Proceedings of the Standing Senate Committee on
Agriculture and Forestry
Issue No. 31 - Evidence - Meeting of June 15, 2017
OTTAWA, Thursday, June 15, 2017
The Standing Senate Committee on Agriculture and Forestry met this day at 8:01 a.m. to continue its study on the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors.
Senator Ghislain Maltais (Chair) in the chair.
[Translation]
The Chair: Good morning, everyone. Welcome to the Standing Senate Committee on Agriculture and Forestry. This morning, we are continuing a study that we began a few months ago, on the potential impact of the effects of climate change on the agriculture, agri-food and forestry sectors.
This morning, we have with us Cher Mereweather, Executive Director, Provision Coalition.
I am Senator Ghislain Maltais, the chair of the committee. I would like to ask the senators to introduce themselves.
Senator Tardif: Good morning, I am Senator Claudette Tardif from Alberta.
Senator Gagné: Raymonde Gagné from Manitoba.
[English]
Senator Bernard: Wanda Thomas Bernard, Nova Scotia.
Senator Doyle: Norman Doyle, Newfoundland and Labrador.
[Translation]
Senator Petitclerc: Chantal Petitclerc from Quebec.
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Ogilvie: Kelvin Ogilvie, Nova Scotia.
[Translation]
The Chair: Thank you very much.
Ms. Mereweather, we are ready to listen to you; after your presentation, senators will be delighted to ask you questions. You have the floor.
[English]
Cher Mereweather, Executive Director, Provision Coalition: Thank you. What I'd like to do this morning is to give you a brief overview of who Provision Coalition is, talk about the impacts and risks of climate change, some of the measures for adaptability and resilience in the food and beverage manufacturing industry and what we think the roles of government are.
We are a coalition, as of yesterday, of 15 industry associations. Food and Beverage Manitoba joined yesterday, so we're quite pleased about that. The coalition of industry associations was created by industry for industry, and they asked us to have a purpose of making food sustainably. We deliver expert resources and programs to make food sustainably, and we do that through three strategic pillars.
The first is our online sustainability management system, a series of web-based tools and resources to support food and beverage companies with embedding sustainability into their business. For us, sustainability is the economic, environmental and social aspects of the business. We also go on-site to help support those food companies with using those tools and resources.
Our second strategic pillar is our value chain collaboration. Those are the sustainability issues that we feel cannot be addressed in isolation, but have to work across that value chain from farms through to retail to address it. For us, climate change mitigation falls into that category, as does food loss and waste and responsible sourcing.
Our third strategic pillar is knowledge transfer and outreach. For us, that means sharing what we learn as we go.
One of the things I want to bring to your attention is that the food and beverage manufacturing industry is under tremendous pressure right now. We are a low-margin industry and we have rising input costs, foreign competition and consumer pressure for healthy, affordable, sustainable food. We have retail demands on responsible sourcing: understanding what's in the product, where it comes from, the environmental impact and being able to share that information about the suppliers that we work with. Then, at the same time, we have compliance, water costs and a gamut of impacts around climate and energy that I'll share with you.
The next slide is a quote from Andrew Winston that I think really sets the stage well. It says that the mega challenges create massive risk and massive opportunity, and managing them well is core to business success today.
Some of the impacts of climate change, when we look at things like extreme weather, become an issue of access to raw material inputs, things like the ingredients we need to make the food or beverage products. Logistics is about the movement of products. Under extreme weather conditions, it becomes much more challenging to move the raw material inputs into the facilities or to move the product out. Then, of course, there is the consideration of damage to infrastructure from those extreme weather events.
Some of the business risks that we have identified through carbon pricing, which is, of course, the process by which we are looking to reduce our carbon in this country, are that for food and beverage manufacturers, the cost of production will increase. For those who are at a direct impact, it's the cost of the carbon itself, but it's also the embedded cost of the carbon in the inputs, whether that is the actual raw material ingredient, the packaging or access to the utilities and the energy.
We are a trade-exposed industry. Other jurisdictions will have a lower cost of production in those areas where they don't have comparable carbon pricing, and this does put us at a competitive disadvantage.
We are also at risk of leakage in a low-margin industry. As I mentioned, being a low-margin industry means every cost matters. When we add in another layer of cost, suddenly, plant closure or relocation becomes a consideration. We are seeing a lot of consolidation and movement of our plants out of the country.
In terms of measures for adaptability and resilience, I talked about the fact that we were created by industry for industry in our tools and resources, so this is a place where we think we can add tremendous value for the government's objectives.
We have a number of tools and resources that support energy and emissions reduction. We have a benchmarking self-assessment, which takes the food company through how they manage their energy and emissions.
We have a technical checklist tool that helps them walk through their operation and identify different operational things they can do to reduce energy and emissions.
We have a tool that supports them with their monitoring and tracking of their energy per unit of production as well as their emissions per unit of production.
We also have a food loss and waste reduction tool kit. I mention that one because it's important to understand the embedded carbon within that food when it is wasted. Although it's not as big an issue in food manufacturing, organics that end up in the landfill have a significant methane impact, so there's a carbon connection there as well.
We now have the ability to report aggregate reduction outcomes to support those government objectives and goals.
In our on-site work, we are working with those businesses to transform their business strategy, if you will, embedding sustainability into their business strategy: how they create their decision-making, how they operate and how they engage their employees.
We put a strong emphasis on the mindset shift, so for us that's about thinking about your business differently. It's about building awareness of the need to change our business practices.
In terms of the role of government, we think it's important to have accountable, achievable goals focused on the desired outcomes. We think it will be important to have an investment in on-site support for those food companies as they transition to a low-carbon economy, so investment in that transformation of the business strategy, as I talked about, and investment in the integration of sustainable innovation. I'll talk about that a little more. It's about the valuation of natural capital and how those businesses are using the natural capital that they are so dependent on, shifting the mind set and managing the change as they go. We believe that when we have investment in these areas, it will result in businesses that want to invest in a reduction in climate impacts.
We think it's also important for a continued investment in a data-sharing platform so we can report on the progress that's made and share those outcomes on our commitments.
We think it's important to have incentives for the adaptation and resilience, and that can be investments in capital, technology and beneficial practices for those manufacturers.
There is also supporting pre-competitive collaboration and partnerships, so sharing what we learn as we go, sharing those technologies that are effective, sharing the best practices and bringing those players together to share the lessons learned.
I think it's important for enabling a mix of innovation approaches for those desired outcomes. When we talk about innovation approaches, we're talking about innovation in the enterprise and business system, innovation in the product or the service, and innovation in the customer-facing elements, so looking at how we can reduce our energy and carbon impacts in all three of those categories.
To summarize, we think it's important to support a trade-exposed industry during the transition to a low-carbon economy. We know and understand that when we reduce pollution and waste, that we enhance productivity, drive down costs, add new value, build profitability and competitiveness, build resiliency and reduce our risks, but it's that transition period where we need that support so we can foster sustainable growth. Thank you.
The Chair: Thank you very much. For the first round, we go to the deputy chair of this committee, Senator Mercer.
Senator Mercer: Good morning. Thank you for your presentation. The issues that we're dealing with are much more serious than I think the general public believes. This is getting pretty messy. Then when you start talking about cost, the cost to the average household is also going up. The cost of electricity in Senator Bernard's, Senator Ogilvie's and my province in Nova Scotia is horrendous. People have to make the decision whether to pay the power bill or to buy the kids' new shoes, and I'm afraid the kids' new shoes are waiting because of the cost.
Help me in some way. Think of a suggestion. How should government, whether it be federal or provincial, help relieve the problem or at least take the pressure off?
Ms. Mereweather: From the manufacturer's perspective, I think it's about investment in that transition period to get to a point where we have a low-carbon manufacturing industry. I identified a couple of examples where we need investment. I think it's important to support those companies in their business strategies, so investment in that on-site work where we can go with them and help them redefine their business strategy. We call it "purpose beyond profit.'' Many companies are very focused on just profit, but thinking about how else can those companies give back. How can they reduce the impacts? How can they do more than just profitability?
Senator Mercer: That's a nice, catchy phrase, "purpose beyond profit,'' but I don't know anybody who's going to invest in that. In terms of ordinary people who invest in manufacturing, they do so for profit. They do so to come out in the end with something tangible for them as opposed to, "Look at what I've done for the common good.'' I'm not against that; I'm just having a hard time getting my head around this.
Ms. Mereweather: I think what we're seeing is that businesses have purpose beyond profit, and of course, profitability is first and foremost, but my point is that when you have purpose beyond profitability, you're actually more profitable. We have a number of case studies that show when you do more than just profitability, you can be more efficient, profitable and resilient. You have better and stronger brands and better public trust. You're more likely to have people buy your products because they connect to you on your values.
Senator Mercer: So are you suggesting a tax break for low-carbon industries?
Ms. Mereweather: Not necessarily a tax break, rather that we support that transition to a low-carbon economy.
Senator Mercer: "Support'' means something or should mean something, so how do you define "support'' here? Again, I'm not against anything you're suggesting. I just want to get my head around it. If you're going to support something, you usually give them something to provide the support.
Ms. Mereweather: Right. I think in the simplest terms, it's investment in new capital that is energy-efficient and reduces carbon. It's investment in best practices. It's investment in training and awareness building. It's investment in innovation and looking for new ways to do it. It's about that investment in those places to drive the outcome.
Senator Mercer: That investment from a government point of view is either in subsidies or reduced taxes. The government doesn't have many other ways of providing support, other than saying, "Way to go, company X.''
Ms. Mereweather: I think there can be program developments, so the execution of a program, so investment in a program that supports this particular outcome. That's sort of where I was coming from. It is a program that is specifically designed for food and beverage manufacturing because it is a trade-exposed, low-margin industry. It is a critical industry for the consumer because we need food. They want local food, so let's ensure we don't lose our manufacturers because of the leakage. Let's support them through the transition period so they can get to be a low-carbon manufacturing industry. I think that's what I'm referring to, investment in programs to support them.
Senator Mercer: Thank you.
Senator Doyle: You mentioned in your presentation that a number of plants are moving out of the country because of the leakage in these low-margin industries. Locating or moving to the U.S. where global warming laws wouldn't be as demanding as they are in Canada? Could you talk a little bit about that?
Ms. Mereweather: That's the risk. When we have a cost of production that increases compared to other areas, and it's the tipping point, if you will, where they were already concerned about the cost of production because of many different factors, suddenly you add in another layer of cost and the decision to relocate becomes easier. That was my point.
Senator Doyle: In terms of our food supply chain, are there new transportation technologies coming up, for instance, that will make it a whole lot easier on the food chain to be competitive? Do you look at these things, the transportation end of it?
Ms. Mereweather: Unfortunately, that's not an area of my expertise in terms of the logistics. I apologize that I can't comment on that piece. We really focus on the four walls and the supply chain, so access to the product.
Senator Doyle: Thank you.
Senator Gagné: I would like to come back to the issue of food waste. We've seen quite a few documentaries in the last couple of years showing how we as Canadians are wasting a lot of food. I hear that Provision Coalition has developed a means for measuring food waste. Could you discuss exactly what you do? I was also wondering if Canada or the industry can better coordinate the food waste activities and get a better handle on the scope and also the outcomes of activities that could reduce food waste.
Ms. Mereweather: Great question. I'll answer the first question in terms of the specifics of what we are working on, and then I'll talk about bringing everyone together.
We've been quite pleased to support the food and beverage manufacturing industry with a specific tool to help them identify the amount of food that is wasted at a process line level. This tool identifies the dollar value of the food that is wasted at a process line level, and then it helps them identify what is the root cause of that food waste and what are some of the solutions that they can take to address the food loss and waste. It really targets the avoidable food waste, the stuff that should end up in a package or be shipped out the door.
We launched the tool itself last October. We've been piloting it with a number of companies and we're getting fantastic results. One of the most recent case studies was from the Campbell Company of Canada, their Toronto plant. When they did a traditional waste on it, it identified they only had 1 per cent waste because most of their food waste was being diverted to animal feed and other means. When we used the tool and dug deep into what was happening at the line level, we found $700,000 worth of opportunity for that plant. It's really about bringing that awareness and digging deeper in the plants.
Our tool, I'm proud to say, is getting a lot of recognition. I presented it to the World Bank. We've shared it with the UN Environment research office and the Commission for Environmental Cooperation, and we're in conversation with Environment and Climate Change Canada. To answer your second question about collaborative effort, one of the things we've attempted to do within the food industry is bring all of those players together. We have a food loss and waste stakeholders collaborative which is right from primary agricultural through to retail. We've engaged academia, government and non-profits to talk about what we can do together and where are our common interests.
Education and awareness is the top priority. We did host a solutions forum for our industry in April as a result of this collaborative, and we're now talking with Environment Canada about leveraging that collaborative to see whether or not we can put together some policy direction.
Senator Gagné: Thank you. Interesting. I have a follow-up question, if you don't mind. You mentioned a presentation to the World Bank. Has consideration been given to activities and practices of international initiatives that would be relevant to Canada? Is that also part of the education, trying to find best practices elsewhere than in Canada?
Ms. Mereweather: Absolutely. That was the heart of our solutions forum, was bringing together all of those global solutions that already exist and that are relevant to the Canadian market and bring awareness of those. We developed a solutions paper to do exactly that.
Senator Gagné: You will be following up and auditing whether those solutions are being implemented here in Canada? Is that the intention?
Ms. Mereweather: The intention of our food loss and waste tool kit is we're working on a second version which will track those solutions. Right now, it just identifies solutions. The next iteration of the tool will be to monitor the implementation of the solutions and the actual reduction in food loss and waste, again so that we can report on outcomes and how we're achieving our goals.
Senator Gagné: Thank you.
Senator Tardif: Thank you very much for being here this morning and for your presentation. I wanted to follow up on a few of the points you've mentioned. You mentioned the government could continue investment in a data-sharing platform. Does a data-sharing platform exist presently, and what type of data are you looking to share?
Ms. Mereweather: On the data-sharing platform, I would say our online sustainability management system would be referred to as a data-sharing platform. What I'm talking about is the continued investment in enhancing those tools so we can capture the exact data we need to report on those outcomes and commitments. For example, how much energy have we reduced as an industry? How much of the carbon emission reduction have we achieved? How much food waste reduction have we achieved? So that we can report in aggregate rather than at an individual company level.Our system has the capability to take all of that individual data that's inputted, aggregate it, and then we can report on behalf of government on the outcomes from food manufacturing.
Senator Tardif: Is government supporting that platform now, your online system now? Is there investment by government presently?
Ms. Mereweather: There is. That investment is finished at the end of March. What we'd like to see is continued investment.
Senator Tardif: At the end of March this year?
Ms. Mereweather: Yes. 2018.
Senator Tardif: As you mentioned in your presentation a number of times, it's important to have a mindset shift. How are you going about doing this?
Ms. Mereweather: Our on-site work really focuses on the mindset. It's about addressing the behaviours and supporting them with change management. We have a change management team that helps them identify resisters to change and working with them to again modify their business strategy, transform it, have the right goals in place, making sure the entire organization is aligned to the purpose and vision and having those strong metrics so that they can report on outcomes as they're achieving it. Really, the mindset comes around the behaviour and the change management.
Senator Tardif: What are you seeing as being the biggest barriers to change?
Ms. Mereweather: Sometimes it's awareness of the need to change, so maybe not recognizing all the risks that the business is facing. Sometimes it is, "This is the way we've always done it; why do we need to change?'' A lot of it is building the business case for change, demonstrating to them the value of that change. We can show them efficiencies, productivity gains and better engagement with employees. These types of values are very important to employees. It's about market access. There are a number of business benefits. It's about building that awareness.
Senator Tardif: If I understand correctly, you're wanting them to change to more sustainable management practices? That's the goal?
Ms. Mereweather: Absolutely. That's the goal.
Senator Bernard: Mine is a follow-up to Senator Tardif's question. My question was around mindset as well. My follow-up would be, if you can comment on success, are there any success stories you can share with us?
Ms. Mereweather: Absolutely. We have a number of case studies that I'm happy to share following today. As a really great example, 90 per cent of our food companies are small to medium companies, and they're just trying to get the product out the door. Earthfresh Foods is a small potato and root vegetable company, and we've engaged with them and it's been a wonderful experience. They have a strong business strategy. We did an employee engagement survey before and after working with them. We can see the level of engagement with the employees. The leadership team is all focused on the right indicators. They are aligned to the purpose and the vision, so we're getting some great success stories. In our case study, it talks about the fact that they've increased their production levels, reduced their water consumption and have stronger employee engagement. Some great results already. That's just one example.
Senator Bernard: Thank you. It would be wonderful to have some of those examples.
Ms. Mereweather: We'd be happy to do that as a follow-up.
[Translation]
Senator Dagenais: Thank you very much for your presentation, madam. I want to go back to the matter of foreign competition. Could you give us some examples of problems or dangers that could occur with products from abroad? It is all well and good to impose a carbon tax in Canada; it looks good. But, at some stage, the effect could be to increase prices, which sooner or later would appear on grocery bills. What will the impact on prices be, and on quality control? What recommendations could you give us that we could include in our report and that would help you?
[English]
Ms. Mereweather: In terms of the foreign competition, I think the risk is the difference in the cost of production. In another country that isn't facing the same carbon pricing schemes, their cost of production is lower. For example, we could have a facility that operates in the domestic market simply move across the border into the U.S. and ship their product back into Canada. For them, they have a lower cost of production in the U.S., as an example, but they can still access the market and send their product to Canada. That's the biggest risk. That's what we refer to as the leakage. So it's about making sure that during that transition period, we support them so we don't lose those companies into the U.S.
[Translation]
Senator Dagenais: Across Canada, are your members complaining about the difficulties with interprovincial trade? I do not understand why, in Canada, with 10 provinces and three territories, there are still difficulties with interprovincial trade. Could you talk to us about that? As an example, we know that, with beer and spirits, there are limits between each province and some products cannot be sold. I find that a pity because it is still the same country. Do your members talk to you about it? I'd like to hear what you have to say.
[English]
Ms. Mereweather: Unfortunately, trade is not an area of my expertise. I know those interprovincial barriers exist, but I'm not sure I can add value to that specific aspect.
[Translation]
Senator Dagenais: Thank you very much, madam.
The Chair: Thank you, Senator Dagenais.
For the information of the committee members and our witness, as of July 1, there will no longer be tariff barriers in Canada. An agreement that began to be negotiated under the former government has been finalized and, yesterday, we received confirmation of it at the banking committee. As of July 1, tariff barriers will be abolished. There are little sections still to be negotiated — the free flow of labour and some products, trucking, and so on. That has to be excellent news. I have been sitting in parliaments for about 20 years, and I have always objected to tariff barriers in our own country while we are signing free trade treaties with other countries. It was laborious work that took five or six years; the 10 provinces and two territories have signed the agreement and it will officially come into effect on July 1. Minister Bains announced it yesterday. I feel that it is excellent news for all Canadians and it should allay Senator Dagenais' concerns. He can sleep soundly tonight.
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Senator Petitclerc: Thank you very much for your presentation. I was looking at your website, and you have a lot of tools that are very interesting and interactive, it seems to me. The one I wanted to hear about was the KPI scoreboard. I want to know not only how it works, but it seems to me that it can be very good for assessment. I want to know more about how it is used once you get that score, which you're going to explain. How do they actually use it to either get funding or to have an impact or to be more competitive? I am curious to hear your views about that.
Ms. Mereweather: I'm going to answer your question in two parts. One is the key performance indicator scorecard that exists today, and then there is the enhancement we're working on now. Then I will explain how businesses are using the information.
Right now, the way the key performance indicator scorecard works is that you put in your production information on a monthly basis. You put in the amount of utilities you are using — utilities being energy, natural gas, electricity, water — and the amount of waste you're generating, so if you're recycling, diverting or if you have hazardous waste.
It's focused on environmental indicators. It calculates for you your impact per unit of production. It calculates your energy, your carbon emissions and your water per unit of production. It also shows you your aggregate, so the total amount of energy and water you use, et cetera.
The intent of this scorecard is to give the companies a baseline of where they are starting from, and then they can set some goals. If they know they have a total amount of water or a per-unit measure of water, they can say, "I want to reduce that by 10 per cent,'' or reduce energy or emissions. It allows them to track monthly how they are progressing as they implement these projects to reduce energy, as an example. It allows them to see their progress over time. That is how they're using it.
The enhancement to that tool that we're working on now is to add a number of additional indicators. We would call that a lagging indicator because you have to consume the amounts of energy before you can see the impact. We're trying to put in some leading indicators to allow us to see what's happening and to make business decisions on the fly, looking at enhancing it to include social indicators like training for employees, looking at economic indicators, and then giving a dashboard, so seeing some visual graphs of progress over time. That, again, will help them to make business decisions much more easily.
Senator Petitclerc: Once they have those indicators, and especially from the environmental side of things — and maybe it's not your role — do they then get either more tools or programs or advisories to improve? What I'm getting at is this: Is it only used as an indicator of their environmental footprint, or does it have another component that will help them get better?
Ms. Mereweather: The scorecard is really to monitor progress. For example, we send an engineer into the facility to walk through the plant, and we use a technical checklist. They identify opportunities at an operational level that show where they're wasting energy or water, or where they're creating waste, and they offer suggestions for improvement and potential funding programs that they might be able to access to help them implement those particular projects. Then the key performance indicator will track their progress as they implement.
Senator Tardif: Your association has developed many tools in order to reduce food waste. You've mentioned key performance indicators to reduce waste and measure the footprint of the different practices that could affect the environment. Do you feel that, as we move forward, food labelling should make mention of the environmental impacts that some of the products have? Do you see that as a way of raising public awareness going forward?
Ms. Mereweather: Food labelling is a challenging area. I think it needs a lot more research. The food label on many packages is already very small. There is a lot of information about nutrition and marketing. It becomes challenging to add additional information. This can create more confusion for the consumer. We have to be careful about what we put on the package and what we mandate to be put on the package.
There are other ways we can inform the consumer about the potential impacts, and we have to be creative and innovative with those ideas. It doesn't always have to be the package; there are other ways we can engage. It can be through the Internet, through apps and through social media. There are lots of ways to engage with the consumer. That doesn't have to be front of label on the package.
Senator Tardif: Are you looking into those alternative means?
Ms. Mereweather: Not specifically at this time, but our Food Loss and Waste Stakeholders Collaborative has talked about how we can build awareness. I think we need to do some research and development in that area to identify the best means to develop a campaign to reduce food loss and waste, as an example. There are lots of ways to build awareness in a campaign fashion that isn't necessarily front of label.
Senator Tardif: How are you funding all of those activities that you are undertaking?
Ms. Mereweather: Right now, we're looking for funding in many ways. We try to find a balance of investment from industry and from government.
Senator Tardif: So your member associations would be providing some funds for those purposes?
Ms. Mereweather: As well as the actual companies and other partners in the supply chain.
[Translation]
Senator Dagenais: I have one final question. What resources do you have in order to develop your programs, including finding foreign programs that are already developed and that could apply here? We could look for models that exist abroad and get them going in Canada. What human resources do you have so that you can develop your programs?
[English]
Ms. Mereweather: In terms of human resources to develop our programs, we have a solid set of expertise that is in- house, and we have a very large roster of consultants upon whom we rely to support us as we roll out our programs.
In terms of where we can look at externally in other parts of the world, there aren't many coalitions. We're unique in that regard. The closest thing I have seen is the Beverage Industry Environmental Roundtable. They are set up similar to us. They are a global entity, and they focus on reducing the environmental impact in beverage manufacturing. We are quite collaborative in sharing what we learn. It's about understanding what else is out there and sharing the information.
This is a very pre-competitive space, so people are very open to sharing best practices and different technologies that have been tried. In that regard, it's quite wonderful that there is a lot of open sharing. But I'm not aware of anything that is exactly the same as us.
The Chair: Ms. Mereweather, thank you for your participation this morning and good luck with your organization.
Ms. Mereweather: Thank you.
[Translation]
The Chair: Honourable senators, for the second part of our meeting, we now welcome, from the Railway Association of Canada, Vice President Gérald Gauthier and, from Cando Rail Services, Vice President Lee Jebb. Thank you for accepting our invitation.
Please make your presentations, after which senators will be able to ask you questions.
Gérald Gauthier, Vice President, Railway Association of Canada: Mr. Chair, ladies and gentlemen of the committee, I am pleased to be with you today. I am accompanied by Lee Jebb, Vice President of Cando Rail Services, a diversified company that operates three local railways. Mr. Ratledge, the President of Central Maine & Quebec Railway, was supposed to be here with us this morning. Unfortunately, he had a problem with his health yesterday evening while he was on his way to Ottawa, so he cannot be with us this morning. He asked me to present his apologies.
The Chair: Excuse the interruption, but is Central Maine the Quebec North Shore Railway?
Mr. Gauthier: No. The company that Mr. Ratledge represents is the Central Maine & Quebec Railway. That is the company that bought the assets of the former Montreal Maine & Atlantic. You will remember that, in 2013, there was a tragic event in Quebec. Subsequently, that company went into bankruptcy and its assets were purchased by Central Maine & Quebec. Mr. Ratledge wanted to talk to you about it all, but he is unfortunately not able to do so today.
However, I did find out what he planned to say; during the question period, I could perhaps add the comments he wanted to make, if I see that they would be helpful.
The Chair: That is very kind of you.
Mr. Gauthier: Since you heard from Michael Bourque, my president and CEO, and from representatives of CN and CP, last June 1, about the economic importance of railways and about the role they can play in support of efforts to reduce greenhouse gas emissions in Canada, I decided to focus my remarks this morning on local and regional railways. Sometimes, particularly in Quebec, they are known by the acronym CFIL, which stands for "chemin de fer d'intérêt local.'' The English term is "shortlines.'' So I will let my colleague talk to you directly about his vision for what governments can do in order to achieve their environmental objectives, and perhaps what they should not do.
Local and regional railways are an essential component in the railway supply chain in Canada, linking shippers to their regional, national or international markets. They provide short-haul freight service by transferring their clients' shipments to Class 1 rail carriers, like CN and CP, at the start of a movement, or by receiving those shipments from them at the end. Currently, they represent more than 20 per cent of the national rail network and almost one point-of- origin shipment in six in Canada.
Their role complements that of Class 1 railways and is essential in providing their clients with a transportation option that is safe, economical and environmentally friendly. However, their limited size and revenues create challenges in an environment where costs related to regulations and policies are constantly on the increase.
[English]
Allow me to digress here. Over the last decade shortline railways have maintained an operating ratio in the 90 per cent percentile — that is the average during the last decade — while Class 1 railways have dropped their ratio to 60 per cent over the same period. The lower this ratio is, the more profitable a business is. As this ratio is a measure of operating efficiency, it underscores shortline railways' challenges to raise adequate revenues to maintain and invest in their infrastructure.
As their Class 1 partners, shortlines own and maintain privately owned infrastructure, with limited access to government subsidies, public funding or, in some cases, financial institutions. If the lack of public funding is not a concern for our major national railways, which invest on average 20 per cent of their annual revenues in their infrastructure, shortlines on average invest approximately 12 per cent of their revenues in their infrastructure.
Remaining competitive when your main competitor, the trucking sector, benefits from publicly paid infrastructure and has access to clean-tech funds is difficult.
The RAC has long advocated for the creation of a dedicated federal funding program for shortline railways. Our recommendation was echoed by the Honourable David Emerson in his recently published report on the Canada Transportation Act review where he recommended the creation of a federal funding program to which shortline railways could apply without a government sponsor. Such a sponsorship is required right now under the existing programs.
The need for funding is even more compelling today as government measures on carbon tax will make their disposable revenues even more limited than they are today. In fact, the RAC estimates that provincial and federal climate change policy in Canada cost the shortline sector $3 million dollars in 2015 and is expected to rise to $12 million by 2022, for a total cost over eight years of $54 million. There are currently no measures to offset these costs. We think that fostering a modal shift from truck to rail might be one of those measures.
Without further ado, I will let Mr. Lee Jebb pursue his presentation, and I will be pleased to answer to the best of my knowledge any questions you might have this morning. Thank you.
Lee Jebb, Vice President, Cando Rail Services: Good morning. It's a pleasure to meet with you today, especially around the topic of the environment and the transportation sector.
I'm vice-president of Cando Rail Services, a Canadian company headquartered in Brandon, Manitoba, with operations in Ontario, all four Western Canadian provinces and several U.S. States. We started in 1978. We have approximately 500 employees. It is a great story in that the majority of the company is owned by the employees under a successful employee-ownership program.
Our company's role in the rail sector is to facilitate industry's connection to the North American railway network. As a first and last mile service provider, our services optimize the local while complementing the connecting railways network-driven operations. We benefit the whole system's overall efficiency and effectiveness.
Business line activities Cando undertakes include shortline railways. We own one in Manitoba, and we operate two small community-owned shortlines in Ontario. We operate industrial railways, connecting industry to the Class 1 carriers. Quite often that entails a running-rates arrangement on Class 1 track, which is CN's and CP's track. We do material handling of site logistics and operate transload terminal operations. We do track engineering, construction and maintenance. We do railcar staging, storage, cleaning and repair. We also locate, design, build and finance rail facilities and terminals, a very broad cross section of the railway sector.
Sectors we serve include agriculture, forestry, fertilizer, potash, refined petroleum products, automotive manufacturing and the transportation sector.
Our customers include the likes of JRI, Toyota, Magna, Mosaic, PotashCorp of Saskatchewan, Agrium, Resolute Forest Products, Domtar, West Fraser, Imperial Oil, Shell, Federy Co-op, CN and CP, along with many other names that you would recognize.
We have succeeded in maintaining long-term relationships in the industry because we take our customers' interests as our own.
Focusing more specifically on the railway operation side of our business, we handle an average of 1,300 loaded railway cars every day at approximately 28 railway operating locations. While we are a very small part of the whole system, we touch approximately $20 billion of product annually. While those are big numbers, our operations are, typically, small. It is not uncommon for a Cando operation to have a dozen employees and two or three locomotives.
To finish building the context of my comments today, to do our work, our company operates approximately 45 to 50 locomotives, along with 20 or so on-track car or high-railcar movers. Our locomotives range from 1200 to 3000 horsepower, with the exception of two locomotives we call GP15s. Our power is comprised of very traditional power that has been around a long time and that you would see in most major rail yards. We take exceptional care of our power. We think we have the best power in the business, and we largely maintain the units ourselves with mobile mechanical teams and support heavy repairs and refurbishment programs at our mechanical shop in Winnipeg, periodically supplemented by contract shops.
After labour and capital maintenance-related costs and, of course, taxes, fuel is one of our largest expenses. Primarily driven by economic drivers, proximity management considerations and operating considerations particularly associated with extremes of the Canadian winter, we have made considerable efforts over many years to reduce the amount of fuel we consume in operations. That reduction has an associated concurrent benefit of reducing our relative carbon footprint.
Without including the efficiencies our services bring to customers and our Class 1 railway partners, which can be significant, on a local switching application basis, we have made gains primarily in idle-reduction programs. Approximately 20 of our locomotives utilize auto-start systems, though we have found many sites where a self- managed shutdown protocol is actually more effective.
Approximately twenty of our units are equipped with 575 volt electrical oil and water heaters, a system called a "hot-start system.'' We also remotely monitor many of our units using GPS and integrated cell communication technology.
The most effective practice, though, is to house our units, when not in operation, in heated storage sheds. We house 15 of our locomotives in these facilities. Fuel savings technology capital costs can vary from $30,000 up to $100,000 per unit depending on a variety of specs and technical factors, and a building would typically cost $300,000 per unit plus. Operating costs are significant and vary by specific application.
My message to you today, though, is not about fuel-saving technologies or technical applications for greenhouse gas reductions for locomotives. We have already largely undertaken the most practical and cost-effective options available to us and don't see revolutionary technologies we can reasonably apply in the near future.
My message is that immediate, relative and absolute significant gains in greenhouse gas emissions resulting from the transport of goods and materials in Canada, including those produced in the agriculture and forestry sectors, can be made by shifting a portion of traffic to more greenhouse gas efficient transportation modes. To put it n perspective, rail is approximately five times as fuel efficient as trucks; water transit more so again.
It is not an unreasonable assertion to suggest that potential gains in this regard could be an order of magnitude greater than the incremental technical improvements possibly achievable at some point by expensive improvements in locomotive technology. The answer lies in basic physical science. Steel-on-steel friction is significantly less than rubber on asphalt. On average, rail grades are less variable and steep than highways and roads. Operating on a dedicated right-of-way, trains don't stop and start as often as motor vehicles.
I believe I was asked to appear today because of our company's perspective as a shortline operator specifically. In this regard, I appreciate the forum to share a threat and an opportunity to what Canadians, and more specifically the Government of Canada, are trying to achieve in greenhouse gas reduction.
I'll start with what I call an iceberg event facing the transportation sector and, by implication, the greenhouse gas reduction efforts of the government. To set the framework, understand that approximately 15 per cent to 20 per cent of originating rail traffic in Canada originates on shortline railways.
While I don't have the support of statistical evidence, I suggest based on my knowledge of the sector that both agriculture and forestry are particularly intensive as shortline customers. Many shortline railways have a problem. Competing with government-sponsored roads and highways, shortlines do not have the revenue-generating capacity to support the business case for capital infrastructure, investment and renewal. The implication is, at some point, as their capital infrastructure wears out, some shortlines will be in a crisis, possibly ceasing operations. Their closure will possibly threaten the viability of industry located on their lines and would most certainly shift a large amount of traffic to trucking, further deteriorating and congesting public highway infrastructure and increasing greenhouse gas emissions.
While it could be said I have a self-interest bias, I recommend the Canadian government adopt shortline sustainability as both an economic and environmental imperative. Perhaps the Senate could use its resources to study the issue.
On a related note, I'll start to wrap up my comments with an opportunity to achieve system efficiencies in the rail sector benefiting shippers, shortlines and Class 1 railways and, again, by implication, the greenhouse gas reduction goals of the federal government. Many shortlines and some low-density Class 1 subdivisions are comprised of older, lighter track and bridge infrastructure that restricts the safe movement of traffic to a 263,000- or 286,000-pound loading, much less than the industry standard 286,000-pound loading. This means the traffic originating on a line with this restriction must pass through the whole system at the lower load limit. The implication is longer trains, more congested yards and decreased overall efficiency to move a tonne of product to destination. It hurts customers on shortlines with higher associated transportation costs, and it hampers the efficiency of the entire transportation system because of the limitations of the first 10, 20 or 30 miles, and forces a 1,500-, 2,000-mile move at less than optimal capacity. It's a complicated system with many factors at play. For example, if this group is on an agriculture focus, 263,000 for grain cars could be an issue as well. But there's an opportunity here to address sustainability challenges on shortlines, while at the same time improving overall system capacity and efficiency. I think there's a win-win here.
You may ask, if it's so great, why does the industry not invest in the improvements itself? Unfortunately, while we contribute to system benefits, our part of the system is constrained by local economics. Many shortline operators would invest more if they had an infusion of support that improved business case economics. In our case, I have a project that could be shovel-ready in a short period of time to upgrade a line that we operate in the city of Winnipeg. I could get $5 million of support from our company and our customers if we could get a 50 per cent match.
To close, after many years sharing our message in Ottawa and provincial capitals, we found that in both transportation and infrastructure policy, despite a strong case, shortline railway infrastructure sustainability tends to often be an afterthought beyond recent prescriptive safety-related initiatives. Perhaps, with your interest and assistance, we can start to address this important issue.
Thank you for the opportunity to speak to you today. I'm available for any questions that you may have.
[Translation]
The Chair: Thank you very much.
Senator Dagenais: My question is for Mr. Jebb. Thank you for your presentation, gentlemen. This is very interesting. Mr. Jebb, you have already mentioned that your company has taken steps to reduce greenhouse gases. Your transportation business operates in various Canadian provinces and in the United States too, I imagine. Could you tell us about the impact of those measures on the rates you charge for your services? You have to adjust your prices depending on where you provide your services, whether that is in Canada or the United States. What can you tell us about that?
[English]
Mr. Jebb: The answer varies by product line jurisdiction and by what we're doing. On the shortline basis, we have very little ability to pass along cost increases. Quite often, we're in long-term fixed contracts as a haulage provider in our relationship with CN and CP and don't have the ability to change our pricing. We have to absorb it and those dollars have to come from somewhere else, either reinvestment, potentially from profits, or it could extend us into a deeper loss situation in some cases. We don't have the ability to pass that along.
In other applications, for example, as a contract industrial switcher, we may have the ability to pass those along to our customer as an increased cost. It just becomes another competitive factor. As long as it's broadly applied to any of our potential competitors, we should be able to pass along. I say that, though, but we're quite often constrained by multi-year contracts, five- or ten-year contracts that don't give us a pricing option or flexibility and we would have to absorb those costs until the next contract renewal time.
[Translation]
Senator Dagenais: We hear a lot about carbon taxes. Will they sooner or later affect consumers because the cost of transportation will not be the same? How do you see it? Are you going to have to adjust your prices because of the new policies on reducing greenhouse gases?
Mr. Gauthier: As I mentioned when I was talking about shortlines, the carbon tax, or the cap and trade system, is going to increase costs substantially. I believe that the representatives of the major rail carriers, CN and CP, also stated that their costs were going to increase substantially. The two mechanisms are different. For the carbon tax, as in British Columbia, it is very easy to identify the cost of the tax because you buy a product and the provincial tax appears; it's marked "carbon tax.'' So you know exactly what the additional cost is. Normally, the policy should be that the consumers do not have to pay those costs, because we cannot forget that rail lines, both large and small, do not deal with consumers but with shippers, with businesses. So it is very probable, in a market-based policy, that the cost will go to the clients, who, eventually, will pass it down to the consumers.
Senator Dagenais: Thank you very much.
[English]
Senator Tardif: You mentioned that fuel is your largest expense. How does your fuel efficiency compare to the trucking industry, which appears to be your biggest competitor?
Mr. Jebb: Generally, rail has a fivefold efficiency over trucking.
Senator Tardif: Five-fold?
Mr. Jebb: Yes.
Mr. Gauthier: If I might add, the main reason is we are using an old technology that is very efficient; it's steel on steel, so there is no friction. Because of this technology where there is no friction at all, we are able to hold a huge quantity of product at a very low cost. We can move a tonne of product over 200 miles with one litre of fuel.We are very efficient, much more so than the truckers.
Senator Tardif: I know that you've indicated that if money was available, I guess your industry would be able to find a match for 50 per cent. Have you applied to the Building Canada Fund, for example, for infrastructure funding to improve your infrastructure and to upgrade your tracks?
Mr. Gauthier: The Building Canada Fund is a good funding process but unfortunately — and this is what Mr. Emerson noticed when he did his review of the Canada Transportation Act — the way it and the replacement to this program are currently structured, municipalities or governments have to select the projects that will qualify for this funding. Governments, being from the public sector, when they see a project coming from the private sector, tend to favour public sector projects, so a municipality might prefer to use the money they get from this fund for a local road, a library or an aqueduct system before saying, "This money I'm entitled to should be used for private shortlines."
The result of this is that historically, 0.07 per cent of the Building Canada fund has been used for shortline railways. This is why Mr. Emerson said in his recommendation to the government to create or change the funding program where a shortline project doesn't need the sponsorship or endorsement of a municipal or provincial government.
Senator Tardif: That's very interesting, because I know that, for example, infrastructure funds are available to repair roads.
Mr. Gauthier: Yes.
Senator Tardif: And, of course, that helps the trucking industry, but there's nothing comparable for the rail industry. Is that right?
Mr. Gauthier: You are exactly right. The reason is the money goes to the provinces or the municipalities. They're the ones responsible for roads, so they favour that. It's quite normal that they favour public sector projects and not private sector projects. If the funding structure of a program allowed shortlines to apply and be evaluated strictly on the merits of their application, not needing sponsorship from a public body, they should be able to get funding, we hope.
[Translation]
Senator Tardif: I don't know if it was you who mentioned this, but you said that you were operating in the 90 per cent percentile and that CP and CN were operating at 60 per cent.
Mr. Gauthier: Yes.
Senator Tardif: What causes the difference between the two?
Mr. Gauthier: The operating ratio? The major difference is the cost structure. Large railways operate over very large distances, and that is their strength. They can operate over distances of 1000 kilometers and more, while small railways operate over short distances. So all their costs are distributed among very few clients, who can only be charged a limited amount because the trips are short. But major railways can spread their costs over their entire network. That's the main reason.
[English]
Mr. Jebb might want to add to the reason why the operating ratio of shortlines is much higher than the operating ratio of the Class 1 railways.
Mr. Jebb: There are two points I'd like to make. One is that every single shortline has a completely different answer to that question. They're all unique properties. That's the essence of being a local operation.
But I would say that the last mile, so to speak, is much more switching intensive. On the long haul, you're connecting a unit train and hauling across the country, and you only do a few stops. In the last 30 miles, it could spend some time in a yard, have to be marshalled, delivered to a customer and be marshalled and spotted at the customer's site, all of which is much more labour intensive and gives you a higher cost base.
On a cost base, we're high, but on a revenue basis, the limiting factor is we're competing with local trucking, which limits the amount we can charge and gives you a less profitable operation than you might get with a long haul.
Senator Tardif: Thank you for those explanations.
[Translation]
Senator Petitclerc: Mr. Gauthier, I am interested in the differences from the trucking sector, not just the differences, but also in some of the challenges you have that do not exist in the trucking industry. In terms of the environmental costs, according to what we have heard today, and previously too, railways clearly seem to me to have the advantage in this and other respects. I would like to hear what you have to say about the advantages of railways, the shortlines in this case, but also about the additional challenges you have, other than those that have just been mentioned.
Mr. Gauthier: Let me answer by saying that, as a shipper, you have to choose the most effective mode of transportation for the trip. So, if you take the point of view of the major railways, but not the small ones, truckers are partners too, since we talk about intermodality a lot. The products that consumers want often come from China to the port of Vancouver and are shipped by train to a transhipment centre on the outskirts of a large city where they are loaded onto trucks and delivered to the retailers where you as a consumer pick them up. So intermodality is important and steps must be taken to encourage it.
The challenges we face at the moment are related to the fact that the shortlines are in direct competition with road transportation because they operate over shorter distances where trucking provides more competition. So, for them, the challenges for their network are greater.
Now, one of the main advantages of railways is their ability to transport large quantities of freight, and to transport some kinds of freight that do not travel well, or travel less safely, by truck. Rail transportation has one great advantage for society in that it pollutes less. Shippers, however, see that societal advantage less clearly than they see the cost. That is the difficulty for shortlines. If measures designed to reduce the environmental footprint of a means of transportation make their costs go up, it becomes difficult for the shortlines to compete with trucks.
From a certain price, actually, people prefer a means of transportation that seems less expensive to them, because the costs are often hidden. People do not know the costs of transportation by road, or about all the money that governments invest in building and maintaining roads. That is not usually part of the information available when shippers are choosing their means of transportation.
Those are some of the challenges we face even though we are able to help reduce the environmental impact of our means of transportation. At the moment, with transportation representing about 30 per cent of the environmental footprint, railways represent only 1 per cent of that footprint. We pollute very little, but to continue to be effective, we need certain incentives, especially for shortlines.
[English]
Mr. Jebb: To understand the difference between a shortline railway and trucking, it's really important to understand that the right-of-way — the railway track infrastructure — really is the essence of the business. When one thinks of a train, they think of a locomotive and railway cars, but the right-of-way represents the majority of our interface with the public. It represents the majority of our costs and responsibilities. It's very capital-intensive. We spend a lot of time and effort managing proximity issues around that right-of-way. It's the essence of the business on the problem side but also on the opportunity side.
That right-of-way is a dedicated right-of-way that only moves freight in most cases. It has a lot of capacity for future growth, whereas highway capacity quite often is constrained, and to add highway capacity you have to spend a lot more dollars. With the shortlines and the railway sector as a whole, you can throw a lot more freight on that without spending a lot more money. It's all on a separate right-of-way, which is really a less intensive proximity management public interface issue than you get by putting additional traffic on highways. It's our bane, but it's also our promise, our opportunity on a go-ahead basis.
Senator Petitclerc: I have another question. From what I'm hearing, it seems like you have a double challenge because you have a challenge competing with the trucking industry but you also have a challenge competing with your own industry in terms of the big railways.
I'm curious to know if the shortlines are all single companies. Are they organized? Do you have a group or an association? Are you working together to advance things or to lobby or get policies in place?
Mr. Gauthier: I'll take this question, if you don't mind. The shortlines, as Mr. Jebb mentioned, are all different companies, but they don't compete with the Class 1; they are partners with CN and CP. They have a good partnership. Of course, we are talking about business relations, so you have to sit down with your business partner and negotiate. Sometimes it's difficult, but they are partners. They don't compete with the Class 1 railways. They are partners.
As I mentioned, they take traffic from their customers, which is often the same customers of the Class 1 railway, and they bring this traffic to the Class 1 which brings it not necessarily to the final destination but somewhere close to the final market, and then it may be transferred to another shortline.
So the shortlines are all individual companies, and they are part of our association. We represent, at the Railway Association of Canada, the Class 1 railways and shortline railways, but we also represent passenger railways. As an example, we've been talking about freight mostly this morning, but we represent VIA Rail Canada and all the commuter trains in the country like the Réseau de transport métropolitain in Montreal, Capital Railway in Ottawa and GOTransit in Toronto.
The shortlines and the other members do their lobbying through our associations. That's why I mentioned that the association put forward a proposal asking the government to set up a funding program for shortlines. We said we are not asking for just subsidies, but we are giving you an opportunity to leverage money from the private sector. We suggested a tax credit, as exists in the U.S. There is a good program in the U.S. based on tax credits. With a tax credit, you say to government, "I'll put 50 per cent of it, you put 50 per cent,'' and then we're getting somewhere.
Senator Doyle: How does the U.S. operate with respect to the trucking industry? Does the trucking industry in the U.S. suffer the same level of competition to shortline railways as it does up here? We're interconnected. Is there any great level of competition down there from the trucking industry? How would they differ in their policies with respect to competition with the railways that we have up here?
Mr. Gauthier: I would suggest — I'm not totally sure because I'm more familiar with the Canadian situation — that there's not much difference between the fact that there is competition between the trucking sector and the rail sector, mostly the shortline railways in the U.S., but there are differences.
As I mentioned, there are many funding programs in the U.S. It could be subsidies or loans. There are many programs that exist to allow the shortline operators to apply for funding so they can use this money to upgrade their infrastructure. This way, they indirectly benefit from funding the way truckers benefit because the road is paid for by the public sector.
In the U.S., because they have more funding programs, it makes the competitiveness of the shortline sector better because they can compete more equally with the trucking sector. In addition, there are some restrictions on the weight of certain trucks, and that is also a good thing because it reduces the impact on the roads and doesn't give truckers an undue advantage over the railways. As Mr. Jebb mentioned, the railways own their own infrastructure. They build it, renew it and repair it at their own cost.
Mr. Jebb: May I supplement?
Senator Doyle: Sure.
Mr. Jebb: One thing I'd like everyone to understand is that it's our system competing with the U.S. system. For example, if you have a paper mill or a lumber mill, that lumber mill in northern Ontario is competing with a lumber mill in Wisconsin. Transportation costs may represent 20, 30 or 40 per cent of the overall value of that product FOB customer. So the Canadian transportation system is competing with the U.S. transportation system, which could include local trucking, a rail component or the cost of production at the mill, all that kind of stuff. On aggregate, it's competing with the same one there. It's really system competing against system, is the way I would present it.
Senator Doyle: Have you ever gone after the federal government formally to provide some program of subsidization, if not long haul then short haul specifically, to help you compete? The rail sector is much more, I suppose, efficient in terms of carbon footprint than the trucking industry. Have you ever gone after the federal government in that regard to provide some good programs for you?
Mr. Jebb: I just recently ended a four-year term as chair of the Railway Association of Canada shortline committee. That was the predominant focus for all that time. We've worked very hard on it. We compiled a lot of research, attended a lot of meetings and made a lot of presentations. We've done a lot of meetings locally with our local MPs and then provincially and also the bureaucracy. We've had a lot of meetings in Ottawa here with the transportation minister's office, the finance minister's office, all that kind of stuff.
It's a tough road. We're a small player. We don't carry a large number of votes, even though we have a significant impact. We are one of many competing players trying to get some dollars. We know we have a very strong business case, and we know that we provide a lot of benefits, but some of those benefits might not necessarily make sense on a political calculus basis, it would appear.
[Translation]
Senator Gagné: My question goes to Mr. Gauthier. You told us about the energy efficiency of locomotives. You do not necessarily find that efficiency with large trucks, I suspect.
The question of pricing carbon aside, I wanted to examine the issue of managing the dangers of climate change, especially for your shippers and for the companies that are part of your organization. I would like to know whether there have been major changes in the last number of years in terms of managing the risks, given that there are more floods and landslides. Those are all events that could have an impact on your operations.
[English]
Mr. Gauthier: I will start, but Lee might be in a better position than me to answer. The railways have to plan their operation to make sure they are not paralyzed by a natural disaster, so there are a lot of studies and projects that are done to reduce the possibility that this happens, when they can, and to resume and restore service as quickly as possible.
As an example, in British Columbia, when you go through the mountains, there are mechanisms put in place to protect the railway track when rocks are falling from the mountain. A lot of studies are done to make sure that tracks that are along a river are safe and there are measures, but Lee would be better able than I am to describe this. There is a lot of study and planning to reduce the risks. Of course, there are things we cannot prevent, but to the extent that we can reduce the risk and resume service as quickly as possible, these measures have been taken.
Mr. Jebb: I will supplement that. First of all, I would say CN and CP are best to answer the question because their network size leaves them exposed to that risk much more so than any of the local operators. Risk management and risk mitigation is integral to our business processes and practices, including, as I mentioned before, managing a right-of- way, and environmental factors do come into right-of-way management.
All that said, I have not myself had climate change identified as a specific risk. What we will do is understand that the river levels have been getting higher at this particular section of our track over the last two or three years and are we suitably protected or planned to manage that. It's much more of a practical, local, hands-on type approach.
Senator Gagné: Thank you.
Senator Beyak: Thank you, gentlemen. You answered all my questions in your response to Senator Doyle about the softwood lumber and the mills in our area.
I have noted your suggestion that perhaps our committee could study the shortrail systems and the complications. I think that would be an excellent study to undertake, so thank you for the suggestion.
Senator Petitclerc: You may have answered that question already and I may have missed the answer, but I'm curious. When we come to being more environmentally efficient, and I'm thinking about mechanics and technology — I'm sorry, I'm probably saying it all wrong — is there any incentive? In some countries or in some provinces, if you a buy more environmentally efficient car, you get subsidized or you get incentives to do so. Is there any incentive or help or even need — and maybe there is no need — to upgrade when it comes to the trains themselves or the technology, the computerized stuff? Is there a need to be more efficient, is it happening, and do you have help to do that?
Mr. Gauthier: I would suggest that, yes, the railway could probably be more efficient, but they are already more efficient than other modes.
What we are suggesting to the government is to do a bit of what Quebec has done, as an example. Quebec set up programs aimed at reducing and avoiding greenhouse gases. They said to shippers, "If you tell us that you will reduce your environmental footprint by moving your traffic to a mode of transportation that is more efficient, we will give you a subsidy.'' This program exists in Quebec. The shipper has to say, "Okay, by moving my traffic by train instead of by truck, I figured out that I would reduce my emissions by this number of tonnes of carbon, and I need a subsidy to do so.'' Quebec looks at this and provides a subsidy of up to 50 per cent of the cost of making that change. Of course, the shipper has to say at the beginning how much he plans to reduce his emissions and then demonstrate at the end that he succeeded.
We are suggesting to the federal government to do something similar. Under all the efforts that are put in place to cause people to reduce their emissions, money is generated through the carbon tax or through the carbon market, so we are suggesting that they use this money to allow shippers to shift their traffic from truck to rail and give them a financial incentive to do so.
Mr. Jebb: I think Gérald answered it very well.
Senator Petitclerc: If, for example, as a small business, you say, "There is this amazing technology. I need this technology, and this technology or equipment will make me this much more environmentally efficient,'' then you're on your own, is what I understand.
Mr. Gauthier: I ended with my example of Quebec because I wanted to talk about modal shift, but Quebec also has another program for that purpose, where it says — it's for the marine mode and the rail mode — if you adopt technology that will make you more efficient, we will support you financially. So they have two different programs. One is to specifically reduce greenhouse gases, but the other one is to improve the energy performance of a mode. If a railway, as an example, says, "If I were to buy this technology, I would need funding for that, so could you support me,'' Quebec has in place a program to foot a big part of this purchase of new technology.
Senator Petitclerc: And it would be good to have it everywhere.
Mr. Gauthier: It would be good for the federal government to do something. If you have objectives to reduce emissions, you should use the money you get from carbon tax and the carbon market to help those who can contribute by adopting new technologies or shifting from one mode to the other.
Mr. Jebb: I would encourage you to think of railways as a system, not a vehicle, and that's the reason I suggested to try the increase the capacity from 263,000 loading to a 286,000 loading. It would be a more effective use of investment dollars to have an environmental impact than trying to get the magic bullet improvement on a locomotive. If you think of it as a system as opposed to a vehicle, that perspective change will allow more effective investment.
Mr. Gauthier: It's nice to look at new technologies, but often it's best practices and the way we operate that can achieve the same results. What Mr. Jebb was explaining was allowing shortlines to have a better capacity.
[Translation]
With their greater load-bearing capacity, their cars can hold more freight. As a result, the operating cost and the environmental impact are reduced, because you are operating one train rather than a few more, because you cannot load them to the same capacity as the cars of larger railways. They have to add cars, whereas it could be done with fewer cars if they had a greater load-bearing capacity.
Senator Petitclerc: Thank you.
Mr. Gauthier: I hope that answers your question.
Senator Petitclerc: Yes, it is very helpful.
The Chair: Mr. Gauthier, you must be a Quebecer. In terms of the mining companies in northern Quebec — because I come from northern Quebec — could you tell me whether Cartier Mining and Cartier Railway are part of your association?
Mr. Gauthier: Yes. Quebec North Shore and ArcelorMittal are also in the association.
The Chair: Quebec North Shore & Labrador Railway as well?
Mr. Gauthier: Yes, sure.
The Chair: You pointed out that Quebec was investing in rail transportation through the carbon trading system. I think there are two places in America — California and Quebec — where this is being done right now. When the carbon trading system becomes "national'' — as the government has announced — I feel that every province needs to know where it is going to invest. If they invest in television transmission towers, it does not help the railways a lot. However, the two major railway companies testified here and told us how important it is.
Thank you very much for your testimony; it is very much appreciated. I am sure that, by the end of the year, you will have some news for us again. Thank you very much, have a safe trip back and a great day.
(The committee adjourned.)