Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 11 - Evidence
OTTAWA, Thursday, April 3, 2003
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:39 a.m. to examine and report on emerging issues related to its mandate (implementation of Kyoto).
Senator Tommy Banks (Chairman) in the Chair.
[English]
The Chairman: Honourable senators, I call this meeting to order. As you know, we are studying a broad spectrum of questions having to do with energy, energy production and our international obligations in that regard. We are delighted that our witnesses could come and talk to us this morning.
From the Canadian Electricity Association are Mr. Hans Konow and Mr. Roy Staveley, both of whom will let us know what they have to say about this large question.
Since you were kind enough to provide us with an outline of your position beforehand, most of us will have at least had a quick look at it, and we were not entirely unaware of it before the fact.
Mr. Hans Konow, President & Chief Executive Officer, Canadian Electricity Association: Climate change is an issue that has galvanized a broad spectrum of Canadians over the last months, and years, in our case. It is perhaps a hard sell these days as spring seems to have retreated, but nonetheless, we are very conscious of the challenge that the decision to ratify Kyoto has placed before us and we are in the process of wrestling with that within our sector. I will share with you where we are coming from and where we are headed.
I will speak to the deck of which you have a copy and try to indicate which page I am on so we can all be on the same page.
I will turn to the page entitled ``Canadian Demand Forecast, 2020.'' As a committee concerned with energy issues, you obviously place the climate challenge in the context of those other realities. We wish to share with you our perception of demand expectations for electricity.
As you can see from that slide, taking a relatively conservative estimate — not our own; as you will note, the sources are NEB, NRCan and a MARKAL model — we have identified a probable growth rate in the order of 1.3 per cent. Of course, no one can know at any given moment exactly how the economy will perform and, therefore, how demand will be driven.
Based on that, we see electricity consumption growing more slowly than GDP, which suggests that our energy efficiency is improving. The link used to be almost one to one. At some periods in history it exceeded the rate of GDP growth, but faster than population, which may suggest that some of us will have to make more intelligent decisions about what we drive and how we heat and equip our homes.
Notwithstanding that, the final figures at the bottom of the page clearly demonstrate that we will see significant growth in demand from our current levels, and the job, obviously, of our industry is to ensure that Canadians have a reliable, affordable and environmentally responsible supply of electricity.
Those words used to sound like motherhood issues. Anyone who remembers California, is watching Ontario and recalls what was happening in Alberta a couple of years ago recognizes that we cannot take electricity supply or price for granted. It is in that context that we must consider our options with respect to climate change.
On the next page, we try to translate the demand expectations into some quantification of our new supply requirements. The bottom line is that we will have to add something in the range of 20,000 megawatts of capacity per decade out to 2020, which represents something like 35 per cent of our existing capacity. That is not just to meet demand; it is to also meet the need for replacing our old plants. There are significant efficiency and environmental benefits in doing so, but the investment climate must be right and we must be able to put those plants in place if we are to meet those demand expectations.
Moving to the third slide, this translates into an expectation of greenhouse gas emissions growth of about 2 per cent per year from 1990 through to 2010, from somewhat under 100 million tons of carbon dioxide equivalent to something in the order of 140 million tons. That is given our commitment vis-à-vis 1990, which, as you all know, is globally minus six.
Senator Spivak: Do you have any assumptions built in here for demand and conservation?
Mr. Konow: All the models that we cited had a series of assumptions built in, the National Energy Board's models and the NRCan models. Remember, these are not our projections. We are simply parroting the official estimates of the department and the National Energy Board rather than bringing our own assumptions to the table.
Do we take issue with some of those assumptions? I have not looked at them in detail, but clearly there are always issues with things like projections of economic growth, domestic demand and assumptions of that sort. These are simply three models, and I do not have the detailed assumptions underpinning them with me.
In terms of a business-as-usual baseline, we are looking at something closer to a 40 per cent increase in our emissions. That is the challenge that we have to confront.
Turning to the next slide, I am sure you are familiar with the general architecture of the federal government plan. Against the backdrop that I have painted, we are looking at, as one of the three principal so-called ``large industrial emitter'' sectors, a target of a 55-megaton reduction, which would mean electricity's share of that, if you accept the back-of-an-envelope one-third, one-third, one-third calculation, would be about 18 megatons.
In addition to that, under Action Plan 2000 and the budget 2001 measures, there is probably something in the order of another 18 to 22 megatons of contribution expected under targeted measures. Any reduction measures that the provinces undertake independent of these may be additional or may simply be counted under the same tonnage. Alberta and others are musing about putting specific programs in place.
On the next page we try to summarize some of the issues and challenges that we face in actually reducing emissions. I have reflected on the particular circumstances of our sector. One of the things that we have to understand is that our capital stock has a very long life. We put billions of dollars into the ground in terms of plants. They tend to run up to 40 years. Looking at short-term changes to our emissions efficiency risks stranding a great deal of capital and thereby driving prices up substantially. That is not to say there are not means by which we can make a substantial contribution, and I will talk about the architecture we have had in play for some two years now in an attempt to move forward.
Another key element that we will talk about later is the consumers' own willingness to pick up some responsibility for being more energy efficient. That has been widely played out in the press and we will want to focus on it. My colleague, who is much more knowledgeable about our demand-side management and energy efficiency programs, will share those plans with you.
The long lead times and regulatory issues that we confront in deploying more efficient technologies are challenges that are addressable. We work collaboratively with a number of departments in trying to move to quicker, more efficient time frames for getting new projects sited.
Emerging renewables will make an impact. It will not be a huge impact on the grand scale, but it will be a growing contribution over time and many of our companies are investing heavily, particularly in wind, and tying them into the transmission system.
As I have mentioned, early retirement of thermal plants equals stranded costs, so we are trying to protect that historic investment that Canadians have made while at the same time putting in place a process for orderly turnover and replacement with more efficient options. We think there are important opportunities in clean coal technology and combined-cycled natural gas technologies.
On the next slide, ``Stretching the Constraints: Taking Action,'' our industry has been one of the strongest supporters of and leaders in the Voluntary Challenge and Registry program, which continues to report the GHG reductions that companies make. Obviously, it was put in place at a time of voluntary programming. We are now in a different world. However, it may still have an important role as a registry for greenhouse gas reduction.
We have in place, as a condition of membership, an Environmental Commitment and Responsibility Program that requires members to have an EMS system in place.
The Chairman: I should note that we have adopted a practice first put into place by the National Security and Defence Committee by which each use of unexplained initials costs you a quarter. When we are dealing with the military, we take in a lot of money because they love them.
Mr. Konow: We will try not to compete with their performance.
The Chairman: For the record, please let us know what those acronyms stand for. What is EMS, for example?
Mr. Konow: EMS is Environmental Management System. It is a management reporting system that is ISO 14000 compatible and ensures that senior executives cannot say that they did not know what they were doing. It puts their feet to the fire. We have an independent panel that holds our feet to the fire on our performance and a series of performance indicators that we report annually.
We also have a memorandum of understanding with the Department of Fisheries and Oceans to improve performance on fish habitat protection. Most importantly, and germane to this discussion, we have developed a model for addressing climate change called the Emissions Performance Equivalence Standard to address our GHG emissions, and the next page summarizes that.
We developed this approach two and a half years ago. We have been in negotiations with federal and provincial governments through the National Air Issues Coordinating Committee for well over a year. We had made some progress in developing a draft covenant, but that ceased as the discussion of Kyoto ratification emerged and governments became unclear as to what outcome they wanted in terms of the architecture for moving forward.
What is important about this model is that, first, it is based on a performance standard that would improve the overall emissions quality of our fleet over time. We asked ourselves what would be a practical option, deployable across this country, that would define an acceptable level of emissions, given current commercially available, broadly deployable technology.
The answer that we came up with was combined-cycle gas turbine technology, which has a number of different efficiency levels, but essentially is deployable in almost every province from coast to coast. However, I want to speak more fully about availability and price of gas later, because the business perception of that option has changed in the last couple of years.
The notion was that that would be the gold standard for all new facilities that we would build. It would apply to all existing coal and oil plants at the 40th anniversary of their in-service date, that is, when their economic life had been fully paid down. The start time was consistent with the Kyoto period — 2008 to 2012 — although we did not specify an end date. We see this as an ongoing process. We projected out to 2020 and recognized that the performance standard would change with time, depending on what technologies are available to us.
The basic rule, as summarized there, would be that any plant that falls short of the standard would be either replaced or offset to meet the standard. New capacity that exceeds the standard, such as wind, solar, hydro or whatever, would receive a credit that would create incentives for investment in zero- or low-emission technologies. Those credits could obviously then be sold to those who have to offset higher emission options, thereby creating an economic penalty for a higher-emitting option and an economic advantage for a lower-emitting option.
The necessary conditions would include access to a functioning international credit system such as the ones under development through the United Nations Framework Convention on Climate Change, a level playing field in terms of its application across all electricity sources in Canada and, in the future, hopefully drawing the U.S. into this kind of commitment.
I have alluded to related policy. We would be looking for improved tax treatment, regulatory efficiency and to engage the government in partnership activities in advancing R&D options and opportunities.
That is essentially the model. Climate change provokes a level of verbosity that is probably not exceeded by any other issue, so I will try to shorten my remarks.
The last page summarizes that we are ready and involved with the government in negotiating this. The name of the game has certainly changed. We are now in a Kyoto reality and trying to modify, as necessary, what we have to offer through this approach to meet the goal set out by the government in its Kyoto commitment.
With that, Mr. Chairman, I wonder if you would indulge us so that Mr. Staveley could provide you with a summary of the activities at the consumer end of our efforts. I believe that was one of your key interests.
The Chairman: Please do so, Mr. Staveley.
Mr. Roy G. Staveley, Senior Vice-President, Canadian Electricity Association: As Mr. Konow has indicated, I will focus my brief presentation on end-use energy efficiency. I emphasize ``end use'' because we are not talking at this time about internal efficiency within electric utilities, but about how to influence the customer's demand for electricity.
We have been engaged in parallel with the types of activities that Mr. Konow has been describing. We have been quite engaged in discussions with Natural Resources Canada. As part of that, we completed a survey of the industry's activities related to energy efficiency. This joint survey was summarized in a report that I have distributed to the committee. I think you will find it informative and relatively detailed. It does summarize the activities being carried out at this time by the Canadian electricity industry.
My presentation will be based primarily on that report and will, hopefully, provide some valuable information on what we are doing and where we are going.
One of the key principles, in our opinion as well as that of NRCan, is that the Canadian Electricity Association reaches out to every household in Canada and, as a result, provides a good mechanism for delivering energy efficiency programming. CEA is actively supporting the delivery of these services in a number of ways and I will talk about those as we proceed through the presentation.
It recognized that energy efficiency does play an important role in the industry's ability to reduce greenhouse gas emissions and we have recognized that we will have to be creative about how we do that. We also recognize that we need to move forward jointly with the federal and provincial governments in that endeavour.
Turning to the first page of my brief, entitled ``High Investment Levels in Energy Efficiency,'' the report clearly notes that Canada's electricity industry companies have spent about $750 million on energy efficiency programming over the last 10 years. Their forecasted projections suggest that they will be spending a further $1 billion over the next 5 to 10 years. This is a result of a fairly close review of their business plans over that time period.
We also believe that this expenditure will be focused on program development, delivery, raising awareness, market transformation and a variety of activities of that nature. It is already on the ground, in many cases, being delivered, and there are expectations that this will continue and perhaps even build as we move forward.
Things have changed quite a lot in recent years. As the markets have opened and become more competitive, utilities have had to focus on the bottom line, be sensitive to costs and the ability to be profitable and build business cases around any proposal that comes forward.
Individual companies will not invest in energy efficiency programs unless they can either receive full cost recovery through their rate base or earn a rate of return on a program that is equal to or better than other investment opportunities at which they may be looking.
This requires the utility to develop a business case to show that energy efficiency programming can achieve energy savings at a lower cost than alternative solutions such as adding new generation capacity and infrastructure to meet growing demand.
In preparing the business case, I have identified some of the considerations that go into that decision.
For example, many utilities will look at benefits from being able to defer investment, because as demand falls, new capacity does not have to be built. Also, there are efficiencies to be gained. If you can shape the demand, you can also shape the load and thereby maximize the use of the assets that you already have in place.
There is also a desire to meet customer needs. The more you meet customer needs and expectations, the more likely you are to attract and retain customers.
Some utilities are looking at exporting energy savings to the United States, where they get a premium price and thereby increase their revenues.
Clearly, there are environmental benefits to be derived from these activities. In particular, of course, the one that is attracting the greatest interest right now is greenhouse gas emission reductions.
The other driver in building a business case for energy efficiency is public perception. I am constantly hearing that the public recognizes that energy prices are going up in the long term and consumers would like to manage their bills. In other words, give them an opportunity to reduce their bills if they either make a modest investment or get some assistance in keeping energy use under control, as opposed to having to just live with energy price increases.
I give a brief list here of some of the key programs that are currently either being implemented or being carefully reviewed by utilities for implementation. ``LED,'' by the way, is ``light-emitting diodes.'' Some of these may be familiar to you as consumers. Certainly, in some jurisdictions, these projects or programs are in fact being implemented in one form or another.
I have also noted, in particular, metering, which is a big issue for our company. We are having fairly extensive discussions with Industry Canada regarding that item. I would also like to highlight ground source heat pumps. That is very much a success story in the United States that we would like to emulate in Canada.
Those are some of the programs and there is a host of detail around each one.
Moving on, it is worth noting that 50 per cent of Canada's consumers are in fact being exposed to the opportunity to participate in a fairly broad range of energy efficiency programming. There are extremely robust energy efficiency programs in some jurisdictions, but as you can see, that is not uniform across the country. We have tried to identify and break down those markets and the report provides a fair amount of detail on that.
However, as you can see, a fairly large part of the industry has yet to become fully engaged in energy efficiency. They are clearly looking at it and are interested, but the regulations and structures vary across jurisdictions. As a result, we see a variation in both the level and scope of the energy efficiency programming in Canada, which also offers opportunity. Even those who have a robust energy efficiency programs are saying they could do much more.
We have estimated that energy efficiency over the last 10 years reduced the demand for energy by 5 million megawatt-hours. That would be equivalent to a community the size of Victoria or St. John's, Newfoundland. We also anticipate that a further 5 million megawatt-hours will be saved over the next 5 to 10 years. That translates into about 4 million tons of greenhouse gas emission reductions. That would be the 2 million that have already been captured plus a further 2 million that we expect to capture, based on the current programming and program projections that the utilities have provided. If we continue on the current path, which is commercially driven, we see that as a way of delivering tonnage and energy reductions.
As I said a few minutes ago, there is a strong perception in the industry and within NRCan that much more can be done. In recent months we have been talking to NRCan and the federal government, as well as within our own industry, about how to do that. There are some issues with which we must deal. We need to look at how we can better align what the industry is doing currently with federal and provincial policy and initiatives in such a way that we actually provide incentives to the industry to do more than we are.
NRCan has a budget dedicated to energy efficiency that promotes a number of different kinds of programs. How can we align those activities and development programs with what the industry is doing in such a way that we maximize the investment dollar?
I also suggest that that extends to provincial governments and how we can work in a more concerted way across the country. There are best practices out there for leveraging earnings. It would be useful for all parties to learn from those best practices so that we do not repeat mistakes in each jurisdiction or company. We can share that learning and thereby leverage the investment that is already being made.
As one example, the federal government has approached us about the one-ton awareness-raising program. They would like to work with the electricity industry and use it as a delivery tool, in some fashion, to further that program. Again, we see both the electricity and gas industries as being effective delivery tools on a day-to-day basis for raising and reinforcing that awareness.
We have been involved for many years in standards development. We have also been involved with market transformation and the initiatives I identified when I listed the technologies that industry is currently implementing. This requires a national, industry-wide strategy by which you raise the awareness collectively, and are thereby able to build the market and the demand for the product, which reduces the price and increases the likelihood of its being widely deployed across Canada. There is a mutual leverage effect from those collective efforts.
These are the kinds of things we have been discussing. We think there is room for reviewing incentives, whether they are tax incentives or incentives built into the programs that stir the customer to look at upfront investment.
We would also like to look at regulatory reform. We have been working quite closely with Industry Canada on the issue of electronic metres and the need to more closely align the regulations with what is being applied internationally. Lowering the cost of electronic metres would accelerate their deployment. This brings in other opportunities for leverage on current energy efficiency programming.
It opens the door to interval metering, which means being able to apply higher rates during peak times and lower rates when the demand is lower. If you build an integrated strategy around that, you can make major inroads on energy efficiency. These are the types of things we are looking at.
On the final page, we summarize the kinds of steps we have been taking. A letter of cooperation on end-use efficiency between NRCAN and the Canadian Electricity Association is currently being signed off. We have been very involved in putting together what is known as the Canadian GeoExchange Coalition to promote and deploy ground source heat pumps on an accelerated basis. Huge savings can be achieved if we are able to accelerate that deployment because it is so efficient relative to other space heating and air-conditioning systems. NRCan asked the industry to be more involved in order to benefit from that technology far more than we have.
We have also been quite involved, as I mentioned, in metering. We worked with Industry Canada to come up with the Electricity Trade Sector Review Recommendations. The 16 recommendations that came out of that consultation process were all adopted and we are in the process of implementing those.
We are also quite engaged with CAMPUT, the Canadian Association of Members of Public Utility Tribunals, which is the regulators' association. They will get together in May in Banff. We are working with them, primarily through a workshop and discussions, on performance-based regulation. I am quite sure that included in that will be a discussion about how provincial regulators can provide incentives for energy efficiency within their own jurisdictions. There may be discussions on the right way and the not-so-right way to do that, based on best practices and the experiences of others who are fairly well advanced in that process.
We do a lot of data management and benchmarking. We do a lot of comparative analyses of experiences in performance and progress, both within our own industry and others like the United States and Europe.
Those are the types of activities in which we are currently engaged. It is quite a suite of activities that keeps us very busy, but it is also exciting and offers a lot of opportunities.
Senator Spivak: We were recently in California, where we heard that there is a surcharge of 0.9 cents per kilowatt- hour on people's electricity bills. I am sure you have looked at the California situation. It seems that those programs have resulted in significant reductions. It was not a cost to the California economy, but rather resulted in a $3-billion net benefit during the 1990s.
What is your view on that? What if such a charge were mandated? What is the cost/benefit of the current PowerSmart programs? In an ideal world, how would you see the utilities being used to implement energy efficiency programs? You talked about cooperation. What if that was instead the ``point of the spear''? Do you think that would work? Do you think the provinces would cooperate?
Mr. Konow: Mr. Stavely can talk about some of the specifics. I am not sure about the kilowatt-hour charge to which you are referring. Was that designed to fund energy efficiency programs?
Senator Spivak: Yes.
Mr. Konow: That is essentially a tax to raise money to fund programming. Any means are beneficial that allow you to put together a war chest of dollars to address some of the opportunities that Mr. Staveley talked about. I would hasten to add that there would be no real impact through the price mechanism on consumer behaviour.
Senator Spivak: No, it is not meant for that purpose.
Mr. Konow: It comes down to how efficient and effective were the programs that they deployed? If they informed you of a$3-billion net benefit, I am sure that is correct.
I would go back to my initial comments and the fact that California has been nothing less than a disaster for consumers in terms of price and reliability.
Senator Spivak: That is not true any more.
Mr. Konow: It was, though. It was an utter and complete disaster. My point here is not to in any way denigrate that particular program, but that we have to take a careful, integrated approach to ensure that we realize our energy efficiency objectives through funding, partnership and programming. Mr. Staveley can speak better than I about how much this raised, how much was deployed and how effective it was. At the same time, we must ensure that we do not neglect the overall functioning of electricity markets and the essentials to ensure that the right components are in place.
Senator Spivak: We heard in California that, first of all, these programs had been in place before the business disaster. We heard a good explanation of the disaster, but we cannot go into that now. They moved away from using utilities as the implementing bodies, and now they have returned to it because it works.
I think this is a different issue from that of supply. This is not meant to disrupt the entire operation. They have something called ``integrated resource management.'' It is the idea of using the utilities, those that deliver the energy, as the principal agents of change. As you pointed out, they go into every consumer's home and are therefore a very efficient method of doing that. There is a lot more to the programs and what is being done there, but what I am talking about is a country-wide mandate. Would that be a faster way of achieving change?
Mr. Konow: I will turn it over to Mr. Staveley, but the answer is, absolutely. You heard in our comments that both the industry and NRCan recognize that the utilities as a group possess that distribution channel. They reach into every home and every business. We have tried to indicate that there is a challenge, given that market constructs are very different. Integrated supply planning can work in a monopoly market with a fully integrated utility. The jury is out on just how well it works.
There is not the same motivation on the part of all players in a fully competitive market with an aggregated utility.
That is why we are saying we have to find creative ways to ensure that the deployment of energy efficiency approaches make sense, in a business model case, to both generators and distributors.
Mr. Staveley: There are vertically integrated utilities — B.C. Hydro and Manitoba Hydro, for example — with successful programs.
They are successful in the sense that they are able to offer programs to their customers at competitive prices and also achieve significant energy reductions that make a robust business case for them. You will see those utilities continue to lead the way in program development and deployment.
Going back to Mr. Konow's comment, there are other jurisdictions where the market is different from those two to which I made reference, where the utilities have disaggregated, notably Alberta and Ontario, but also I would point to New Brunswick as a more recent example. Their business drivers are different because of the disaggregation. When they put the business case together, often, it does not add up to being a good investment of their dollars relative to other opportunities, and they are therefore generally declining to get into that energy efficiency market to the same degree.
They are also, however, involved in discussions with their provincial regulators about how the provinces, vis-à-vis the industry, want to approach energy efficiency, and it may vary from jurisdiction to jurisdiction. The CEA, in discussions with the Office of Energy Efficiency in NRCan, and with the general approval of the membership, agreed to proceed with a fairly extensive analysis and review of the various practices in the United States, Europe and other jurisdictions. The California experience is one option. It may not be the best. Certainly it may not be the best option for every jurisdiction. We need a careful assessment of what the options are and which are the best. We would like to bring that forward as useful information for any policy decision maker or regulator, whether across the country or across other jurisdictions.
In trying to apply the California experience generally to Canada, one must at least recognize that there is a diversity of regimes across the country and it may not necessarily work for all of them.
Senator Spivak: How soon do you expect to have this review completed?
Mr. Konow: Our hope is to have it completed no later than September.
The Chairman: Before you leave that topic, as you said, some jurisdictions and utilities are heavily involved in convincing consumers to get involved in savings programs and others are not. Is there a relationship between the nature of the regulation at the upper end of that activity and the lack of regulation at the bottom end? In other words, can what you said be turned into an argument that the only way we can do this is with a hammer?
Mr. Staveley: I am not sure a hammer is necessarily the way to go. Picking examples, in British Columbia they are able to implement a fairly robust energy efficiency program because they are able to transfer those costs within the rate base, but it is based on a solid business case that it is better to have an energy efficiency program than to build a new generator. On that basis, they go to the regulator and are able to build those costs into their rate base. That type of regime works well for British Columbia and the vertically integrated utility.
In Ontario, where you have a disaggregated market, there will clearly have to be a different approach. I know that the utilities are talking to the provincial regulator about how to do that. Third, and more importantly, from our point of view, there is also a role for the federal government. The federal government has a number of different regulations on tax and incentive mechanisms that also can make a big difference to the success of energy efficiency programming across this country. I am particularly mindful of the fact that, for example, Industry Canada has the responsibility for all regulations related to metering, whether it is electric, gas metering or other kinds of metering. Those metering regulations will play an important role in our ability to implement automated metering technologies that provide feedback to the customer that complements the energy efficiency program. That is why there is a collective effort.
There is no single solution. It is a combination of lining things up correctly, all working for the same objective and achieving it in an efficient way. That is where the discussion that I am involved in is really focusing. I am pleased to say that there is some general recognition of that on the part of participants who are involved in this process.
Senator Cochrane: I will continue with the subject of the programs, particularly the metering, because you mentioned it earlier, and the ground source heat pumps. Can you elaborate on those programs? You say that the federal government is now involved in the metering program. Is it only the federal government that has to be involved? Is there something in the making to ensure that this happens in all the various provinces? Can you elaborate on that, please?
Mr. Staveley: A province or a provincial regulator can always mandate the acquisition and deployment of electronic metres. Our position is that we would like to see the cost of electronic metres lowered, consistent with the experience in the United States and other jurisdictions, including Italy and the United Kingdom, through the adoption of similar regulations. That will create the economic incentive for utilities and others to purchase and install electronic metres far more rapidly than is currently the case. The application and acceptance of metering technologies in the United States shows a clearly upward curve. In Canada it is flat because electronic metres are so expensive relative to those countries that the utilities simply are not purchasing them. It is cheaper to hang on to mechanical metres that do not have the sophistication and capability to do the kinds of things that would foster energy efficiency.
On the issue of ground source heat pumps, this is another case of where, in the United States, they are being deployed at a rate where the market is expanding at 30 per cent a year. I have heard that they have achieved that level of growth. It is an extremely efficient form of heating and space cooling. NRCan does want us to pursue that aggressively in Canada. We put the coalition together in order to emulate that experience in the United States. It is essentially a mirror image of what they are doing.
Senator Cochrane: Would you tell me how that works?
Senator Spivak: Are they for industrial or residential use?
Mr. Staveley: Both. Simply, it is a loop placed in a well, a river or the ground, vertically or horizontally, that draws out the heat or the cold, whatever it is you want to achieve, to heat or cool off your space.
It draws the natural heat or cold out of the ground and circulates it into the house. In some applications, it can reduce costs by as much as 80 per cent. It has certainly been found to reduce energy use. In Switzerland, 80 per cent to 90 per cent of the homes have this technology. In Sweden, the percentage is not quite as high, but still very high. It is quite common in Germany and in other European countries. In the United States, it is growing very fast. In Canada, we are barely out of the starting blocks. In fact, we are even having trouble launching the coalition because of funding restrictions under NRCan, which has encouraged us to do this. However, if we can get it launched, it will make a real contribution to reducing greenhouse gas emissions.
Senator Spivak: Can it be put into existing or new homes?
Mr. Staveley: Yes. It can be retrofitted. It is very cost effective.
Senator Spivak: On page 5 of your brief, Mr. Staveley, you state that 50 per cent of Canadian consumers are in markets that offer major energy efficiency programs. Are these programs focused more on urban or rural areas?
Mr. Staveley: They are focused equally, depending on the technology. The incentive is higher in rural areas because of the cost of delivering electricity. For example, oil or diesel generators are supplying those rural areas that are not on the grid. There is a huge incentive for these programs. It is not exclusively any particular market; it is really an analysis of which technology best applies in which market. As far as I know, from talking to B.C. Hydro, for example, all of these programs are available to customers in general.
Senator Cochrane: And Newfoundland?
Mr. Staveley: Yes, Newfoundland has some programs. However, they are not as robust. I can honestly say all the utilities are looking at these things and are clearly trying to develop the business case. They are sensitive to the fact that customers are increasingly expecting these kinds of services and I think they very much want to provide them. However, the utilities are not in the business of subsidizing energy efficient programs. They must make good business sense, because sometimes it is cheaper to build a generator to meet the demand than put in an expensive program that, at the end of the day, does reflect well on the bottom line.
Senator Cochrane: Consumers in Newfoundland are also still expecting cheaper rates.
Mr. Staveley: Always, yes.
The Chairman: I would like to hear more about Senator Cochrane's point. It is not, to use your words, ``very robust'' in Newfoundland. It has been very robust in British Columbia, however. B.C. Hydro has been a glowing example of precisely what you talked about, namely, ``Let us not build new plants; let us find new ways to use the existing technology.'' What is the difference? If I am a utility operator in Newfoundland, why do I not have the same incentive to make more money, which was what happened with B.C. Hydro?
Mr. Staveley: You must recognize that each utility is operating in a different business environment and has a different business plan. They are also meeting the regulations and requirements of each province. I will speak about Manitoba Hydro, because I am not as familiar with Newfoundland as perhaps I should be. For example, some of these utilities look for export opportunities. Export opportunities are very good for B.C., Manitoba and Hydro-Québec. Newfoundland does not have the same access. That is factored into their business plans and influences the decisions that they make. I use that as one line of argument. However, you can carry that on into different kinds of considerations.
The Chairman: There may, in that and other respects, be questions that we would like to ask you in writing. I hope that you would permit us to do that and that you would be able to provide us with answers through our clerk.
Mr. Konow: My pleasure.
The Chairman: All of us have a lot of questions, but unfortunately, we only have this room for a specified time period.
Senator Christensen: I will ask a question and ask you to respond in writing because of the time constraints.
Perhaps I am not as up-to-date as I should be because it has been 20 years since I was involved in the energy area. Line loss used to be, and I presume still is, a substantial problem for companies, especially in long-distance transmissions and hydro. When you are serving a rural community, you do have to transmit energy over long distances and there is a major line loss.
What are your calculations on line loss as opposed to output? What has been done and what can be done to improve that? What are companies' plans for developing alternate sources of energy closer to rural areas, whether wind, solar or mini hydro, to maximize the output of the plants? Could we have that in writing?
Mr. Staveley: I would be pleased to do that.
The Chairman: First, thank you very much for these reports. They are valuable to us. We will be sending you some questions in writing, but if anything occurs to you, as it always does to me after I leave the room, would you please write it down? We want to hear everything that you have to say.
Mr. Konow: I wish to thank you again for entertaining our presentations. When you look at energy efficiency in different markets, the first determinant is price; that is, the price signal to customers and the price of electricity in any given market. When we talk about the potential in Canada, it is different from the potential in Germany, Switzerland or Japan, where they have high costs or high prices. You work within economic realities. It is within that reality that we try to shape programs that fit, can be successfully deployed and render benefits to customers.
The Chairman: Mr. Staveley, would you tell us, please, in writing, what exactly you have in mind when you talk about a reduction in the cost of electronic metering that could be in some way assisted by the Government of Canada, be it a direct subsidy, a tax or whatever.
Will you also please tell us in writing what impediments you see, if any, that the Government of Canada, or any of its departments or agencies, has put in the way of progress in the negotiations to which you have referred.
Before us now are representatives of the Canadian Chamber of Commerce and the Canadian Council of Chief Executives.
Mr. Michael Murphy, Senior Vice-President, Policy, Canadian Chamber of Commerce: It is a pleasure to be with you again this morning. I think that everyone has a copy of the presentation that we have put together. Rather than read the opening remarks, I thought I would read through the deck with you, put some highlights on the table, and we could chat about it afterward.
There is a lot of background material in the presentation and I will dispense with a couple of the slides. Slide 3 is an important context for the entire post-ratification discussion of the reality with which we are dealing. We talk there about what has been happening with respect to emissions in the last decade, what has been happening with respect to the growth in our economy, something with which we certainly concern ourselves at the chamber, as well as some numbers on Canadian consumption and demographics.
The challenge on page 4 is to outline, essentially, what we will be asked to do, and we can talk about how that compares to what we have been doing, the need to cut up to 30 per cent from our projected emissions in the year 2010, which we will use as the midpoint of the first period, and the significant gap of 240 million tons that we will have to get out of the system, as we indicate here. Our concern leading into the exercise is that we do not have a strategy to get us all the way home.
Page 5 shows industry action to date and some important work from the business community standpoint. This is the subject of energy efficiency, and reducing energy emissions has been on the radar screen of business for many years. In terms of participation in CIPEC, the Canadian Industry Program for Energy Conversation, and the VCR — and you have probably been made aware of those programs — CIPEC is one that we have embraced vigorously at the Canadian chamber for some years. One of my colleagues sits on the general manufacturing task force at CIPEC and has done so for a number of years. The significant thing about the work of the companies engaged in CIPEC over the years is that they have averaged 2.4 per cent in energy emission reductions in that period. If you flip that on its head, you could say that without the program, GHG emissions would have been 27 per cent higher than they were in 2000. There is a significant contribution there.
On page 6, I mention that we as an organization have done some work specifically with NRCan in dealing with CIPEC. We brought this subject to the floor of our annual meeting last year, where we discussed it in some detail, and the environment committee of the chamber felt strongly about having the delegates endorse the concept of greater involvement of the chamber and our members.
We are also doing work with chambers of commerce and boards of trade across the country. We have 350 to 400 local chambers and boards of trade in our membership. We began with the Hamilton chamber working on a pilot for small and medium enterprises. The smaller firms are a challenge for us in this country. A huge percentage of our economy is made up of small firms, and engaging them in the process is a significant challenge — one that we will try to do something about.
On page 7 of our brief, I indicate some of the concerns about what else can be done. I talk about ``low-hanging fruit'' as a simple way of saying that many of the things you can do within the cost structure available to businesses today and across sectors has been done. It is not that people have been sitting still. The key issue for moving on is the capital stock turnover issue, being able to amortize investments that you have made in good faith and not have to strand that kind of investment.
Page 8 talks about our specific concerns with the government's plan. In November, when the document came out, it did not speak to the Kyoto gap. There was an acknowledgement that not all of that was dealt with. About 60 megatons was left for further discussion.
One of the key challenges is that we have been talking about this for some time but are now only five years away from the initial commitment period.
We have a significant achievability question on the table for large industrial emitters. You have been hearing from the industrial sectors on that. How about those that are outside, and how much of the existing plan today is solid and robust in terms of understanding where the balance of these commitments could come from?
I mention briefly in slide 9 that we do not have 10 years. There was a lot of discussion last fall about the fact that we have 10 years to get our act together here. It was the fall of 2002, and the commitment period would take us through to 2012. That is not reality because the commitment itself essentially demands compliance in each year of that five-year period, and if you do not make it in the first year you are compounding your difficulties.
The time frame on page 10 talks about the fact that a number of industry sectors have already made changes using new technologies, but how can we do what would be required to meet those challenges within the time frame established by the first commitment period? For many, it will prove to be a significant challenge. I talk about many initiatives that are still in the pilot stages, and you may have been talking about fuel cells as an example. You can also look at a number of companies that are considering pilot projects with respect to clean coal technology and those in the electricity sector.
Slide 11 talks about capital stock turnover. I have mentioned that. It is absolutely fundamental to business managers thinking about capital investments. The sectors that we are talking about tend to be capital-intensive businesses. They have a plan to earn the investment on the capital that they have put into place, then think about the payback period for that and look at replacement, all in due course.
On slides 12 and 13 I have only briefly touched on our reality, which is that essentially, in the North American context, we the only country within the Western hemisphere that will make a commitment within Kyoto. I have talked a little in this slide about what the Americans are doing here.
I will move on and give you some sense of why this relationship is important to this discussion within the Canadian- U.S. context. You are all well aware of the trading relationship, and I do not need to get into that.
We have discussed extensively within the industry community, and certainly within government, the opportunities to do something about energy intensity if there is a clear interest in the business community, which there is. What can we do on a cooperative basis with the Americans? We do that in many areas, and there is no reason why that policy could not apply here.
Moving forward to page 14, the last few slides are scene setters. Generally in the business community, and in an organization like ours, which has virtually all of the players as members, there are lines that cut across the debate in terms of what is important to all sectors. Each of them can speak to their own plans and concerns, but there are certain things that all of them will want to see in place as we move forward. The first one, clearly, is that we want a national approach and a national system for reporting emissions. We could find ourselves in real difficulties because of this kind of federal/provincial division of responsibility that will lead to additional costs for business.
The last few slides talk about policy principles that we believe should be in place. It would not surprise you to hear from the Canadian Chamber of Commerce about stimulating growth and competitiveness in our economy, something that I spend most of my days thinking about, and what we need to do as a country in that regard. Achievable emissions intensity objectives for industry are very much on the table, not only for the large industrial emitters, but also for the country as a whole, to discuss, as is policy certainty. I do not think people in business would appear before you and say they like uncertainty, and we still have uncertainty in this policy. That is part of the difficulty, and that must change.
I have highlighted here the fact that investments in new technology are critical. In the end, technology is the real issue in dealing with greenhouse gas emissions. It is a question of time frames, investments, and how you get that right while maintaining solid businesses and the competitiveness of our economy as a whole.
A sound framework for government-industry agreements goes without saying. Our fundamental concern is that we do not have the ground rules in place to provide certainty from a federal-provincial standpoint.
On page 16, I mention governance. Much has been said about how the federal government has organized itself to deal with this, and much history is on the table with respect to that issue. It is still very much a concern to the business community.
Incentives will definitely be part of the reality for businesses today when you are building a business case and determining the right approach in making significant spending decisions.
I have already spoken about our difficulties with the plan and the critical importance of doing this in conjunction with provincial governments, since this is, as I indicated on page 17, a national and not a regional issue, and there was discussion about that in the lead-up to the ratification announcement in December.
The idea that we will achieve our targets through the actions identified in this document is open to question for many people. The idea is that we would use emissions trading as a way for a number of large emitters to play catch-up. Looking at the totality, we would question the ability to achieve the 55 megatons in that area. Will you, in effect, impose a tax on those emitters to meet the target? Essentially, that is what that would amount to.
The final slide raises the issue of supply chain implications. That is very much in play for a variety of industry sectors that have their own issues to deal with, but what effect does a change in production of steel or aluminum have downstream on buyers of the product and what are the implications there?
That we would discuss climate change in the context of all of our other economic objectives as a country is a given for us. I do not think it can be done on a stand-alone basis. That, too, is part of the general principle that we will want to see established here.
Mr. John Dillon, Vice-President, Policy and Legal Counsel, Canadian Council of Chief Executives: Good morning, honourable senators. It is certainly a pleasure to be here today. Like Mr. Murphy, I have prepared a slide deck for your use, but I will not try to take you through every single one. A number of our points are quite similar, as you might expect.
I wanted to deal briefly with slide 3. I am sure you have already seen some of this information. This is just a reminder of what Canada's sources of emissions are in terms of our overall target and which of those sectors are growing the fastest. Obviously, because of the significant expansion in the oil and gas sector since 1990 related to oil sands, developments in the North and off the East Coast, and projected developments going forward to 2010, that is the largest growth area, even though all those industries, and particularly the oil sands, have made great gains in reducing emissions per barrel of oil.
The other large growth area is transportation. We have a situation where vehicles are getting more efficient every year, but there are more people and more vehicles in Canada every year and longer distances being driven. It is significant that the industrial community, and Mr. Murphy has already mentioned the progress that has been made there, is one of the lowest growth sectors in the country.
The next slide is a reminder of what the federal implementation plan of last November told us about their forecast for emissions in the midpoint of the commitment period, what the gap is and how they intend to close that. As mentioned, there are 55 million tons from the so-called large industrial emitters, and a variety of other measures proposed. There are 60 megatons as yet unaccounted for, as indicated by Mr. Murphy.
That leads us to slide 5. There are a number of challenges for us as an economy and as a country. It is a 30 per cent reduction in overall emissions in a relatively short period of time. It would require gains in efficiency three or four times greater than our best efforts in the past, notably in the 1970s, when oil prices spiked considerably.
Relative to what other countries have taken on, this is an ambitious target because Canada's economy is growing faster than most other countries in the OECD and our population growth is also amongst the highest. The export of energy-intensive goods continues to be a significant driver of jobs, government revenues and overall prosperity in Canada. Unlike many of the countries in Europe that have taken on targets, Canada is in fact a significant net energy exporter.
Mr. Murphy talked earlier about the scheme for large industrial emitters, in which there are a number of aspects. While some details came out late last year, there was a great deal of concern through the late fall and into December about uncertainties. Natural Resources Minister Dhaliwal issued a letter that provided some clarification with respect to oil and gas in particular, limiting the maximum reduction that would be asked of that sector and offering a price protection of $15 per ton to industry more generally, but there are a number of important details that still need to be worked out.
The rest of the federal plan is on page 7, and the critical element here is that while we have seen a number of investments over several years, including the $1.7 billion announced by the federal government in the budget in February, the real issue is how much have we accomplished through existing measures and how much will they actually close the gap. Business has taken action and been focused on improving efficiency for many years because it makes good business sense for those companies that are intensive users of energy. The real issue in many respects, given that this is a national target, is how we will make those changes and engage consumers. It is not clear to us that the government has really put the measures forth that will draw in consumers and get them to fundamentally change their use of energy over time.
The plan that we saw last year, notwithstanding the time that the government took to develop it, gives only general goals. Canadians will be asked to reduce their energy consumption by 20 per cent and to drive 10 per cent less. It is not clear how that will be done.
I caught part of your discussion with the representatives of the electricity sector earlier. There is relatively little appetite in this country for new energy taxes, or indeed higher energy prices. Yet, without that kind of signal, how will consumers make the necessary changes?
I do not need to remind you that there are significant challenges with respect to how Canada will actually meet the target. One point of which honourable senators might not be aware is that the government is preparing yet another emissions forecast for 2010, which may show our emissions to be even higher. Four different emissions estimates have been developed since Kyoto was signed in 1997, and in each case, the estimate has gone up. That increase is related to population, economic growth, energy use and the fact that it is difficult to change behaviour over a relatively short period of time. At the end of the day, if the country as a whole fell short of meeting that target, would the Canadian public support a large purchase of emission credits from Russia, which will have excess to sell?
Mr. Murphy has done a good job of clarifying and stipulating the number of concerns that exist in the industrial sector. I will touch on a couple of those on pages 9 and 10 of my presentation. It is absolutely essential that we sit down with governments and work through the proposed targets for large industrial sectors. They need to be grounded in what is technically and economically feasible in those sectors. It needs to take into consideration those industries that have undertaken significant action since 1990 in response to the voluntary and government programs that Mr. Murphy outlined. It is essential that be done on a harmonized federal-provincial basis. At the moment, the federal government is setting out on sector negotiations without involving the provinces. That is not a recipe that the business community favours at all. There is a need, as Mr. Murphy indicated, for a clear and simple national reporting system. We need further certainty on what the policies will be over the longer term and how they will affect us. Many of the industries that we are talking about are capital intensive and employ long-term capital projects. There will be a need for governments, in return, to make commitments relative to policies, regulatory streamlining and the removal of barriers to actions that industries would like to take.
These agreements have to be about making industry as efficient as possible. The Dutch government has signed covenants with its industries relative to greenhouse gases. It has said quite clearly that if its industry sectors, based on international benchmarks, are in the top 10 per cent of industries worldwide, that is all that the government will require. If more is needed to meet the Dutch target, the government will obtain the credits and not impose that on industry. That is the sort of thinking that we need in this country.
Briefly, on page 11, there is a need for federal-provincial harmonization in this approach. A great deal also needs to be done at the municipal level. Clearly, there are responsibilities at the municipal level related to resources, transportation, urban planning, urban transit and waste that go far beyond what the federal government alone can implement.
On the international side, as I am sure you are all aware, one of our big concerns is that the United States is on a different path with respect to climate change. Interestingly, although a lot of attention has focused on their failure to ratify the Kyoto Protocol and their setting of a different target, they are very much focused on new technology over the longer term. That is critical, as Mr. Murphy has already indicated.
With the U.S. out, Australia out and the developing countries not taking on commitments at this time, Kyoto only deals with about 30 to 35 per cent of global emissions. We do not have a long-term solution. The timeframes for negotiating new agreements and targets for 2012 and beyond are rapidly approaching in 2005. It is not yet clear what longer-term strategy our government has for dealing with this.
Over on to slide 13, we hear a lot of fine-sounding words from Europe, and I just wanted to point something out with respect to the internal burden-sharing arrangement within the European Union. In fact, many countries have very different targets within Europe and relatively few are making good progress in staying on track.
A lot of the European Union's efforts will depend on the U.K. and Germany reducing their emissions, largely due to two factors. First, the U.K. switched rather massively from coal-fired electricity to natural gas, and second, East German industry was essentially shut down after reunification. They have tremendous advantages there. Other countries not only set generous targets, but they are not doing well in meeting them. However, this is not about who is doing well and who is not. It is about trying to figure out a strategy for the longer term.
I have left you with a couple slides on what we believe will be absolutely critical elements in moving forward. Obviously, we need to think of this over the longer term. We need a strategy that ensures that innovation and technology development takes place in Canada; not only because we have important technologies like fuel cells and carbon capture and storage that we can adopt in this country, but also because we have to adopt a lot of technologies that are developed elsewhere. We will need to commercialize a lot of the technologies that will be developed and to think carefully about a longer-term strategy to do that. As I said earlier, we must have sensible targets for industry. Industry wants to be efficient; however, if that is the case, then that should be what is required of industry to improve our competitiveness and GHG performance at the same time.
Finally, we need consumer mobilization and real engagement in the kinds of changes that are needed over the longer term. This will mean significant investment in things like public transit. These things are not easy to do, and a number of reasons apart from climate change, including congestion and air quality, make this investment necessary. We need a true national strategy for all these aspects.
Moving forward, Canada must play a proactive role in re-engaging the United States in a longer-term strategy. We must play a role in speeding up technology development and benefits to developing countries. At the end of the day, we will only convince them to become part of climate change efforts if we can demonstrate that improving economic growth, emissions performance and competitiveness are all part of the same game. We need all of those countries involved in a real, long-term strategy. I look forward to your questions.
The Chairman: I have read your longer report, Mr. Dillon. You are clearer there that you think we should revisit this whole question and, in effect, redesign it. I do not think that will happen.
When you talk, as you just have, about a longer-term strategy, do you mean that we just need more time in order to reach the goals we have set? Would that be the simplest way to express what you have said?
Mr. Dillon: Our organization was one of several over the course of 2002 who put forward ideas about an alternative to Kyoto. That obviously did not happen, as you said, Mr. Chairman. We are committed to working to develop a sound implementation plan going forward.
I do not have an answer, and I do not think the industry community has an answer, about how quickly we can get to whatever target we choose. I do know that we as a country, or the world, will not deal with greenhouse gases without significant changes in technology that leapfrog what we have today and provide significant energy from low- or non- carbon sources. That could be wind, solar, tidal power, fuel cells, or a whole range of new technologies. The gentlemen who were here before us probably talked about capturing carbon from electricity generation and storing it underground or using it for enhanced oil recovery. A lot of things can be done. All those technologies, even fuel-cell vehicles, are some time away. I think the automobile companies would tell you we are many years away from mass- producing fuel-cell vehicles.
Those are the changes that will be needed. Most of them will not fall within the Kyoto commitment period, and that is our concern. However, there is no question that all of those technologies will be absolutely essential and will make a real difference — not just to Canada's emissions, but also to those of the world.
Senator Christensen: Both of you have spoken about the U.S. not being onside with Kyoto. Yet many witnesses are saying that, while the U.S. is not signing Kyoto, the states themselves are putting on massive campaigns to reduce emissions and come up with new technologies — and that they are ahead of Canada in energy efficiency. In fact, we will have to play catch-up.
Does this not indicate that we should be doing more to remain competitive?
Mr. Dillon: There are two aspects to your question. First, is the U.S. taking action? Absolutely. I would not criticize the Bush administration and the United States for what they are doing on climate change. There is no question that they will take action over the longer term.
Some individual states are taking significant action. My understanding is that the bulk of it is directed toward coal- fired electricity generation. It is important to keep in mind that the U.S. generates a lot of electricity from coal. I believe somewhere between 35 and 40 per cent of the GHG emissions in the United States come from coal-fired electricity. In Canada, it is 15 per cent, or perhaps even less.
Most of the states, to the extent that they are taking action, are directing it toward coal-fired generation. This is both for climate change reasons and, probably more importantly, air quality reasons in their communities. That is the reality.
I have not seen — there may be examples, but it is not comprehensive across the U.S. — a GHG control scheme that will apply to steel, forest products, chemicals and the range of industries that we are concerned about here in terms of competitive impact. That is not happening, as far as I can tell.
As to where they are going on technology and whether we will be playing catch-up, there is no question in my mind that the U.S. will continue to produce a great deal of the technology needed to reduce greenhouse gases. This will happen regardless of the position of the federal or state governments. That has always been the case for technologies used in industry. The U.S. is a key source, as are Germany and Japan.
The U.S. government has recognized that and sees the advantage of stimulating those long-term technology developments. As I said earlier, a lot of our sectors are importers of technology. Unfortunately, that will be the case for the foreseeable future. That is a real concern for us.
Senator Christensen: Some of our large companies, such as Shell and BP, see this as an opportunity. Other energy companies are going that way as well. Petroleum has a limited life and we will run out of it eventually. All of these major energy companies will eventually be out to lunch if they are not on the leading edge with alternative technologies. This is a huge opportunity for them to meet the new demands as we become less dependent on oil.
Mr. Murphy: If I can offer a brief comment, I think that is very true. You can point to electricity companies that are in the business of generating power through coal who are investing in clean coal technology or even wind power. TransAlta is one example, and there are many. What it boils down to is the context in which you make the decision.
It is a little like the question with respect to the United States: Why, as a country, did they reject Kyoto? You are essentially making a separation between the concept of implementing Kyoto and taking action on GHG emissions. Those can be two separate things.
A lot of work is going on in both countries related to that, but the focus in the U.S. was, ``We do not think we can do this without significant harm to our economy.'' That does not mean they will not deal with the issue. That can be said in Canada as well.
That can also apply to individual companies. Firms will make decisions on how they will invest capital. Not everybody is in the same boat; but from the standpoint of making that decision, and the examples that you were using, everybody can make that kind of commitment by saying, ``Yes, this is what I will do. It fits into my cost structure and the turnover of the investments that I have already made.'' Individual companies can always make that decision. For us, the issue was whether on the broad base of the economy as a whole we could do this without significant harm. We did not think so, but individual firms can make their own decisions in that regard.
Senator Spivak: What do you think is the major obstacle to Kyoto? By the way, I do not believe that Kyoto is the answer to what faces us — it is just a very small step forward. Is the biggest obstacle the timeline? Or is it a lack of recognition on the part of business, both large and small, that this really is a problem?
Do you know what I mean? Necessity is the mother of invention. You mentioned California earlier. They did what they had to do because they could not breathe. As it turned out, it did not cost them money. They made money. Anyway, I want to know what is the biggest first hurdle that you have to overcome.
Mr. Dillon: I will offer my opinion, and Mr. Murphy may have one as well. To me, there are two fundamentals. First is the time frame. It will take time. Billions of dollars are being invested in Canada and around the world in some of these new technologies, whether it is fuel cells, clean coal, different forms of hydrogen or wind and solar power.
Solar energy has been around since the energy shortages of the 1970s. In Canada, we have not made huge progress in figuring out how to take advantage of that. It is still very costly. However, that is often the time frame that is required.
I am sure you talked to the automobile companies. They are investing billions of dollars, but they do not expect to have fuel cells in mass production for 15 or 20 years. I believe that would be their estimate, although you should get it from them. The time frame is absolutely critical because these technologies have to be developed, paid for and distributed throughout the world.
Second, I do not think there is any problem with attitude in business. As I said earlier, business people have been very focused on energy efficiency. It is part of their cost of doing business. The reality for consumers, though, is a little different, because these are all big investments up front.
There was talk earlier today about electricity and heat pumps. For someone who already has a heating system in his or her house, that change is a major expense. The numbers show it pays off over a number of years, but it is a major expense for a consumer with limited resources.
There are new, more energy-efficient vehicles and appliances coming on the market every year. However, the reality is that most Canadians do not have the up-front capital to invest in those things for a 15-year payoff in energy savings.
Senator Spivak: What is your view of mandatory versus voluntary measures? For example, we already have the technology to greatly increase fuel efficiency, which would mean a huge cut in greenhouse gas emissions. However, we would have to mandate that before manufacturers would respond. There are exemptions from fuel efficiencies for vehicles like SUVs and trucks. There are things that could be done quickly, but they would have to be mandatory. What is your view on that as compared to your voluntary program that, by the way, has not worked very well?
Mr. Dillon: I am not certain that a simple answer is possible. Using the vehicle as an example is fine, but you should speak to the industry to get more specifics. The reality is that consumers look for a variety of things when buying a vehicle: safety, performance, comfort and space.
Senator Spivak: Those items are not connected to energy efficiency.
Mr. Dillon: Of course they are not, but the companies will tell you that it is difficult to meet all of those. Efficiencies are improved every vehicle year, but trying to make huge jumps over a short time is difficult, given the competing demands.
At the end of the day, it is whether the consumers are prepared to buy them. There are efficient appliances on the market. When I changed the furnace in my house a few years ago, the difference between a high-efficiency and a mid- efficiency furnace was around $800. Even the fellow selling it to me tried to convince me that the mid-efficiency furnace was a better buy because the energy savings were relatively small, given the price difference. That is the reality of the decisions that consumers have to make in the marketplace.
The Chairman: Another part of that reality is convincing the consumer of the non-cash value of doing that.
Mr. Dillon: Certainly.
The Chairman: We would like to live here and we would like to save some dollars on our fuel over the next few years; things will be better.
Mr. Dillon: For years, government has used education programs to try to make that case: It saves the consumer money and it is better for the environment. Some people respond to that, but at the end of the day, many people look at price. There was a time when most manufacturers of appliances and vehicles did not put big stickers about efficiency on their products because most consumers were not terribly interested in that. That may be changing; let us hope so.
The Chairman: It is not changing fast enough and you are quite right to identify the fact that if we do not convince consumers, in the end we will have failed. That is absolutely key to the whole issue.
Senator Cochrane: Since you are talking about costs and prices, could you give us an idea how of much it would cost to install a heat pump in a home?
Mr. Dillon: We are the wrong people to answer that question. It is not just the equipment to be installed, but what has to be done outside the house, such as laying the bed and the pipes below the frost line, et cetera. All of those are major upfront expenses. It is significantly cheaper once the unit is installed and operating, but I could not give you a dollar figure.
Senator Cochrane: It is the same as anything else. The installation is always more expensive than the unit being purchased.
Senator Cook: Heat pumps are not that expensive. You will save in the long run, although we have to convince the public. We need to educate the consumer more than we have.
Mr. Murphy: In terms of the commitments that we have discussed in the context of Kyoto, the assumptions about where the various elements of the burden will lie are clear in the government's plans. As Mr. Dillon indicated earlier, behaviour modification for consumers is important, not only in respect of houses but also in terms of urban infrastructure investments such as public transit. Cities can make those investments, but will people utilize the systems?
Those kinds of issues are difficult to work through, but will ultimately make a significant contribution to the issue.
Senator Buchanan: I need more details on the slide on the European performance. You have two columns, ``Target'' and ``On Track to Target?'' What is the target?
Mr. Dillon: The overall commitment for the European Union is minus eight.
Senator Buchanan: For what year is that figure?
Mr. Dillon: The target is to reduce emissions by eight per cent from the 1990 baseline. The commitment period covers 2008 to 2012. That is the assessment of the European Environmental Agency. I did not do these calculations myself and I should have clarified that in the slide. That tells you how much the emissions have changed in each instance between 1990 and 2000, what the target is for 2010 and what the burden-sharing target is within the EU — that is the differentiated target. That adds up to minus 8 for all 15 members in total. The actual reductions and targets for each of those individual countries vary greatly.
Senator Buchanan: I know. There is one country missing.
Mr. Dillon: Yes, it is Luxembourg. I think they have about 10 million tons per year.
Senator Buchanan: I am a Nova Scotia man, and as you probably know, 80 per cent of our electricity is generated from coal. We used to be quite concerned when anyone wanted us to cut back. Now, it really does not matter because we no longer use indigenous coal. We bring it in from the United States and Columbia. It would be good if we could move away from coal, but it will be difficult, especially considering the cost.
Most of our coal-generating plants are in Cape Breton and the prevailing winds are from the west to the east. It does not matter much to the east because our emissions are blown out over Newfoundland.
Mr. Murphy: Your example, senator, raises the issues of the timeline in the turnover in technology and of infrastructure. I am no expert on coal-fired electricity generation and switching to natural gas, but if the infrastructure were not in place, there would be a great challenge, financially, physically and time-wise. That is another example of exactly what we have been referring to.
Senator Buchanan: Yes, it is. Our problem is that we generate about 1,000 megawatts of power from coal. It has been said that it would be relatively simple to convert our generators in Cape Breton to natural gas because we have a great deal of it offshore.
The problem is that there is no natural gas in Cape Breton. It is in the Strait of Canso and the delivery cost would be extremely high. The cost of conversion of the generators from coal to natural gas would be high. Of course, the price of natural gas right now is high. Therefore, we do not anticipate any change for quite a number of years.
The Chairman: We will have to change your mind, Senator Buchanan.
Gentlemen, some questions may arise from the information that you provided today. We hope that you will permit us to write to you and that you will respond.
The Chairman: Thank you.
The committee adjourned.