to take it back a little further and figure out how to generate the electricity. I wanted to ask you about that.

Mr. Armstrong: That is part of the challenge. In Quebec where we have got mostly hydro power, electric vehicles make a lot of sense. In Alberta where you are mostly coal, it makes no sense. This is the issue: There is not one technology that is "pickled" to every market. It is region specific.

A couple of studies were done in Alberta and Ontario on energy usage for electric vehicles. It came down to if you charged them up at night, there would be no problem at all having a significant number on the grid.

Senator Neufeld: For a certain amount and for commuting in cities, I totally agree, and British Columbia would be and is a good place to do it.

Mr. Armstrong: Is a very good place, yes, but if they do all of a sudden get to be quite popular, then we are in trouble, absolutely.

Senator Neufeld: What made you decide to move to Canada?

Mr. Armstrong: My wife is from Calgary.

Senator Neufeld: Oh, that is a good enough reason. I can understand that.

Just as a matter of interest for Senator Banks, will the car that he is talking about buying be front-wheel driven or rear- wheel driven?

Senator Banks: It has to be rear.

Senator Neufeld: He will not buy the car unless it is rear-wheel driven. Anyhow, that is just something between him and me.

Senator Brown: I was fascinated by your materials. I know they tried things like that in Red Deer some years ago, but this is obviously much different.

The Chevrolet Corvette has had a fiberglass body for many years, and one of my buddies had one. We went through a stop light and shattered the front end. It was completely disintegrated. However, you are saying this stuff is pliable enough that you can actually knock it back out into form? It is strong, but it is pliable as well?

Mr. Armstrong: Yes.

The Chair: That concludes our questioning.

Mr. Armstrong, that is terrific stuff and another little solution to the puzzle.

Mr. Armstrong: It is a very difficult puzzle these days.

The Chair: It is, indeed.

Now, colleagues, we move right along to Mr. Simon Knight, President and CEO of C3 — Energy. Ideas. Change.; and Mr. Dick Ebersohn, Senior Sustainability Consultant, Office of Sustainability, City of Calgary.

I gather you both have statements. Please proceed.

Simon Knight, President and Chief Executive Officer, C3 — Energy. Ideas. Change.: I am here to talk to you today about the work that C3 has been doing. The company I work for is formally called Climate Change Central. If you go to slide 2 — I left you lots of room to write notes if you want.

The Chair: Were any of your board members in the room?

Mr. Knight: I am going to get there. Our primary efforts are around energy efficiency, small scale renewals, and how they fit into the potential for an energy strategy for Canada.

On slide 3, C3 has been around for over 10 years now. It came out of a roundtable held in 1999 which was led by Senator Elaine McCoy. She is the founder of C3 and has served on our board ever since.

We were incorporated in 2000 as a not-for-profit, and we are in the process of transitioning ourselves to a social enterprise. Our head office is here in Calgary, and we have a regional office in Edmonton as well. We have about 30 staff members and with over half the staff members working on delivering programming for the Alberta government on energy efficiency.

The Chair: You did a study for this committee as we began our work in 2009.

Mr. Knight: We did, yes.

The Chair: That was most helpful indeed, sir.

Mr. Knight: Yes. That was during my brief medical sabbatical when I went and got myself repowered with a new heart.

On page 4, we have heard a lot of talk from people about a carbon price. In our review of this, you actually need three things. We do need a carbon price, a signal in the system. We need to incorporate new technology. We need to get them to move more quickly into the marketplace, but we also need to include a very significant effort around energy efficiency.

I know you have heard a lot about energy and I know you have heard a lot about how energy gets produced in this country, but we should have a significant conversation about how energy gets used in this country as well.

We are one of the highest emitting countries in the world per capita, and we know that we can do a lot better by establishing a price for carbon. We have done that in Alberta. We have started that in Alberta with our large final emitters, and they are starting to pay the social cost for their energy production.

The use and improvement of new technology makes a contribution, although it can take quite a long time to get that new technology into the marketplace to make a difference.

The third category we are focusing our efforts on is around energy efficiency, and we can tell you right now there are plenty of opportunities right now in the marketplace that are not being implemented and that we could do a better job of making a significant change on how we use that energy.

On page 5, when we talk about a national energy strategy, built into that should be a national energy strategy on energy efficiency as well. It cannot be just on how you produce the energy, it is how you use the energy, and it should be balanced.

There are plenty of organizations around the country already who are working on this, including BC Hydro, ourselves, and groups across Canada. If it was better coordinated and used in a systems approach, then we could do even a better job of it. If it was raised to the profile of how we debate over how energy is getting produced, I think we could make a significant improvement on how we use energy for our buildings, for our transportation, how we move people around, goods and services, how we design our cities.

Currently we are involved with a group called Quest — you may have heard of that before — led by Mike Harcourt, and we are in the process of actually creating an Alberta caucus on Quest as well. That is all about how we use energy within our communities.

The Chair: You should know that we have heard from Mr. Harcourt and from Quest.

Mr. Knight: There you are.

The Chair: And also from the Canadian Federation of Municipalities.

Mr. Knight: C3 is involved in that as well, so I am sitting on their National Advisory Committee, and I am going to lead the efforts here with the AUMA, the Alberta Municipalities Association, to create an Alberta caucus.

When we talk about developing a system, we are not talking about something that is rigid and slow moving. We have plenty of that with building codes and other systems we already have in place. You want something collaborative. We want it to be local, provincial, and national at the same time. We want to recognize the diversity across the country so it does not have to be the same answer in every jurisdiction.

By doing it, we can look at economic benefits or lower energy bills; increase the value of our properties. Environment benefits include less pollution, lower GHGs, more modern infrastructure requirements and social benefits, less household spending on energy, reduced energy poverty and potentially health benefits as well. They are all available benefits, they are all systemic, and we need to start thinking about these things in the larger picture.

Even with our buildings, we need to start thinking about our buildings as systems and stop thinking about them as separate mechanical pieces. For example, if you retrofit one of these high rise towers here, you really should be looking at what the building envelope is like before you replace the equipment inside it. If you make the envelope tighter and more efficient, you put less equipment in, you burn less energy at the end of the day.

You go to slide number 6, C3 is working within a planning framework. We are encouraging the Alberta government to adopt a similar approach. In Alberta now, and I cannot speak to the Alberta government, because we are not, but they are putting an emphasis on energy efficiency. The new premier has written four mandate letters for four departments. They're forming a task force, and we are very excited to become part of that task force and provide them with all we have learned over the last 11 years. However, the system has to be transparent and complete and has to have relevance, consistency and accuracy.

Part of the work that we do in C3, in addition to the work on energy efficiency, we also help manage the offset system in Alberta. Under that system, accuracy, consistency and validation are extremely important. We bring that same learning to what we do around energy efficiency.

Slide 7 has to do with a planning framework. This is not rocket science here. This is actually drawn from several other organizations, including the U.S. EPA. The only thing that is missing on this diagram, I want to keep it simple, but there's a feedback movement here. Of course when you are running programs, you want to evaluate them and get better at it.

I will just talk to you about one step on the next page. In looking at the potential for energy efficiency, we have done a conservation potential review in Alberta on buildings. We were not surprised but we were certainly validated that the savings potential is huge. You can see that everything below that line is economic, and should you be in the marketplace today, because it is economic, but there are things that are stopping it from happening.

It is not just around price. I will reiterate that to everybody: Yes, the pricing was important, but behaviour is just as important and change in people's habits.

Senator Banks: Can you change behaviour by pricing?

Mr. Knight: You can change some of it, but a large portion will not change rear-wheel drive to front-wheel drive no matter how much you give them. I was listening.

You are going to hear tomorrow from a colleague, Joe Arvai, a professor at the U of C, about behaviour and how it is important to include that in the equation, not just around price or assuming that pure economics will drive people's decision making.

I deal with this every day in program development because when you tell a person that you want them to replace the furnace in their house that is old and needs replacing and they tell you, "Well, mine still works and I would rather spend that money on a Corian countertop or a hardwood floor or a trip to Mexico," that is what you are dealing with. Therefore, it is not just around price. It is around how you change behaviour and tell them a story that will convince them that it is worth their time to do this and worth their — taking the time out of their life and making that disruption in their family to make that change.

When you ask for something even harder than that, you have to have a very compelling story, and it cannot be just around the dollars.

We are also working on developing a piece of our own technology, some software. It is called Treat, and it is a software program that is for companies and for communities to work with their constituents, their employees, or their citizens to make change behaviour and be rewarded for that. Those rewards can come in many different ways. It is a social change engine. It can actually come in the form of a monetary reward. It can come in the form of something like air miles, or it could be in the form of badges or recognition or status amongst your friends, competition between divisions in your company.

We plan to do our data test here with some of the large players we have been building this with in Calgary here, with EnCana and Cenovus and others. We hope to have our first version out in July, and I would hope that at some point I can bring this to the senate and all of you can become Treat enthusiasts as well.

The message I want to leave you with is that it is both sides of the equation, how we use energy, as much as how we create energy. It is managed to use a systems approach, both in that and energy efficiency. We can honour and appreciate our local sources and use energy initiatives and opportunities and look for ways to collaborate and learn from each other.

One of the things we do not do very well yet is coordinate our efforts across Canada on energy efficiency, and I think we can do a better job on that, and learn from each other. Share best practices and realize that not everything that works in Ontario will work in Alberta. Alberta has always taken much more of a market-based approach as to how it addresses issues, but we do watch what happens in Ontario, when they use a FIT program or whatever.

We have a solar program going here jointly with ENMAX and with funding from the Climate Change Initiative Management Corporation to develop a market-based approach to solar installations in Alberta. The program itself, its target is 8,500 homes with solar on them and 700 rural residents with wind power, small scale wind.

Each of us can find our roles in this as individuals, as organizations, and you as national contributors so that our investments are wise and we can get some of that, more of that investment into the less sexy parts of the answer. Despite Steven Chu, the energy czar in the United States, saying that now energy efficiency is sexy, I have never actually been sexy, but the issue itself is too important to play a back seat role to how we produce energy.

That is my presentation.

The Chair: It is an excellent one.

Dick Ebersohn, Senior Sustainability Consultant, Office of Sustainability, City of Calgary: It is interesting hearing about hearts. I can tell you it happens with 8-year-olds as well. My 8-year-old kept me up all last night thinking he was getting a heart attack. I had to convince him for about three hours that this is not a heart attack, this is just a tummy ache.

Yes, there are many comparisons and many things that we can see that are the same across the board. Simon was talking about C3. I am going to tell you a little bit more about the three Ds — density, diversity and distance.

As you introduced me, I am with the City of Calgary, the Office of Sustainability, and I was responsible a few years back for producing something that we call the Energy Map for Calgary. It was the first of its kind where we tried to link energy with land use and transportation when you do future plans for cities, development plans for cities. This was quite a task because it has never been done, and trying to get people on board was quite the task.

I would like to go through my presentation to give you some idea of where we started and how we move through this program and come back to the 3 Ds and what one can learn from that.

First off, how was the Energy Map conceived? Well, around 2006 the City of Calgary embarked on a process called Imagine Calgary. It was really a city-led, community-owned kind of process where we engaged over 18,000 Calgarians, of course, and we developed a long range, urban sustainability plan that developed goals and 100 year vision, 30-year goals, and targets for our citizens.

As a result of that, the city said that this is a very good basis for us to also look at our land use and transportation. For the first time they conceived the idea of actually combining land use and transportation. This might sound today, four years later, as something like, "Well, should not we be doing that?" It is not something that happens naturally. This is really true, and we are still struggling across the board to make this happen.

Yet in 2008, we started with this process and developed 11 sustainability principles for land use and mobility. Those sustainability principles were based on imagineCALGARY, so based on what citizens wanted but focused on land use mobility.

The last principle in there talked about the utilization of green infrastructure and buildings. We decided to look at green infrastructure in Calgary. Like Simon said, we sometimes do stuff a little bit different here. We decided to include energy within green infrastructure. We felt that it is part of the streams that we see flowing through our city, and green would also include then those alternative energy structures. We designed several scenarios to respond to energy use within the city and the design that will go along with that.

The study was built around three key themes. The first was to curb energy demand and reduce environmental risks. The second was to maximize our alternative energy systems across Calgary, and the third was to use district energy with a combined heat and power system. Those were the basics and key themes for our study.

We asked several questions in this study: What are the opportunities for renewable energy production? What urban form supports renewable forms of energy? What alternative sources of energy will reduce greenhouse gas emissions? What are the barriers, cost implications, policies and strategies? These things were not investigated before, and we had to find answers for those.

I am going to jump to results because to go into depth in the study could be tedious. In my presentation are two maps. The first map shows you a depiction of the ultra high efficiency product for Calgary by the year 2036. It indicates where we have very high efficiency going on within our city — in other words, there where you will find buildings that are really utilizing energy at a very high rate; and if we were to actually intervene in our system of energy, those would be the places to do so. The second map is looking at alternative technologies by the year 2036. That shows the red dots. That would be, and red areas for that matter, those would be conducive to accept things such as district energy and where it would also become more cost effective to do so.

The areas in yellow, a lot of people would look at Calgary and say very low density. Yes, we are. Those areas are lower density, and they would accept other types of technology such as solar, different types of energy.

The idea with the maps was really to start showcasing on a map-based product what we could do with energy. Because once we start getting into kilowatt hours and all these kind of things, planners and some road engineers and these folks that design cities, they glaze over and they say, "Just get to the point. What do we need to do?" This was an approach to curb that and to invite them into the conversation.

What did we learn? Energy and planning has multiple outcomes. If you could explain that the more density you have, for instance, the better use of energy you would see, the higher energy efficiency would be, the lower your energy use. We are not just talking here about electricity or gas or heating. We also talk about transportation, because we create more walkable communities so people do not have to drive everywhere.

Considering energy and the cost of growth is another very, very vital point. We have not actually found those numbers yet. We are currently embarking on a study with NRCan — well, I should not say we are embarking. We are investigating the possibility of embarking on a study with NRCan and other players to understand what the cost avoidance would be if we start including energy in our planning.

For instance, if you start building higher density, and I am not talking Tokyo or Japan or anything like that — low rise, think Ottawa in some areas or even think Montreal. In a certain node and corridor, in other words, a string of pearls type of way, we could actually start to understand that you do not have a need for those very lengthy pipes, for instance, that you have to put underground, just from a water perspective, for instance. It becomes shorter.

The same applies to the energy distribution system. You could actually supply energy to the specific higher density areas, and you do not have to distribute it from very, very long distances. There is also not that point where you are actually having loss of energy along that distribution route, et cetera, et cetera.

It becomes quite logical in that respect. We have not yet, up to this point in time, been able to nail what that cost avoidance is, and we are embarking now on a study to actually uncover that in Calgary. We have nailed the others. We have looked at water; we have looked at transportation; we have looked at garage removal, everything else. But this is the one that the planners and the engineers left out, so we are trying to accommodate that, bring that in and say if you accommodate this, how will you be able to plan better?

Also consider energy prior to planning. If it is just an afterthought, it does not really matter. Then you are struggling with things such as, well, we can only fine-tune things such as Energy Star ratings. Okay, replace your fridge and change your light bulbs. The layout of the city has been done, and that is what we have to work with.

With respect to including energy companies in planning to ensure timely implementation, resourcing, and expertise, municipalities do not always consider energy as part of their planning exercises because energy will come to us. We give our plans to the energy companies, and they will tell us what the supply of energy will be: electrical lines, gas, so forth. We look at line sizing in that regard. But if we do it beforehand, it could change that energy efficiency at the end of the day.

Another challenge is our land use changes. They are a challenge in many respects because they manage and control where we are going as a city on the ground. It is every person's right. It is a challenge to change that over to accommodate large scale energy systems.

We have a very good example here now where we are trying to just require developers to bring forward feasibility studies that will tell us if they should or should not consider thermal networks, for instance.

It is a very — huge challenge to impose that on developers because we do not have any other legislative framework that requires that. It becomes a challenge within our land use bylaws and so forth.

Last but not least in terms of what we have learned is the three Ds: density, distance and diversity. I have not spoken about diversity, but when we think about diversity, it is really about the different choices we provide for citizens and for people living here, myself included. We look at different types of buildings that we can combine or to congregate together to perhaps utilize each other's heat, for instance, for heating themselves, utilizing energy from one another. However, I am starting to think differently about those land uses and how they work together.

As I said, we have challenges around our land use bylaws. We have challenges around the available deliveries or to implement it. This is not always money, but it is about the knowledge to understand when somebody actually comes in and asks questions around energy to accommodate that within our cities.

The next steps: We have got our 30-year policies around land use and transportation in place that sets the direction as to where we would like to go. We would like to integrate that into our developments through nodes and corridors. We want to ensure that the land use bylaws could accommodate these energy strategies. We want to ensure that the resources are available to implicate this.

Last, but not least, the implementation of the community greenhouse gas plan, and I think Simon has already alluded to things around community greenhouse gas emission reduction.

Of course, for us, we want to build a case around energy, that it could be cost effective; and at the end of the day, really the greenhouse gas emission piece, especially in our environment here, that is a bonus. It is a real big bonus. Without offset registry and everything else, we could get so much back and feed it back into our system, implement it into what we would like to do.

That concludes my presentation.

Senator Mitchell: I have two quick questions to Mr. Knight and then to Mr. Ebersohn. The carbon pricing, how we should do it, and the offset program; often you encounter a great deal of criticism. Is it working and why?

Mr. Knight: The price on carbon is in legislation. There is specified gas emitters legislation in Alberta that applies to all of the industry that emits more than 100,000 tonnes a year. They have intensity targets set by the government of a reduction of 2 per cent annually, and they have three ways of meeting that target: They can improve their own operations; they can buy offsets; or they can pay $15 a tonne into the CCEMC's fund, the Climate Change Emission Management Corporation's fund, and that fund invests that money into new technology. They can use all three, of course, but one of them is offsets.

We do not have an exchange on carbon in Alberta. The deals are done at the registry where you can see where the potential offsets are available, and then the buyer comes on and does a one-to-one deal with the seller.

The approximate price right now is somewhere around $10 a tonne.

Senator Mitchell: Can you give us an assessment of how well you think that particular system is working?

Mr. Knight: There has been some criticism in the paper just recently from the Auditor General, and we are well aware of it.

Senator Mitchell: You are not giving up on it?

Mr. Knight: No. We are the first ones out of the gate. This is the first offset trading system in North America. There's one in Europe, but this is the first one in North America. We have learned how to tighten up the development of the protocols, and we are getting better at it.

There is work by the Department of Energy to go back and tighten up the ones that came first out of the gate. However, the system is working, and we currently have 15.7 megatonnes currently traded or registered in the system.

Yes, there are significant reductions going on.

Senator Mitchell: As an aside, at $10 a tonne, we could have bought our way out of Kyoto. I am not saying we should have, but we could have priced our way out of Kyoto for $2.5 billion a year. That would not have bankrupted us, would it? That is a rhetorical question.

Mr. Ebersohn: I would add that as a municipality we are all participating in this. We see it as a reinvestment into what we do. For example, change all the light bulbs, street lights as well; bring down those gas emissions; register that; get the money back and reinvest it.

This sounds like good business. For us, definitely, we actually have a program now, a recent — I can actually say this now because our budget was just approved yesterday, so I had to work through all of that. We actually have a program where we set what we would like to register over the next three years every year. We have it as a plan for ourselves and a reinvestment program into similar aspects that we would like to see for future offsets. We are very excited at the city to see that this happen and very much supportive.

Senator Mitchell: You mentioned a series of advantages or benefits that come from good, new look at urban design. Another feature, of course, is health effects, and that is, if you get it designed right, people walk more, and they have fewer health problems. That is another tremendous benefit.

Mr. Ebersohn: With respect to the social return on investment, we are trying a new design in Calgary, looking at sustainability return investment, so really the social environment and economic return all in one.

The social return investment is absolutely huge. We cannot deny that. Our studies and scenario building that we did with our municipal development plan or our "planet," as we called it, actually proved that. We looked at different scenarios, and we said this is the cost savings that you will see over time even from a health perspective.

Senator Mitchell: Less crime too.

Mr. Ebersohn: Huge.

Senator Mitchell: A cheaper way to do it.

Senator Brown: We came from Edmonton last night on a small plane, and Edmonton looked like a jewel in the night. We landed here in Calgary and Calgary looked like a jewel in the night. When are you going to shut off the lights?

Mr. Ebersohn: We have already started to shut off a lot of the lights. There have been programs in Calgary to do that.

Simon, I am not sure if you actually worked on that.

Mr. Knight: Let me take a shot at this. This is not about doing with less. This is about effectively using what you are doing. Put a light where you want it, for starters. It may look like a jewel, but that is lighting up spaces, and unless you are in an airplane, it is not serving a purpose. Direct that light down to where you need it first and then put in efficient fixtures to more effectively use the energy that you use to light that surface.

There are LED alternatives now for street lights, and there is a Nova Scotia company that actually produces this now, a Canadian company. I know the urban municipalities are talking about a program for Alberta. You will still have light. It will look slightly different, and it will be where it is supposed to be.

Senator Brown: I understand the LED lights. I have seen them around. I have a few of them myself. I will give you an example. The Federated Co-Operatives in Saskatchewan decided to shut off lights in their warehouse and their eight-storey building. I do not think they have built it any bigger since than eight storeys. They saved $10,000 in the first year. I cannot imagine that even if we did not shut off every other floor or put motion sensors in for late times — I have got motion sensors around my house, and they are not expensive.

Mr. Knight: Maybe I misunderstood your question.

Yes, exactly. I was the first president for the Alberta chapter of the Academy Green Building Council, and the things you are talking about are the first step: Why not turn the lights off at night?

We absolutely need a program for Calgary and Edmonton that works with the managers of the office towers to turn those lights off at night. You save a lot of energy; you avoid a lot of bird strikes. You can make a great difference with simply putting in motion sensors or changing people's behaviour to make sure they turn it all off when they are done with it.

Senator Brown: I really would like to see that. I am amazed that the only thing worse than Calgary and Edmonton is probably Las Vegas, Nevada, but they are going to have to turn off some lights there pretty soon.

Mr. Knight: If you look at North America, Edmonton and Calgary are two of the most highly lit communities in North America.

Senator Brown: They are, yes.

Mr. Ebersohn: The City of Calgary as a corporation, and of course, again, it includes the roads, the street lights and everything else, went into a program a few years back where we replaced all the street lights. We had a savings for the city, or citizens, of over $800,000 just by doing that. This was a huge investment at that time, but that has been now an annual saving that we have been seeing. The savings are really big.

We also have our own corporate programs that we run on a regular basis. Sensors have been put in. Everything is in place because we have got a responsibility back to the citizens, and we have to show them that we are reducing our energy use.

It happens with us. The challenge that we do have is also the citizenry, but we are working with other groups within the city to look at these kinds of things.

Senator Brown: I have one last comment. My wife worked on the 100-year plan with your new mayor, Naheed Nenshi, and he said it was difficult to project your mind 100 years into the future. However, I guess they did some things that have made an impact, so that is great. I would just say that we need more action on ideas that have come up, at least to try them if there seems to be a problem. We do not have to tear the place down, just fix it.

Senator Neufeld: I am interested in the offsets, but when you talk about doing studies for energy conservation in the city and those kinds of things, I do not know if you have ever looked west of the Rockies. I do not think there is hardly a British Columbia community that has not done it a long time ago in a whole host of fashions, not that they have got it all right; but there is a whole bunch there that has already been done in density. The City of Vancouver is probably the best one in Canada when it comes to "densifying" and has done an awful lot of work on that.

I commend what you are doing because it is important. These are very important things.

I am basically interested in the offsets, and maybe you can give me a little idea about what kinds of offsets. You managed them, I guess. What are acceptable? What is listed as offsets? I will go on the website and look, but just give me a few examples.

Mr. Knight: The offsets are all developed off a standardized protocol system which meets an ISO standard, and there are quite a number of them now, including things like changing utility practices for farming. There is an energy efficiency protocol being developed for buildings. We are looking at a new protocol for fuel switching, for example. Except for the original few, they are all being industry generated and being brought forward because there was a business case for developing that protocol.

The opportunity has mostly been in agriculture and forestry, but it is starting to branch out beyond now.

Senator Neufeld: Forestry is part of the offsets that you have.

Mr. Knight: Yes.

Senator Neufeld: I come from Northeastern British Columbia. Companies from Europe and the U.K. are buying farmland in Northeast B.C. and replanting the land with trees. Have you experienced any of that?

Mr. Knight: There is a potential offset program for that as well. I am not quite sure if we have a protocol for it right now. I think there has been some difficulty around the design of that, but it is a potential protocol down the road.

We are well aware of what B.C. does because with respect to the CPR we talked about, we used proxy data from B.C. to fill ours out when we did not have all the adequate data here.

Senator Neufeld: That is good. That is a form of sharing that we should always be doing and working together, as you said, to make it better.

Who manages it on the land base? Let us say you do tilling and trees. Who inspects that to actually police it to make sure that — and I do not use that in a negative way, or maybe I should — or manages it to make sure that if someone is buying X amount of tonnes for planting 50 acres of trees over a long period of time, that that is actually happening and it is going to carry on. The same applies to tilling.

It is okay to go on a website and buy it, but is it really happening? I think that is part of the problem with offsets. I believe in offsets, but to set up the whole system to work, because we are doing the same in British Columbia, is a little bit tougher to do. How do you do that? Does somebody go out to farmer B and have a look?

Mr. Knight: There is independent third-party verification. It is not done by the seller or by the buyer. The buyer actually hires a certified third-party verifier.

Senator Neufeld: Can you give me an example of a company that would be a third-party verifier? What do you do then? You said you manage it.

Mr. Knight: Yes. The process itself is web-based, of course. We manage the front end of the system, so we will work with the suppliers first to make sure their protocols are developed properly and that when they do submit, they are complete and that they meet the requirements of the protocol.

The Canadian Standards Association, CSA, actually runs the registry itself. We feed that information into CSA. They manage the overall registry to make sure there's no double counting, for example, or errors in land location. At the back end of it, we make sure that when those emissions get removed, they come off the system so they cannot be used again.

However, we are not involved in certifying the protocols. That is the job of the government, and we are not involved in policing the system. That is the government as well. The actual verification is done through the process.

Senator Neufeld: With regard to solar lights and LED lights, a large company in British Columbia has been making those for a long time. I have been through their factory. In fact, they make them for Fisheries and Oceans. Their lights in the ocean made their too. They are in Victoria or Vancouver, one of the two.

Mr. Knight: They are pretty well impervious to anything, so that is why they are out in marine environments.

Senator Massicotte: You say you get credits for new trees being planted, explain that briefly. My understanding is that a tree over its total life is CO2 neutral. In other words, when it is young it absorbs, but when it decays or burns, it releases it. Why would you get a credit for a tree?

Mr. Knight: The ones we are talking about are actually reforested for transplantation purposes. They would get harvested before they become mature, so the carbon goes into the life of that tree and then has a particular formula or algorithm developed for how long you get credits for it. In other words, how long is that wood going to be used before it is no longer storing that carbon.

Senator Massicotte: When it gets harvested, eventually the CO2 goes back into the air, right? You are saying there is a value-added calculation. You are saying the positives are now the negatives of the future, so let us give them a credit for that?

Mr. Knight: Yes, but it is a neutral cycle, so you have to work with how long that carbon is being stored before it goes back so that you get credit for that amount of time.

For example, we do not have a plantation protocol yet, but if you use trees as an example, when you develop a protocol, you sit down with industry experts and you work out a formula for quantifying those emission reductions. You build a discount rate into that formula for things like the death of those trees or a fire or an event like that, that they do not actually come to the — the whole group does not actually come to full carbon reduction potential. It is all built into the standard when you work with the experts.

Senator Massicotte: Like a net present value.

Mr. Knight: Yes, exactly.

Senator Neufeld: In British Columbia you have to plant more trees than what you cut down. You cannot just plant the trees, harvest them and get that. You need to actually plant more than what you have cut down so it eliminates some of that.

In Alberta, farmers will get credit for planting certain crops, but to be honest, those crops are probably going to be planted anyhow and absorb carbon, but it does help the farming community.

Mr. Knight: At some point in your program you decide the cutoff point. It is no longer something new. It has now become business as usual and you no longer get credit for that.

Senator Banks: Notwithstanding that other cities have done good stuff, do you have any direct counterparts in other cities? Do you know of another city in which there is a sustainable department?

Mr. Ebersohn: Yes. We are actually collaborating on the new study with British Columbia, Vancouver for that matter, because they have not done it before. Cost avoidance and energy infrastructure has not been done before, and so we are collaborating with them now at this point in time.

We are also collaborating through the International Centre for Sustainable Cities who has got a network across the country, as well as internationally. We are a member of this network, and we get together quite often, whether it is via the Internet or whatever the case might be, to discuss these kinds of matters, to discuss how we could move forward and so forth.

In Alberta itself we also have a network of sustainability offices where we are all looking at issues of sustainability.

Senator Banks: Involving other Alberta cities?

Mr. Ebersohn: Yes.

Senator Banks: Through the ICS?

Mr. Ebersohn: Not through the ICS. We do, but we also have an informal network where we work with others. Through ICS we are working with the cities of Airdrie, Cochrane and Edmonton.

Senator Banks: If you were with the City of Airdrie, what department of that city would you be liaising with?

Mr. Ebersohn: It differs. Sometimes, for instance, in our case, the Office of Sustainability is situated with the city manager, CEO. In other cities it might be within the planning department.

Senator Banks: But you ask that somebody in the other city be designated as a sustainability person, notwithstanding that there's not such a person?

Mr. Ebersohn: Yes. In some cases they have not designated any groups as such because it is more about the integrated approach, and because the departments are so large in many cities, they work on individual matters.

Our job is really to break down those plans and to look at those multiple impacts that we could have by applying our energy to one specific area.

Senator Banks: Because if it was an existing department, it would not work as well.

Mr. Ebersohn: No, and of course each organization would be different. In our case, we thought that the CMO would be the best place.

Senator Banks: What is the third D? Density, distance and what?

Mr. Ebersohn: Diversity.

Senator Banks: You said you were going to return to it and you did not.

Mr. Knight, you are right about the price point being ineffective alone. A few years ago this committee released a report on, surprise, surprise, reduction of greenhouse gas emissions, among other things. We in the course of that looked at other jurisdictions in North America and elsewhere that had had success in achieving some kind of demonstrable reduction in greenhouse gas emissions. All of them determined that no one thing will work by itself. You cannot educate people and expect them to do it. You cannot control them and expect them to do it. You cannot argue with them more and incent them and expect them to do it, and you cannot do it with a fiscal or financial hammer. You have to use all of the above for it to work.

We learned that, not based on anything that we intuited or figured out or experienced, but because we asked other people who had had success in that area, and that is what they all told us. That was in our report several years ago.

Senator Mitchell: Is that how we get to change credits?

Senator Banks: I will have to go back and find that report so I can change it.

Everybody knows that as the world improves, if that is the word, as it increases and as people who have not had access to the nicer things of life to which we have become accustomed, to get access to those things, there is going to be increased demand for energy of all types. Everyone knows it. It follows from that that we have to find new sources of energy, whatever they are. If they think about it, most people know that the easiest, cheapest source of new source of energy to meet that increased demand is conservation and efficiency.

The only aspect of any part of the energy sector that we have been able to find so far that has actively used that resource is the electrical generation, distribution, and supply. Not as a result of any government saying you should do this and not because of any force from anybody imposing above. It is a purely business decision based on pure practicality and consideration of what is the best way to use our capital resources or not, and it was to find that new energy supply from conservation.

The electrical industries have done that. Nobody else has done that. Why is that?

Mr. Knight: Part of the reason is that in many jurisdictions the energy industry is vertically integrated. They are not only the generator of the electricity; they are the supplier of the electricity and the retailer of the electricity all in the same jurisdiction. In that case, they are avoiding the cost of building a new power plant.

Senator Banks: Or a new dam.

Mr. Knight: Or a new dam, and still supplying you with energy, and in many cases, the cost will go up because of the demand. However, they are not having to build that new expensive generating capacity.

In Alberta where we are deregulated it is a different story because the generating of electricity in Alberta is deregulated so you have to look at it as a different approach on how we manage it here.

Senator Banks: I am not talking about comparisons between electrical utilities; I am talking about why, for example, the petroleum industry has not.

Mr. Knight: Because the petroleum industry is not vertically integrated. The people who are in the oil and gas business, those producing gas, are not the same people that are refining it and are not the same people who are selling it to you.

Without having that complete integration, the guy at the top who is producing the energy is trying to produce as much as he can and get the best value for the dollar for what he is producing. It is not a system of, well, I want to get the guy at the other end, the retailer. He wants to get the maximum amount of return for his investors in selling that commodity.

All the way through that chain they are trying to maximize their value. It is not a totally integrated system.

Senator McCoy: There is one other factor, Simon. You would have mentioned in the next breath that the oil industry, the retail, is not regulated. You can go to Shell, Imperial or a value-added gas station. It is not a natural monopoly, so there is different industry structure.

Talking about building on, why are people not leaping to this very elegant and exciting innovative field? How do we use energy really well? How can we do better and how can we do as well as the best in the world?

We have international tests for science, and we say, yeah, Ontario students were the best in the world, or whatever we say. There are some benchmarks established. I do not ever hear people talking about energy intensity benchmarks in Canada. Are there any?

Mr. Knight: Yes, there are. The Canada Green Building Council is actually setting what they would hope to be best practice targets for energy intensity per square foot, per square meter in a building, for gigajoules, for kilowatt hours. It is not uniform across the country, and it varies widely from jurisdiction to jurisdiction.

When I talk about a system approach to this, that is the kind of thing I am talking about is that we need to better integrate the work that is being done and not lose some of the good things that the federal government has already been doing, for example, around like EnerGuide ratings for homes.

A lot of us who run jurisdictional programs piggyback our programs on the EnerGuide system. The concern is that if the federal government does not maintain that system beyond the program dates, the end dates they are talking about, then our programs become very much more difficult to manage because we do not have that commonality around the computer modelling and design for the rating system itself.

Senator McCoy: So benchmarks help?

Mr. Knight: Yes.

Senator McCoy: Would it be good to have a consistent benchmark per product or per system as in a building, for example?

Mr. Knight: The trick with benchmarking, though, is to get somebody to pay for it. There is no glamour in it. It is just a benchmark. It does not actually reduce anything. It is just setting the standard for everybody to play from. It has to be built into the system itself so that it is the stepping stone for everything else you build off that.

Senator McCoy: We talk about other standards. Did you want to piggyback off me?

Senator Massicotte: My background is that I am a business person predominant in development. I spent a lot of time here in the late 1970s and 1980s and built quite a few buildings. You talk about density and how we relate that to the energy issue. I am sure you realize that those three criteria have been with us for at least 30 years for all kinds of good reasons. There is the cost of laying down the pipe. If you look at good urban planning, do not look at American cities but take a look at Europe. Basically, mixed-use buildings contribute significantly to quality of life.

You have done not bad with residential, but probably there should be more mixed in the core if you look at good cities. Therefore, we have got the theory right for the last 30 years and have made some progress but not significant progress.

We think we got it right now. We have got a new focus called energy. We will get it right in the next 10, 20, 30 years, but the theory is always suggesting that the weakness is that the total cost is not be considered. In other words, the developer or promoter who is building suburban housing, if they had to pay for the cost of the pipe to get all the infrastructure of hydro and so on, then their decision could be a complete total cost approach, a bit like pricing carbon. Without full pricing, you do distort the decisions.

It looks like we are not making much progress in regard to that decision. I think politically it is not very attractive, which means: Are we going to find ourselves with the same problems in the next 20 or 30 years? In theory we have got it right and we know what we have to do, but there is no appetite to get it done. What are your thoughts?

Mr. Ebersohn: That is a very good question.

When we completed the Planet Calgary project, we actually indicated in one of the scenarios that there would be a cost savings of $11 billion if we were to go with a more integrated approach and were able to prove that. Finally council actually approved that approach. They said, "If that is what we are going to save for taxpayers, why not go with it?"

Subsequent to that, we started a new growth management approach. We are actually saying, "You know what, how do we start to prioritize development out of the city?"

At one point in time in Calgary we had 30 communities being built at the same time. We are only inviting around 20,000 people into the city every year. Why would we have 30 communities being built at the same time? They cannot be built out in 20, 30 years, but we still have to pour all our resources into those communities. The idea is now to really scale back and say, "We should start to move to complete these communities so that we can actually see your own kids go to your elementary school."

Infill is one thing. I think we have to start looking for those land pieces where we have that availability and go up, but it is providing that choice. We found in Calgary, for instance, and the studies being done across Canada, that we have a gap in terms of our housing stock. We have got single detached, high rises and nothing in between. We have walkups, but the percentage is quite low.

We found that as soon as you start pushing up that sector, you really change the design and structure of your city, which has a huge impact on your urban systems; in other words, your utilities and so forth and, of course, directly on your energy systems.

Senator Massicotte: You are basically limiting choice somewhat.

Mr. Ebersohn: You are expanding it.

Senator Massicotte: Every city does the same sort of thing. We are not going to lay pipes and roads and asphalt everywhere.

Mr. Ebersohn: Yes.

Senator Massicotte: Does that affect the price of your lots? What does a typical lot sell for today in a residential community?

Mr. Ebersohn: I am not sure. I cannot answer that.

Senator Massicotte: Per square foot.

Mr. Ebersohn: I know that the average price of a house here in Calgary is around $403,000.

The thing is that we are starting to tell developers that they are responsible for part of the cost. They cannot load that on the taxpayers that are not living there. They cannot load it on the taxpayers that are currently living there where there are only 20, 30, 40 houses in that community.

Senator Massicotte: Do you pay all the cost?

Mr. Ebersohn: No, only partial cost. That is how far our politicians have actually reached out, which is huge.

Senator Massicotte: What do they pay?

Mr. Ebersohn: I think it is $18,000 additional.

Senator Massicotte: Does he pay for the road, the asphalt?

Mr. Ebersohn: Yes, they have started to pay for certain utilities.

Senator Massicotte: Light, water, hydro?

Mr. Ebersohn: I cannot confirm every one of those, but they have put together a package.

Senator Massicotte: The solution is there. Once you have paid full cost, you get close to a solution.

Mr. Ebersohn: To answer you quite frankly, yes, we are moving towards that, but it is also small steps because we are worried about pushing up the price of the lots very immediately because that will have an impact directly on each Calgarian.

I think they are looking at an incremental approach and saying, you know, for this first step, we would like you to pay this much more. We are still investigating this, and we are looking at a prioritization as to where we would like to see our utilities and resources and investment from a taxpayer's perspective go. We will choose four communities, and that is what we will focus on. I am just saying four communities. It might be five or six or three.

Mr. Knight: You have to be a little careful about how far you go with that, too, because you could drive people out of the community as well. They could buy cheaper lots in a smaller town down the road and prefer to drive. You have to be careful how you implement that because there are unintended consequences.

Mr. Ebersohn: Maybe just to follow a land use planning perspective, that is why you have to work on a regional basis. This is not just a city approach, and that is why we have been working with our regional partners to create a regional plan. That is part of the new planning approach for Alberta as well.

Senator Mitchell: You did very well and have answered our questions very concisely.

The Chair: Senators, our next witness is Mr. Ed Whittinghan from the Pembina Institute, Sustainable Energy Solutions. We have had representatives of the Pembina Institute before this committee in the past. We have always been impressed with your balance and your focus and your interest in our environment. Thank you for coming this afternoon. Our ranks are slightly, but not totally, thinned. You have got the heavy hitters here and we are ready to go.

I think you have been following our study. You know what we are up to. Do you?

Ed Whittinghan, Executive Director, Pembina Institute: Roughly. If you could give me a one- or two-line summary, I would be grateful.

The Chair: We started a study back in the midst of 2009 to study the energy system generally in Canada, given that there were many factors which made it clear to us, at least, that the system needs to be reviewed. It needs to be changed. It needs to be very seriously looked at and have Canadians start understanding it, start talking about it, start getting lectured about it so that we can have a more sustainable, greener, cleaner, and more efficient energy system in the country, and, hopefully, establish some kind of a strategic framework for a way forward for Canada's energy future.

The main focus was to get up to speed, so we did a year of basic study, of becoming familiar with the issues and the terminology. We are now focusing more on different aspects, trying to see the forest instead of the trees, and we are succeeding. We are nearing the end of our study. We will be coming up with a report in June, we hope, of 2012.

We have no preconceived notions. We are all ears.

Mr. Whittinghan: That was very useful. I am very happy to be joined by all of you today. For the senators who are not from Alberta, welcome. I am glad to have you here. For the senators who are from Alberta, Senator Brown and McCoy, Senators Mitchell and Banks, it is wonderful. Alberta is, I think, a great province where we talk about energy. We live, breathe, work and think about energy all the time, and the Pembina Institute is no exception.

I will keep my opening comments brief. You have my written summary.

The Chair: We are very impressed with the paper, first of all. It is luxurious in nature. We are sure you are going to get hassled a bit about this from your colleagues.

Mr. Whittinghan: Just so you know, normally we print on recycled napkins, but we happened to run short today so we had to use this nice heavy white paper stock. Consider it the exception. I must note that for the formal parliamentary record.

The Chair: We are not going to shred them. We are going to use them as evidence.

Mr. Whittinghan: Good.

At times I will quote from this brief that I prepared. I do not intend to read from the whole thing. If you have questions as I go, feel free to ask them.

The Pembina Institute has been around for 25 years now. We are born and bred here in Alberta. We come out of Drayton Valley, and Drayton Valley is this wonderful town roughly in between Edmonton and Red Deer but further an hour to the west. We came out of the 1982 Amoco sour gas blowout. At the time it blew for 80 days. It caused the evacuation of the immediate area. Two workers were unfortunately killed trying to extinguish the blowout and a group of landowners, ranchers, environmental educators in the area came together and said, "Well, let us make sure this does not happen again to the best of our ability," and ended up appearing at what was then the largest industrial accident here in Canadian history, submitted a lot of recommendations. Many of them were adopted and actually became the basis for oil and gas regulations.

That was an empowering experience, and from those humble origins our institute was formed.

We are classifiably an environmental NGO, but we are a little bit different in that in addition to doing research and advocacy, as many groups will — Wildlife Fund or Greenpeace, Environmental Defence — we run a full-fledged consultancy within Pembina that accounts for half of our revenue and half of our content staff. I have a lot of engineers working for me.

The consultancy is a way of us understanding energy issues from the engineering shop floor upward to the executive suite, but at the same time, it forces us to take a very pragmatic approach to the challenges because in addition for calling for policies or regulations to promote clean and sustainable energy, we are also working hand in hand with many of the biggest industrial polluters in Canada to understand how they can drive down their environmental impacts, and we provide them with advice on a fee-for-service basis.

I want to be upfront and say on a good day, because of doing both advocacy and consulting, the radical left calls me a corporate sellout; the radical right calls me a wing nut tree hugger. However, the base we play is with the pragmatic environmental groups and the progressive companies, and that is where we often form alliances.

Much of what I have prepared in this brief for you is drawn not just from Pembina's perspective but from Pembina working with Shell to convene an environmental NGO industry dialogue — we call it a no-regrets dialogue — on climate and energy policies. We are just at the stage this week of putting together our policy package that tracks pretty closely to some of the recommendations here. I do not want to attribute all of the recommendations to this group because by the end of the week, we will know the full list of environmental groups and companies who are in and who are out.

The basis of this will be presented to the Prime Minister's Office in mid-December for consideration. We would like to do that because it is not just an environmental group saying something; it is environmental groups and companies representing billions of market capitalization who, behind closed doors, have agreed on a set of policies that we think will drive Canada forward and clean and low carbon energy production. Hopefully we will get an audience, but I just wanted to set that as context.

What is it that we are specifically interested in? I have outlined six areas here: carbon pricing, renewable low carbon energy, oil sands, energy efficiency, transportation and urban design, and national energy strategy.

I should just be clear about that last group. We did discuss oil sands. After 18 years of paying attention to oil sands as the Pembina Institute, we have a lot of opinions that we routinely share and so I will share them with you today.

To begin with carbon pricing — and you have got some text here — I was in Winnipeg at the end of March this year for a meeting hosted by the Winnipeg Consensus, which is a group of eight think tanks working on national energy strategy constructions. In the room something amazing happened. You had environmental groups from WWF to Pembina, and you had companies like Imperial Oil and Shell and Cenovus, all agreeing that carbon pricing would be good for driving down emissions and it is something that the companies can live with.

Now, whether it is a carbon tax or a cap and trade, there still is not any firm consensus within industry but across a variety of groups from the Canadian Council of Chief Executives to even the Canadian Association of Petroleum Producers, two of these companies, we are agreeing carbon pricing is something that we think is in Canada's best interest.

It is a difficult case to make with the current federal government, but I think it is a case that needs to be made nonetheless. The knock against it in the past has been that industry is not prepared for it. I think that is no longer the case.

If there is one instrument that I think would really help aid Canada as it moves toward a clean energy future, I think it would be instituting national, federal carbon pricing. As I recommend here, you can use a national consultation process to actually come up with the details of how exactly it should work, whether it is a tax system or whether it is a cap and trade system, or whether it is a hybrid of the two. I think it is important to lead with that foot.

On renewables, I think Canada is in an interesting spot right now. We have had, if you look at the past, a wind power production incentive that really, when it was brought in during the Martin government, was a policy that did not have to provide 10 to 20 years of payouts because a short production incentive over a limited duration that has really allowed the wind industry in Canada to grow explosively.

I was at the Canadian Wind Energy Association conference in October in Vancouver. You walk into the room, the trade show, and you have got the GEs, the Siemens, and the Vestas. I mean, we are talking big industry here. We are talking companies that could make a lot of money out of doing this. We are talking provinces like Alberta, I think, where we have the greatest landlocked wind potential arguably of anywhere in the continent, and only a fraction of that has really been tapped into. It is a big opportunity.

We would like the federal government to really pay attention to renewables as a key part of Canada's energy future going forward.

Specifically, I will talk about a couple of recommendations here. One, we call the hold-the-line recommendation, and that is, really, let us just get our base information up to snuff and continue our baseline monitoring, whether it is keeping our weather stations open, whether it is developing our geothermal resource mapping, which is still not complete, and whether it is just, you know, encouraging all three levels of government — provincial, municipal, and federal — to collaborate on renewable energy. That is one thing that we recommend.

We would recommend a study, that is, a comprehensive assessment of the state of renewable energy in Canada so we can better understand the barriers and opportunities to continued employment.

Lastly, I think we can draw from the wind power production incentive example that I spoke of. There is a lot that Canada could do around energy storage. You have got these intermittent wind sources. Essentially we feed energy into the grid when the wind blows.

I will take Alberta as an example, but often that is not at a peak time. So it is blowing in the night while you are feeding into the grid at the lowest possible price. You are harvesting the lowest price, which still makes the economic argument for wind a difficulty. If you are able to store that energy you are able to use it during peak hours, but from the producer perspective as well, you are able to feed in at a time when you get a better price for it. I think that would really help all the intermittent renewable energy sources on the financial front.

If you want to finance a renewable energy project, what is your big driver? Well, in this province it is your offsets. It is whatever environmental attributes you can monetize or it is your spot pricing. Being able to store that energy would be a way of improving the spot pricing slice of the pie, and, therefore, it would allow wind project developers to get better financing out there.

What it comes down to is you are a developer in this country. You need a long-term renewable energy commitment, a power purchase agreement. Unfortunately, we do not have enough of those right now across Canada.

To make a long story short, I think energy storage is an area crying out for support, and it could be an area where Canada could carve out competitive advantage for itself as well.

As senators in the U.S. have told us, let us not lose this race to China because certainly China right now is the largest holder of green energy patents in the world. If you talk to venture capitalists in Canada who are going there on a regular basis, they are pumping out turbines and solar panels, partly for domestic consumption, but largely for the export market because they see where the West is going in particular, and they have made their bet on the energy future of tomorrow. I think we are at risk of getting left behind in that race. I think renewables should be part of our energy future going forward.

On natural gas, it has a lower CO2 content than coal. It is abundantly available here, so it is a good thing, right? The Pembina Institute, with the David Suzuki Foundation, ran a modeling-based exercise and said, "Well, let us look at the whole of natural gas in the continental market." We found that if you were to switch out all coal-fired power in Canada or all coal-fired power in the U.S., on the Canadian side, you would reduce our emissions by a fifth; on the U.S. side, you would reduce emissions by a fourth. That is a good thing, but we should not yet look at natural gas as something that is going to get us to the deep emissions reductions that the signs tells us we need to go and where G8 countries have indicated they need to go as well; that is, looking on the order of a 70 to 80 per cent reduction by 2050. Gas gets you part of the way; it does not get you all of the way.

If you look at the business of natural gas production, the usual scenarios show hockey stick-like growth projections. We think probably you can bring that down. Once you factor in a carbon price through modelling, gas actually plays a lesser role in the economy as opposed to playing a larger role.

We have got a few recommendations here. The bottom line on gas is let us take a go-slow approach. Let us not forget that with the revolution and tight technologies now, whether it be shale gas, tight gas, or even light tight oil, we need to pay attention to a whole bunch of other environmental impacts, at least those that have to do with water.

I think Alberta actually has some good lessons to offer. Quebec, if it is the environmental review that Robert Jolie is running, will have lots of lessons to offer Canada as well. As well, B.C. has learned a lot in the Horn River Basin.

With respect to the oil sands, if we look at federal opportunities, largely this is a provincial story. We have some recommendations around what the feds could do in terms of clean energy and even helping workers planning for work who are in community transition.

The simplest way that I tried to explain the oil sands is undoubtedly companies such as Shell, Statoil, Nexen, Suncor, ConocoPhillips are doing their part to drive down environmental and carbon intensity on a per barrel basis. That is without question. When you look at where we are now, on an average day we are producing 1.6 million barrels per day. When running at full capacity, it is 1.9 million. Everything that has approval brings you up to 4.2 million barrels a day. Everything that is in the application pipeline brings you up to about 6 million barrels a day.

Now the NEB predicts by 2035 that we will build it up to 5 million barrels a day. From 1.5 to 5 or 6, we are looking at a tripling or perhaps a quadrupling of production. Based on what we have seen, we have to ask the question: Can we do it in a way without tripling or quadrupling the environmental impacts as well? Will that tripling or quadrupling of production alone cause Canada to miss not only its 2020 greenhouse gas reduction target, but any future targets going forward?

While it is possible, we do not know yet because we do not have the federal plan to show how we can allow for that kind of growth and still meet our greenhouse gas reduction targets. As Pembina, we are open to the prospect, but we do not know because we have not seen the plan. While environmental intensity on a per barrel basis is undoubtedly being driven down, again, we do not know if the gains that will be made will simply be overwhelmed by absolute growth.

When I talk to CEOs or executive vice-presidents about that — and I was just meeting today within an EVP, with a board chair and with a CEO of different companies — they say, "Well, we focus on our operations, but we do not actually look at them as an aggregate; that is not necessarily our responsibility." I agree. That is the responsibility of the regulator.

If I were to offer one recommendation on oil sands, and this is arguably outside the federal jurisdiction, in addition to these I say, "Well, let us think about the pace and scale of development and look at the Norwegian example." From inflationary concerns alone, our worker availability has done a good job of staging the pace and development of its own oil and gas sector. I think there are lessons we can learn.

Certainly any CEO you talk to today will tell you that we do not want to get to the bad old days of 2006-07 and the first part of 2008 when we were a hyper-hot economy and an EHS worker was paid $135 an hour to idle his or her pickup truck sitting on the site. That is not good for anyone. It is good for that worker, but it is certainly not good for the overall health of the economy. The biggest issue we have with the oil sands right now is around pace and scale.

I will touch just quickly on these last few categories.

With regard to energy efficiency, I was on an economist intelligence unit panel in Washington two weeks ago, and we had the energy efficiency czar under Clinton. We had the Commissioner of the Federal Energy Regulatory Commission. We had folks in London who are working closely with the U.K. government. We all agree that energy efficiency is one of the best things we can do to save consumers money, whether they be residential or industrial consumers, and drive down our emissions. We have only just scratched the surface of what we can do.

For something on the order of a few cents per kilowatt hour, payback periods of two to three years, we can really drive down our energy consumption. It does not generally happen. Why? We said, "Well, it is a problem; it is not sexy policy."

The government, to its credit, replenished the ecoEnergy Home Rebate Program to the tune of $400 million in the last budget, which is great. A group like mine said put 250 in. They said, "Well, you are going to see your 250 and we are going to match it by another 150." Good on you. We need that commitment renewed because businesses hey need that kind of indication the subsidy being there for more than just a year. That is something heading into the federal Budget 2012 that we strongly recommend.

In terms of our recommendations, there is a lot we can do on expanding regulations and strengthening them for new and existing buildings, equipment, appliances, or even coming up with a national action plan for energy efficiency, which we do not have.

I think even provinces could come up with national undertakings, such as encouraging Premier Redford to work with one or two other provinces on energy efficiency and come into the next Charlottetown meeting of the energy and mines ministers to talk about national energy strategy with a plan saying, "Here's what our provinces are doing to move forward on this important area."

On transportation, my organization is bullish on the role of electric vehicles. I think at this stage it is not a matter of if they are going to be commercialized; it is just going to be how big they are going to be commercialized and then thinking of the power inputs for them. I am actually thinking of electric vehicles as well around energy storage. Potentially you have a great vehicle, literally a vehicle for energy storage, taking energy during off-peak hours. We have got a couple of recommendations mostly around pilot projects.

Lastly, and I mentioned it a few times, is a national energy strategy. Well, what is it? A national energy strategy is a proxy for greater intergovernmental cooperation on energy. It is nice that we can say national energy strategy in this town of Calgary and not have to worry about the ghost of Trudeau coming out with chains, with some sort of NEP banner around him threatening to take away jobs.

Senator Banks: You just lost us.

Mr. Whittinghan: I lost you on the Trudeau joke.

It was this town where you could first start talking about a national energy strategy and the CEOs were talking about it before Ottawa was. We will be sad to see Rick George go. He announced his retirement. What an amazing Canadian story, for a non-Canadian and what he did in terms of building up this northern tiger. He started talking about it and saying, "Listen, we need to get over this hangover from the NEP days."

Then I saw that the conversation started to migrate. You could talk about it in Ottawa as well without worrying about the ghost of Trudeau coming out.

What is it? Let us say what it should not be limited to. Whatever comes out of the many years of deliberations we will have, it should not be limited to just faster approval for projects, and regulatory enhancement is code for that. It cannot just be limited to that. It has to have at its core energy efficiency. It has to have at its core a vision for clean energy, making Canadians more literate around energy issues, in addition to regulatory enhancement. Yes, there are some inefficiencies in the system and spending 5 per cent of your project budget on environmental assessment is not necessarily the best expenditure. I will say that as the director of an environmental group. However, it is going to take a lot of cooperation. We have only taken baby steps.

I am glad that the feds are in the game. I think it is important that they continue to support this process. Ultimately, we need a broadly accepted vision of what Canada's energy future should look like. By "broadly accepted," we really need to go to the streets of Canadians on this one. A group like mine would say that let us just not call it a vision for Canada's energy future; let us call it a vision for Canada's clean energy future. I think the way the world is going, that is going to ensure our economic competitiveness well into the future for all those kids playing hockey tonight that I will be coaching.

Mr. Chair, thank you very much.

The Chair: It is interesting, colleagues, that a lot of the language is the same language that we are using, but it is in a slightly different context.

Senator Banks: This committee has been at this for two and a half years or so, and Senator Angus and I have been at it for longer than that. For all of those years — in my case, it is just over 10 — we have been hearing from every source, from every person I ask, every side of every street, universal support for the concept of carbon pricing. I do not remember anybody ever saying that is really a bad idea. Almost everybody we talk to says, "Well, the most practical way to do that is with a tax." You could do it with cap and trade, and you can do it with regulation, but both of those are fraught with problems of inefficiency and meddling and manipulation and lack of transparency. Tax — everybody understands it — straight ahead. At the end of that conversation, everybody says, "But of course we cannot do that."

What do we do when logic, the industry, the environmental NGOs, people on the street and I think most of us are saying fundamental to whatever else we do, it just does not make any sense not to put a price on carbon. Industry has been saying for years, just tell us what it is and then we will deal with it; but you have got to tell us what it is because otherwise we do not know what to do next.

You have been in this game for a while and you have met with people from both sides of the street. What do we do about that? What is in the way of what everybody knows ought to be done? What is keeping us, Canadian society, from doing it?

Mr. Whittinghan: Senator Banks, I think that is a very good question. Like you, I see almost complete consensus out there that carbon pricing is a good thing. I have also seen recent signs of companies that are now showing admirable levels of flexibility. By that, you have got Cenovus, which is a carbon tax company; you have got Shell, which is a cap- and-trade company, never the `tween shall meet.

Well, Shell, to its credit, says, "While we prefer cap and trade, we could live with a carbon tax if we had to. If it is just to get going on carbon pricing, we can live with it."

I am actually seeing the flexibility we need so that we are not going to get into an almighty bun-throwing fight with industry on whether it is a tax or cap-and-trade system. I think companies are pragmatic that way.

I think you would have to ask the Prime Minister's Office why the PMO is not open to carbon pricing and why it is proceeding on a sector-by-sector, performance-based emissions management system as it is right now, whether it be coal, natural gas, oil sands, or the rest of oil and gas.

Senator Banks: Let me jump in for a second. One of the arguments is we cannot do that because it would place us at a distant competitive disadvantage in North America. Is that not so?

Mr. Whittinghan: I would say that David McLaughlin's round table, the National Round Table on the Environment and the Economy, NRTEE, has shown that that is not the case. Very good modelling has shown that Canada can afford to move ahead of the United States, and, in fact, the longer we wait, the more our cost of abatement actually goes up. If you use one swipe of a policy pen to give us the greatest chance of meeting our international 2020 greenhouse gas reduction commitment, this is the instrument to use.

I think the national round table has done some great work there, and it is really to dispel the myth that Canada cannot afford to move first.

The Chair: When you present your document to the PMO later next week, who are you going to hand it to? Have you got it organized?

Mr. Whittinghan: We have got our contact. It is Dave Forestell. From what I can see, Dave has good convening power, and he is going to be bringing in reps from NRCan and from Environment as well. That is our audience. I do not know exactly who else will be there.

I led with a "carbon pricing foot" in this testimony. I will not do so at that meeting. I will talk about everything else. There are very few financial "asks" in here, but if you want to think through a way of trying to finance the few that are in there, carbon pricing is a good way of doing it.

The Chair: Why would you not lead with it? If it is as important as you say it is, and you know very well why they seem to have a resistance to it, but if they are getting David McLaughlin's group and all these industry groups that we are hearing from and everyone is referring to, why would you back off? I mean, you are either credible guys or you are not.

Mr. Whittinghan: Given my understanding of where the PMO sits on the issue, I think there are great recommendations in here that I want them to listen to. I do not want to close their ears with the very first words out of my mouth.

The Chair: It does not have to be the very first words. You can say "good morning" and things like that. That sounds cynical. We have been all over the country, and we have heard from all the different stakeholders. Sure, there may be a totally fallacious mindset. That is both a comment and a question.

By the way, those people you are talking about are not the PMO. It sounds like they are departmental representatives.

Mr. Whittinghan: Yes.

The Chair: I was suggesting if you are going to the PMO, you would not be talking to the bureaucrats that you are going to be seeing. You should be talking to Nigel Wright. Anyway, that is just a home-spun view from a green senator from Magog.

Senator Neufeld: I have a number of quick questions on your document.

When you say that you approve of technologies including hydro power but pump storage only, are you really firm on the only thing you will agree to with hydro is pump storage and not large storage?

Mr. Whittinghan: When you look at something like Lower Churchill, we think it is not a bad project on the surface. I will say that we have not had a close look at it. I am not up to speed on the Aboriginal issues, nor would I wade into interprovincial politics on the issue.

I would say there is still a good potential for large-scale hydro in Canada, so I do not want to rule it out, but more and more it is going to be located remotely from where we need the power, which is in the urban centres. At some point you have to think of, well, on an environmental cost/environmental benefit basis, based on what you are going to lose on the transmission side to get it to remote places, to get to the urban centres, is it really the best way to go versus other low carbon or renewable sources that might be located closer to those centres? Ultimately you have to do it on a case- by-case basis.

Senator Neufeld: Site C in Northeastern B.C. is actually larger at 1,100 megawatts, and it is going for an environmental assessment.

I appreciate what you are saying about the load centre because it is a long ways from Vancouver. We call it clean energy, and I think most Canadians would assume it is clean energy, not that it does not have its environmental effects. I am not trying to brush over that. However, if you were to go closer to the large centre, Vancouver, you are going to go to salmon bearing streams. You are not going to be able to ever build a dam on a salmon bearing stream, although there are some fish in the Peace River, certainly not salmon. When you refer to a closer load centre with large hydro, that eliminates a whole bunch. That is one problem of many.

I want to ask you about natural gas and some of the terminology you have used. The pages are not marked, but you refer to water impacts and placing additional stress on freshwater systems. I appreciate that because it is an issue that all provinces with shale gas and tight gas are dealing with. However, where I come from in British Columbia, they are using an awful lot of salt water. In fact, they have constructed plants that are over $1 million in value that are used specifically for that purpose. That water is also reused. It is not pumped back into the environment. You cannot do that and never have been able to do that. All water produced out of all wells goes back into the earth where it came from. It is not introduced into the environment. They reuse it. They talk about an 85 per cent "mark-back."

I am just trying to clarify a couple of things. I know it probably makes your point better, but I am saying that is it is not all fresh water. I am not saying it is not fresh water; there is fresh water. Would you agree with me?

Mr. Whittinghan: I would like to clarify Pembina's perspective on shale gas. We are not anti-shale gas. We are upfront in saying that we have scratched the surface in terms of our understanding of environmental management issues. In recognition of that, we are hosting early next year in Vancouver a thought-leader forum. We will pull together 100 thought leaders and industry academia, government, and NGOs to talk about shale gas, tight gas, light tight oil in recognition that we have got to understand it better.

There are some good examples of using salt water, just as you might use salt water for water flooding here in Alberta. We do know, though, that the impacts of shale gas are not limited just to water. You have got the climate impacts, the air emissions impacts, and then you have land disturbance. When you look at it compared to other more conventional forms of gas, it is fairly land intensive.

Senator Neufeld: Can I stop you there?

Mr. Whittinghan: Sure.

Senator Neufeld: It is exactly the reverse because they drill off pads. You will drill 16 to 20 to sometimes 30 or 40 wells off that one pad as close as maybe 50 or 100 feet apart off of that one pad, one road, one pipeline, where if you were to do it conventionally, let us say 25 wells, you would have 25 leases of about two hectares to three hectares apiece, plus roads, which I would say would occupy a lot more.

Mr. Whittinghan: Sure, I will give you that point. The pads themselves are larger, but you are right in that actually you have fewer wells spread around in the area.

Our point is, just as with the oil sands, let us get the pace and scale right. We are in a low price environment right now, so that is actually keeping it down. When it goes higher, in the absence of regulations we do not want a mentality where we throw the shovels into the back of the pickup truck and drive as fast as we can to unearth the resource. I think that is not good for companies, for communities and the environment.

Senator Neufeld: Do not get me wrong; you have some good suggestions in here. I am just trying to clarify where you are coming from with regard to some of your suggestions.

You talk about Denmark planning to eliminate fossil fuel use by investing heavily in public transportation. I have never read that and I read quite a bit about this stuff. For how long are they planning on doing that? Denmark, as we know, generates over 50 per cent of its electricity with coal. Are you saying that they are eliminating their coal plants, and how soon?

Mr. Whittinghan: I will tell you upfront that I do not know the Danish example very well. I will say that in Europe and to energy storage, you have sort of interesting grid connectivity that allows you to do things like recharge reservoirs in Northern Europe when the wind is blowing in Southern Europe. I think those are principles that we can learn and apply them back here. Instead of always thinking of our grid as north and south, we can be thinking more of grids east and west. I would happily follow up on the details around Denmark, but I do not have them at hand.

Senator Neufeld: You had three goals, so I will just talk about the other one. The Obama Administration plans to invest 18 times more per person this year in renewable energy than the Government of Canada. You are talking basically about electricity, I assume? When you look at U.S. electricity generation, it is 60 per cent coal. Canada's electricity generation system is about 70 per cent clean. I can understand a little bit of that, but these numbers try to tell a different story. In fact, I am darn proud of what we do in Canada. Can we do better? Certainly we can and certainly we should, but when it comes to electricity generation, most countries around the world would love to have the system that we have in Canada.

Mr. Whittinghan: When we ran the numbers on this, though, electricity makes up a big portion of that for sure. It is not limited to electricity. It would include, say, transport fuel and biofuels.

Senator Mitchell: Back to a carbon tax, someone said to me earlier today, amazingly counter-intuitively, that there has been more aggressive consensus in this visit to Alberta than in the hearings we have had for two and a half years anywhere else about carbon pricing. You have confirmed that and Eric Newell yesterday was talking about it, saying that we need to price carbon. Others of significance in the industries were doing it today.

You have made the point that there's not quite a consensus about carbon pricing. You mentioned one company that was kind of a cap-and-trade company, another company that was kind of a carbon tax company, but the one thing we know for sure is there is a consensus amongst industry that we do not need regulation, that that would be the least effective, most expensive and most intrusive way. Am I right about that?

Mr. Whittinghan: I do not know all the actors well enough. If you are talking about sector-by-sector, performance- based regulation —

Senator Mitchell: Whatever it is.

Mr. Whittinghan: — I will not try to speak for all companies. Certainly the companies that we talk to a lot, many of them in energy and in power generation, do not like that approach.

Senator Mitchell: An idea has come up a couple of times in the last several days and it has percolated a bit. It came up with David Keith this morning about picking areas of possible breakthrough technologies where you could somehow nurture, direct, encourage or incent priorities in research and development. LNG might be one, for example. We discussed biomaterials earlier today with Motive Industries Inc.

You mentioned storage. It sounds like you think that we are making progress. Do we in Canada have a competitive advantage there, or is there some kind of technology that is developed to a point where we are going to have a significant breakthrough beyond storing electricity in behind dams? That is key.

Mr. Whittinghan: We do at least on the hydro side. We understand storage a bit. I do not think any country is actually leading in terms of developing storage technologies. It is a prize that is still to be had. It would go hand in hand with the leaps and bounds growth in renewables, whether it be in Alberta with wind or in Ontario with solar or in B.C.

To an earlier question, you should look at the wind energy vision for B.C. that the Canadian Wind Energy Association has produced, and some of it is actually the industrial gas extraction.

Pembina is open. We can look at being a leader in how to use renewable power in the oil and gas sector. Even in the oil sands, for electro-thermal recovery, we have the potential to use renewable power for that instead of using our cleaner and abundant natural gas.

I would completely agree with Dave Keith and his assertion that we should try to pick some areas. It is difficult to do so because what you are saying is the federal government should be in the business of picking winners and, therefore, losers. A lot of companies would push back on that. I think it is actually prudent R&D innovation policy to do so.

In addition to energy storage, like I said, there are renewables and oil and gas, as well as next-generation biofuels, even continuing what we are doing with carbon capture and storage. Those are a few areas where Canada could claim leadership.

Senator Mitchell: It is interesting, you know, the mantra that you cannot pick winners. However, the federal government picked the oil sands in the 1970s, has invested heavily in it ever since and picked quite a winner. I am not being argumentative by saying if you only take that model and turn it to something else like renewables.

My final point is that there are tremendous possibilities for rural development in dispersed energy electrical development or production. Somebody mentioned that an average-size rural community sends a million dollars a day out of its community in the purchase of energy, which they actually could keep in their community if they had wind farms and biomass energy production. Why is it that we cannot seem to get there? We lament the dying of rural Canada. We lament the atrophy of rural communities, and yet here is a way we could have real money, real activity and real jobs all across the country instead of just in huge centres miles and miles from anywhere.

Mr. Whittinghan: Senator Mitchell, you reminded me of another point where I think Canada should pick a winner, and that is the application of renewable energy for remote and particularly northern communities. Why are we not there? I think we were there. We looked at it in the 1980s and 1990s. Oddly enough, Governor Palin, of all people, started to beat the pants off us in terms of investing in that as a potential.

That is one area where I think Canada could catch up. Gosh knows with what has been in the news around Aboriginal communities in Northern Ontario, or a particular community just recently, we need to be mindful of energy poverty issues there. The more you have them dependent on fairly high cost diesel generation that has to be shipped in, and there is air pollution associated with it, as opposed to helping them with investments and something that over longer term costs less, then I think the more we are helping out those communities. However, it has got to be driven by R&D innovation.

Senator McCoy: I want to turn to the regulatory questions. Suncor is a big proponent of collaborative problem solving. Recently in a presentation that was given to the cognoscenti of the energy industry and environmental industry here, the statement was made that as problems become more and more complex, we seem to be less and less able to come to an agreement. We are becoming very positional. We are becoming polarized. A plea was put forward for collaborative problem solving, which seems to me to be a possibility also in the so-called regulatory world. What would your comments be around that?

Mr. Whittinghan: I think the Suncor example is a great one. I do not know if this committee has heard about the tailings management consortium. That was pulled together after Suncor came up with TRO, tailings reductions operations, or, simply put, a better mousetrap for managing and de-watering tailings.

Then they came up with this consortium among the operators to say, "Well, it is not enough if just one operator figures it out. We need all operators to be able to figure it out." The province, to its credit, came up with Directive 074 that requires us to really try to manage wet tailings.

Take a company like Shell. It has a different approach, AFD, or "atmospheric fines drying." It is able, through this consortium, to go in and kick the tires on Suncor's mousetrap and say, "All right, you have got your mousetrap, but we think we have a better mousetrap and now everyone can come have a look at that as well." That is just a smart way of taking care of really big environmental problems. If you have them siloed and operating independently, it will probably take a lot longer to get to solutions.

Can it happen around regulation? You are the regulators. You set the regulations for the country. I would like to think so. Certainly with the national energy strategy, I see more appetite in cooperating on regulations instead of keeping firewalls up around provincial jurisdiction on energy.

I met with a provincial premier earlier this week. That premier, who is not in Alberta, said, "I would like to partner with Alberta on national undertakings to do with energy." I think that is a smart way of doing things. As I said earlier, maybe it takes two provinces cooperating on something like energy efficiency to then show the rest of the confederation that it can actually be done.

Senator McCoy: I do not think we have the time to push it much further. I have two more questions, actually, one of which has three subparts.

Do you think the forestry industry is a precedent that we could or should apply to our oil sands resource in particular?

Mr. Whittinghan: If you are alluding to what happened in the 1990s, I am sure Senator Neufeld could speak to this more than I can around the war in the woods and how forestry companies actually acknowledged that they had a problem and worked collaboratively with environmental groups and the regulator to come up with the Great Bear Rainforest Agreement. I think that is a decent model. I would say elements of it apply to the oil sands and this heated campaign environment that we find ourselves in right now, but not all of the elements do. It is certainly worth having a look at.

Senator McCoy: That is fair.

My next question is with regard to your opinion on three new regulatory models: (a) the independent monitoring agency proposed by Hal Kvisle and Dr. Howard Tennant; (b) the NEB is one regulator for energy projects and energy and environmental impacts; and (c), a similar move under study in Alberta, putting all environmental impact regulatory responsibility with the Energy Resources Conservation Board. Actually one of them is an information model.

Mr. Whittinghan: I will take a step back. We are talking about the oil sands here. Let us look at the different bodies, whether they be voluntary compliance driven or compliance driven, advisory boards or info sharing networks, and map it out as industry has done on a piece of paper. They call it the constellation map because essentially you have a hodgepodge, a dog's breakfast of different groups, all with their own fiefdoms and not necessarily talking to each other. This is clearly not a result of someone who set out with a goal in mind of economic competitiveness and, say, environmental protection, but clearly a result of cumulative evolution. "Oh, we have a problem with air quality, so let us come up with this new board; we have a quality problem with water, let us come up with that new body. It really is a dog's breakfast and it is not working."

With my earlier caveats about regulatory enhancements, and not meaning just faster approvals, independent monitoring to take the data that we have, which is really haphazardly collected, all sorts of different forms, not stored properly, and making it better and more useful as a mid-station to getting to better environmental performance, requiring it, makes complete sense. From my understanding, the premier is going to make that a priority.

I will say that the Pembina Institute is very open to NEB substitution. If the NEB comes in and says, "Listen, we are good at doing hearings, but allow another agency to substitute for the NEB when there is good cause for doing so." Could I say "blanket"? I do not know. It would have to be on a case-by-case basis.

Around the ERCB, I would say yes, but if that is the give that I am giving up, the take is that I would like to see the ERCB better define public interest first. I think it is a vague definition that can make it difficult for stakeholders to understand on what rationale the NEB is making decisions. I think there is great room for clarification on what is truly a public interest, and it is high time we do so.

Senator Brown: Mr. Whittinghan, I have a question that is less than a minute long, but I have written it down so I can read it to you so I do not go off at the mouth too much.

My question is why not put the cost of GHGs on to the consumers of energy in the same way that people who use telephones or cellphones for each call? We are moving to smart meters that reward less electrical use. Why not petroleum products that cost the users of energy and reward the ones that use less energy? Is it simply because petroleum companies are easier targets? If the companies see less consumption, they will naturally need to produce less and that would be on a worldwide basis. Less accumulation guarantees 100 per cent of less GHGs by the percentage that they are cut.

Transportation companies are responsible for 70 per cent of all the energy used in North America, and they have already done their cutting. I watched those cars go by all afternoon and all morning, and any of them that are newer than three years have done tremendous amounts of cutting back on mileage. The way I know that is I have a five-year- old 4X4, because I live outside of town and get caught in the snow quite frequently. I also have a brand new one for my wife. They have much the same engine, but they have six different transmission speeds. Instead of running at 2,200 rpm gliding level, they are running at fourteen and a half rpm. When you really apply the gas because you are going uphill, they will jump to as high as 4,500 rpm. I can tell you that one of these vehicles with the same engine is consuming almost 50 per cent less fuel.

Why are we not after the people who consume more than they should? In Phoenix, Arizona, they have got one lane that you can drive in if you have less than two people in the car.

Mr. Whittinghan: Senator Brown, I think that is why the energy companies are really open to carbon pricing because they know that they can flow through the costs, as they should, and if not 100 per cent of the costs, they can flow through the bulk of the costs.

Canadians want three things out of energy: They want it to be cheap; they want it to be clean; increasingly, they want it to be reliable. I can say you can have two out of three, but you cannot have three out of three. The one that should have to give I think is "cheap." We have had cheap energy. I am not going to go out there and broadcast off the top of the building that you are going to pay half of your income on energy going forward, but it is got to come up a bit, and that is going to give people the economic incentive to actually curtail their use.

You will find environmental groups and companies will agree that, yes, put on a carbon price and, yes, flow that through to give the clear signal to the consumer at the pumps or at the thermostat, wherever your point of use is.

The exception is that we want to be able to protect those who are at most risk economically. It is easy for me, and perhaps for all of us, that if my heating bill goes up I can still pay my mortgage and feed my kids. Those who are in the lowest margins of society, for them it could make a really big difference economically. I think we can help buffer it through revenue recycling so they can still keep their heat and, at the end of the day, it is not a choice between heat or paying your mortgage. They can do both. That is not talking vast expenditures. I think that is a little bit of help selectively here and there.

The Chair: Mr. Whittinghan, you have been very patient. I know you have a flight to catch. I think we are on the same page on a number of the critical issues. Let us just take regulatory harmonization for an opener. If I understood your answers to Senator Neufeld and your main comments, this is a common cause between us. It has got to be done somehow, right?

Mr. Whittinghan: It has got to be done, but let us be clear on why we are doing it. Ultimately, as I said at the end of my prepared remarks, Canadians need a vision for our energy future. I think if you talk to people, you will find that we will get a sense of what they want so it is not just a limited, narrow vision. I think that is a good starting point.

The Chair: Thank you very much.

Colleagues, our last witness, but certainly not least, is a wonderful friend of this committee who has had a hand with Senator McCoy in making our visit here to Alberta more productive. We look forward to a continuing association with the Canadian Energy Pipeline Association. Brenda Kenny is CEO of that association.

Ms. Kenny, we saw you as recently as two weeks ago in Ottawa.

Brenda Kenny, President and Chief Executive Officer, Canadian Energy Pipeline Association: That is right, senator. I have a few prepared remarks. I will try to move through them quickly and leave time for questions. I realize that this is the last spot in a busy few days, so I very much appreciate the opportunity to appear before you.

I last appeared officially in November 2010 outlining some of the key factors affecting pipelines as enablers for Canada's energy future. As you know, we represent these energy highways, a total pipeline network of about 100,000 kilometres moving virtually all of the oil and gas. We do so in significant ways, creating jobs and tens of billions of dollars in investment.

In reappearing, my intent today is to cover a few high points of perhaps what might be characterized as important changes in the energy circumstance of the past year, recognizing that you are now drawing your committee work to a close.

First is a reminder of the importance of the pipeline infrastructure component to Canada. Obviously, infrastructure in general is an important part of any country. Canada has a lot of very effective and efficient infrastructure and sectors of excellence.

To recap what pipelines deliver, we have, over the past five years, transported an annual value of $100 billion worth of trade for Canada. That is the equivalent of $3,000 for every man, woman and child in the country. The energy exports that are enabled by pipelines represent over one fifth of Canada's total merchandise export revenue. It was 22 per cent in 2010. It is a significant and key reason why the Canadian dollar has appreciated over time, but that provides increased buying power for all Canadians.

Finally, I would point out that in 2008 the hydrocarbon production industry contributed over $30 billion in tax revenues, with the largest portion going to the federal government. All of those were enabled because of the pipeline infrastructure, and obviously that must be adequate and it must work. We know the consequences of inadequate road systems and the costs that result from congestion over time. Certainly the impact of a power outage is obvious to all, but less obvious, perhaps, is the impact of inadequate pipeline infrastructure.

I have a bit of an update on that. You have no doubt been reading of some of the bottlenecks in North America and the quest for exports abroad. Currently we do have some challenges in infrastructure that have resulted in excess supply in some areas and reduced prices in the order of $20 to $25 per barrel compared to the world price of oil. With Canada exporting 2 million barrels a day of crude oil, this translates into us losing as a country $40 million to $50 million every day in export revenue, or close to $18 billion a year. In addition, that means lost revenue for governments across the country and fewer dollars to reinvest in Canada, as well as lower returns for all shareholders, including our many pensioners.

We must be able to get full value for our resources while removing bottlenecks or connecting to new markets. That means pipelines. At the end of the day, this requires public policy that is clear and regulatory frameworks that enable adequate pipeline capacity in a timely way.

I would like to speak briefly about responsible energy. As you know, large energy infrastructure development has become a lightning rod for opinions on how we use and produce energy. Most people who look objectively at the facts with respect to pipelines would agree that pipelines are extremely safe, and fair-minded NGOs readily acknowledge that.

I do not think there is a legitimate debate about whether or not pipelines themselves are safe. There are certainly ongoing interests in how we continue to make them even safer, and while society is going to use oil and gas, there is no better way to move that product than by pipeline.

New technologies and renewable energy will, of course, one day help us replace oil and gas, but that will require a lot of new technology and certainly a lot of capital, and where is that capital going to come from? As outlined earlier, 22 per cent of our export revenue and tens of billions in tax revenue each year are the result of pipelines enabling trade.

When you look at the scale of that trade, in Canada in particular, derived from energy and opportunities that a robust economic health will offer, there is, to my mind, a grave disconnect to suggest that if we halt oil and gas development, we could somehow afford to subsidize the development of renewable energy. Stopping energy trade is not a sustainable solution.

I believe in climate change, and CEPA is supportive of pragmatic action. One such action that I am familiar with is the Alberta carbon system where large emitters pay a levy of $15 a tonne and the monies flow into the CCEMC. I am on that board, and I believe you met with Eric Newell, so I will not brief you in detail on that.

Although we are in the early days, having made investments that have leveraged close to half a billion dollars in investment and technology, I think it is clear that the power of linking innovation and a healthy economy through energy provides wonderful opportunities for the energy picture and for the work of your committee.

That said, unfortunately, of course the controversy of climate change is not going to go away, and, as a result, the pipelines that enable that energy system will continue to be attacked.

That leads me to a few comments about "best placed" regulator. Regarding large infrastructure decision making and regulation, CEPA has appeared before the House of Commons Standing Committee on Environment and Sustainable Development and the Standing Committee on Finance where we have articulated our views on regulatory reform, specifically regarding the Canadian Environmental Assessment Act. To ensure both environmental protection and clear decision making, we believe that timely decisions would actually improve with a one-project/one-review approach, a consolidation, if you will, and to make sure that the focus of that point is whether or not a proposed project is in the public interest.

We must also ensure that smaller permits facilitate delivering on public interest decisions and not be used to frustrate development. We need to focus better on how approved projects can best proceed once a public interest determination is made.

Of course, Crown consultation is clearly essential, particularly at the early stage of project development, and we need to ensure that those are enfolded within regulatory time lines. Overall, we need to ensure clear time lines, transparent evidence-based processes and expert regulators.

This is important because we need to recognize that Canada is not only a major energy producer in its own right but is, in fact, competing on the world stage seeking new markets. Perhaps we can learn by example.

A number of years ago, Australia saw opportunities emerging with regard to energy export potential. That country chose to reform its regulatory framework aggressively and in doing so both enabled sustainable development and steady economic growth. They have established significant long-term trade links with Asia while we have not. By being intentional and clear, they have achieved significant long-term benefits in energy exports while tackling climate change and regional impacts. Canada can catch up, but time is of the essence.

In closing, I would say that your report in 2012 will be both timely and an important contribution to Canada. For our part at CEPA, we see that new infrastructure is essential for Canada to grow its trading potential, and we need to have very clear intent to achieve it. We cannot rely on a strategy of hope, nor can we allow decisions to be paralyzed by politics.

To this end, therefore, I reinforce the critical role that the pipelines play and the need for regulatory reform to facilitate that development to underpin both trade and sustainability.

I want to thank you for this opportunity to update perspectives, and I look forward to your questions.

The Chair: Ms. Kenny, as you know, there was a gentleman quite familiar with pipelines here this morning to kick off our hearings today. Mr. Kvisle told us about all of the pipeline infrastructure that was built in the 1960s and the billions of dollars — the dollars of those days — which is now 50-plus years old. What I did not get out of it, although he may have given it to us, is it all needs to be renewed, does it not?

Ms. Kenny: No, it does not all need to be renewed. The steel itself is still sound, and there is no reason why a particular pipeline asset would not remain useful for a very long time, just like many vintage bridges remain safe for a long time even though they are made of metal.

We have in place on pipelines active corrosion prevention mechanisms and ongoing monitoring and maintenance. It is true that sometimes we will find that a particular type of technology used at a stage in time of development may cause us problems that may require selective replacements, but that is not specifically related to age.

The Chair: One of the things he was quite articulate on was how building a pipeline today with all of the new materials and technologies is quite different than it was in the 1960s. Notwithstanding that, do you feel that we are good with the —

Ms. Kenny: We are having to manage each pipeline to match the asset at hand. It is a bit like the type of housing that you might own, a century home or a new home. A new home will have newer technology, even perhaps be easier for maintenance, but the right maintenance does not mean that an older home cannot be safe and comfortable.

Certainly steels today are stronger and coatings are much more durable, but for all of those systems we have very advanced inspection techniques that have come a long way in technology, much like our medical investigation techniques. You might go for an MRI now as preventative maintenance, if you will, for yourself. It is the same with respect to pipelines, particularly with internal inspection. We can see into the wall of that pipeline, pinpoint where there might be a problem, and proactively repair it. It has been very successful in helping us bring down the number of incidents, and we continue to develop that technology further.

That is not to say that at some point there might be components of some pipelines that require replacement in more than just a maintenance mode, but we are not seeing that being a significant part of the system.

The Chair: You sort of said "I believe in climate change," and you went on to talk a bit about it. Then you say, "Unfortunately, the controversy on climate change is not going to go away." I say what controversy?

Ms. Kenny: What I meant is the controversy on how to tackle it.

The Chair: Not the deniers of the science.

Ms. Kenny: I am sure that some people still question that science. I am not one of them and most of the people I know are not in that camp. Even those who are, I think, acknowledge that the ship has left the dock and action is needed.

The controversy, in my view, is really born out of a question of how we best tackle it on a global level. Does that mean that we halt all oil and gas development, or does it mean that we leverage the capital flows from that type of development and trade to actually enable the next generation of energy? I certainly fall in the camp of the latter, and my belief is that that is where we go.

Senator Mitchell: This may not be an entirely fair question, but you just raised it, and that is the question of what we do internationally to tackle it. It looks like we are going to pull out of Kyoto, I do not know, but I can read the paper and between the lines. If not Kyoto, what?

Ms. Kenny: I will speak personally. This is not a CEPA position.

Part of the challenge is that we need to look at the strategy. Some of the work that your committee is doing will be important in this, and take a good hard look at what our role is on an international level in both providing energy and managing our own emissions. We are unique in the world in terms of our role on an international level in providing energy to others. Anywhere you produce energy you will also produce GHG emissions.

One of the things that we have yet to do effectively, I think, is be able to communicate to the world our role in energy globally and how we will help with that transition on GHGs at a global level.

Senator Mitchell: Would you agree that it is not something Alberta can do itself? There has to be a federal role because the world does not see Alberta as speaking for Canada. They see Canada as speaking for Canada.

Ms. Kenny: I think that Canada needs to be represented as the wonderful federation that it is. I do not think that any one government takes the whole ownership for that role. Our best strength is in the joint efforts and the collaboration and the joint voice around what we represent as a nation, and its parts, to the world.

Senator Mitchell: You mentioned the shortfall of $25 a barrel. I think you are referring to the spread between Brent and West Texas.

Ms. Kenny: Yes.

Senator Mitchell: Is that $25 now?

Ms. Kenny: I believe that it has dropped a little bit, but it fluctuates. It is going to depend on the specific markets and the flows.

Senator Mitchell: Is getting our product to somewhere other than the U.S. important to collapsing that spread?

Ms. Kenny: That will help collapse the spread. It will also help with some discipline in the market. If you are a major provider of anything from widgets to oil, it is always useful to have more than one market, obviously, to be able to triage, negotiate and optimize where you send your product.

Senator Mitchell: In a way, Keystone not going through might actually be good in that regard because it is just selling more of our product to the U.S., is it not?

Ms. Kenny: Well, it is important to recognize that within the United States there are several different market areas. Obviously the Keystone XL project is targeting a market area that is different from the one where the bottleneck exists today. I do not think that it conflicts with the objective of finding alternative markets outright. I also would acknowledge that the long-term forecasts of growth in oil production will, by necessity, require even further additional pipeline capacity.

One other observation I would make, and I do not want to be quoted as advocating excess pipeline capacity, but clearly the cost of a bottleneck, in this case in the order of $18 billion every year, far surpasses the cost of spare capacity. I think when we are looking at infrastructure, much like highways, it is important to be able to provide options to the market and make sure that we relieve and avoid those bottleneck problems that exist.

Senator Mitchell: The other side of that coin is that our reputation, which you could argue is at the root of at least the delay in Keystone, is costing us a lot of money.

Ms. Kenny: I think what is unfortunate in the Keystone example, and you may have heard from other witnesses, is that it is really hard to decipher what part of that is Canadian reputation and what part of that is misguided mathematics on actual emissions. When we look at baskets of crude and the alternatives going into that Houston market, we are not very different. In fact, we are better than many. What is unfortunate is that there has been a campaign of misinformation about what Canadian oil sands represent.

I believe that part of the education that needs to happen is a clear line of sight to a truthful barrel-to-barrel comparison and a good, clear policy on how we intend to conduct ourselves going forward.

Senator Mitchell: Rather than the ethical oil argument.

Ms. Kenny: That is an interesting one. I know it is quite controversial, but I will not touch that.

Senator Mitchell: What are we buying in the East, then?

Ms. Kenny: We are buying from a number of different sources in the East, as you know. I think there are at least four different sources of crude oil going into Montreal and to New Brunswick.

Senator Mitchell: From the same places that the U.S. is buying.

Ms. Kenny: Yes, basically. Once oil is seaborne, it is coming from a lot of different sources around the world. As you know, Enbridge is proposing to move their Line 9 asset to have Western crude again go into Montreal. That would be, I think, a good contribution to the East.

Senator McCoy: That segue is perfect given what I was going to ask.

We have heard over the two and a half years we have been following this study the frequent call to propose that we have an east-west electricity grid. By that, people usually mean we should link from the West Coast to the East Coast like a highway, an energy highway.

We have heard very little discussion, though, about having our pipeline capacity go from the West all the way to the Atlantic Ocean. I am aware from a conversation with the CEO of Irving Oil that there would be an appetite to actually access Alberta oil, and I think he would not mind my repeating that. The difficulty, I believe, is that we do not have a pipeline that goes further east than Montreal. Is that a feasible option, to your knowledge?

Ms. Kenny: It is absolutely feasible to construct a pipeline linking further east. Previously in terms of natural gas, for example, there had been a contemplation of linking the existing natural gas pipeline that goes out to Quebec City right through to Nova Scotia. It has been market-based choices that have not had that occur to date, either on natural gas or oil, but these things are always feasible.

After the oil embargo in the early 1970s when there was concern about the security of supply into Montreal and points east of that, the federal government itself approached one of our major pipeline companies, at that time Interprovincial Pipeline, now Enbridge, requesting that they look at the feasibility of connecting Ontario to Montreal by pipeline.

That Line 9 I mentioned a moment ago was, in fact, the outcome of that deliberation where the federal government had a deficiency agreement in place that said, "Please operate this as a market-based undertaking, but in any given year if that market-based undertaking loses money, we will pay the difference." It was a 20-year deficiency agreement with an objective of energy security as the underpinning policy. In every year in 20 years from 1976 to 1996, the federal government paid money. It was, if you will, a policy investment in energy security.

At the end of that, the oil markets worldwide had settled down considerably. Security was not seen as a threat and the asset was bought by Enbridge and subsequently reversed, in fact, to bring eastern imported crude into Sarnia.

Why I share that example is simply to point out that we have done this in the past for either policy or market reasons. If there was an interest and a concern either in market or in energy security, of course building a pipeline from Quebec to New Brunswick is certainly plausible, entirely feasible.

Senator McCoy: It is technically feasible but it may not be economically feasible.

Ms. Kenny: I think that is the central issue.

I know that there were some comments in the press about two or three years ago, alternatively saying that surely we could have a strategic petroleum reserve in the East as an option as well. However, again, storing tens of billions of dollars worth of crude oil because some tanker might get interrupted, you have got to weigh the reality of the risk and the consequences. I think that we are well placed in Canada to be able to respond effectively and move fairly quickly if our geopolitical constraints change.

Senator Banks: Ms. Kenny, I am giving you notice that I am going to be lifting a quote from your remarks for which I will always, of course, credit you. It is: "We cannot rely on a strategy of hope or on decisions that are paralyzed by politics." That is exactly right, Ms. Kenny.

As a matter of interest, when you run pigs, as they are called, down in lines, mainly they are looking for problems, but there is also a certain amount of robotic repair that can be made from inside. While they are at it, can they do recoating in some cases?

Ms. Kenny: That is a great question. I have not heard of recoating; certainly cleaning out, but perhaps recoating. I am not aware of that. I am not aware of any mechanical repairs from inside.

Generally what will happen is the technology will detect — currently it is much better with GPS — fairly exactly a location where there is some anomaly. It will record that and then technicians will look at the results and decide, "Gee, I think I should go and take a look at that." They will actually plan to dig in, check in and, if need be, repair that location.

I would invite you, if you are interested, to go to the CEPA website, cepa.com. There is an excellent digital image — a little video by one of the suppliers of internal inspection devices — on exactly how all that happens.

Senator Banks: I will do that. I will not use the acronym because I keep seeing "Canadian Environmental Protection Act."

Ms. Kenny: Yes. Some people do get that mixed up.

Senator Banks: I am going to put forward an argument and ask you to respond to it. You talked about the $18 billion a year it is costing us because of a shortfall in our pipeline capacity for export. However, it is not lost revenue; it is deferred revenue, is it not? We have heard that the demand is not going to change.

Here is the argument. We all inherited this wonderful store that is full of stuff, fully stocked, and that everybody wants. You are running one of the checkout counters in that store, and you are arguing that you want to put more stuff through your checkout counter faster. The argument is good. There is a certain efficiency to be gained from that, and certainly revenue is going to be gained today rather than tomorrow.

Ms. Kenny: Yes.

Senator Banks: But the stock is still there.

Ms. Kenny: I thank you for that question for clarification. The number I have quoted is actually lost money due to a discount in the market. We are being underpaid for the resources we are selling.

Yes, your point is very clear and valid in that the pace at which you sell your stock will dictate how much you have in the future. To that end, it is important to recognize that the stock that we have now with today's technologies on natural gas amounts to over 100 years, and on oil it amounts to over 300 years. I would suppose that we could double our sales and not greatly risk the future of stocks, particularly if we were careful in how we converted that capital to new inventories, if you will.

If we are smart about the economics, I believe we have a great opportunity to leverage some of that tax revenue instead of it necessarily all going into general revenue and to be more strategic in saying that our future relies on more advanced technologies and know-how. That has been Canada's strength in the past, present, and in the future it will be as well.

What if some of that $30 billion in tax revenue were to be explicitly directed toward innovation to develop new companies that could trade in energy technologies, going partly to I think what you heard from Dr. Keith this morning. That is certainly what you would have also heard, I assume, from Mr. Newell in reference to the CCEMC.

Senator Banks: Carrying forward an argument raised by Senator McCoy about the dearth of R & D money that is spent by our extraction companies. Is it necessary that the government collect those taxes and either cause or direct R & D to be done? Why can the industry not do it on its own without being taxed to do it?

Ms. Kenny: That is a great question. I am not a big fan of taxing completely by any measure. I think that R & D by companies is strong. I think there is, frankly, some controversy over how R & D is counted in Canada. I am not an upstream expert, but I have heard many folks in that part of the sector talk about a lot of investment and continual improvement, for example, in the shale gas revolution that is arguably a form of R & D but actually does not count in the current definitions.

That aside, the CCEMC model carves out a relatively small percentage of monies to pool them toward an outcome. Alternatively, as you heard from Mr. Whittinghan, collaborative efforts by oil sands producers to look at dry tailings has been one that has been stimulated by their own collaboration, and that has gotten excellent results as well.

My only argument is with regard to government funding of the tax that is collected by government. We do have very strong and positive R&D leveraging from the federal government, for example, whether it is through SDTC or NRCan and the like, and perhaps there are more aggressive opportunities to advance the future technologies and SMEs that can be successful for Canada's next generation.

Senator Brown: Mr. Chair, I cannot let Ms. Kenny leave without making a comment.

We were invited to a CEPA hospitality suite next to the parliamentary dining room, and my executive and I were forced to drink from a bottomless wine glass. Anyway, when we went to leave, they gave us a couple of empty red plastic gas tanks, the ones you can buy in any store. We walked out of there and got partway down the hallway, and we decided that maybe we should just hide these things somehow because we did not want to meet a guard carrying two possibly full gas tanks. We then decided, well, if we set them down someplace, then it might be more scary for the guards. We kept walking until we got to the Centre Block, and holy mackerel, we got out of the Centre Block without actually contacting a guard. We were very pleased to get these things.

We went up to my office and I told my guys, "Do not put them in the office." I said, "Put them in your vehicle." It was a little bit of fun and a little bit of fear all at one time.

Ms. Kenny: Fun and fear. It sounds like ski season or something.

Senator Neufeld: That is in case you run out of gas.

The Chair: Ms. Kenny, thank you so much not only for today's testimony and your gracious answers to our questions, but for helping us have a successful visit here, for helping Elaine McCoy organize a successful focus group back in August of 2010, and for all the other contributions you have made to our committee study.

I wanted that on the record, and what more can I say? We feel you are very supportive of the work we are doing, and you give us hope that maybe other people appreciate our efforts.

Ms. Kenny: Thank you, I appreciate that. Certainly you have taken a bold step in even asking the questions that you have through the last year and a half. I wish your committee all the very best as you embark on writing your report in the coming months. Thank you on behalf of Canadians for doing this work.

(The committee adjourned.)