INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Wednesday, December 11, 2002

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1520

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.))

Mr. Rick Hyndman (Senior Policy Advisor, Climate Change, Canadian Association of Petroleum Producers)

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1525

The Chair

Mr. Michael Cleland (Senior Vice-President, Government Relations, Canadian Electricity Association)

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1530

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1535

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1540

The Chair

Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada)

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1545

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1550

The Chair

Mr. Mark Nantais (President, Canadian Vehicle Manufacturers' Association)

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1555

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1600

º

1605

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Mark Nantais

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1610

Mr. James Rajotte

Mr. Mark Nantais

Mr. James Rajotte

Mr. Gordon Peeling

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1615

Mr. James Rajotte

The Chair

Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.)

Mr. Mark Nantais

Mr. Michael Cleland

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1620

Mr. Rick Hyndman

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1625

The Chair

Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ)

Mr. Rick Hyndman

Mr. Paul Crête

Mr. Rick Hyndman

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1630

Mr. Paul Crête

Mr. Rick Hyndman

Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada)

Mr. Paul Crête

Mr. Michael Cleland

Mr. Paul Crête

Mr. Michael Cleland

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1635

The Chair

Mr. Mark Nantais

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

Mr. Rick Hyndman

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1640

Mr. Brent St. Denis

Mr. Michael Cleland

The Chair

Mr. Dan Paszkowski

Mr. Brent St. Denis

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1645

The Chair

Mr. Rick Hyndman

Mr. Michael Cleland

The Chair

Mr. Gordon Peeling

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1650

The Chair

Mr. Mark Nantais

The Chair

Mr. Brian Masse (Windsor West, NDP)

Mr. Mark Nantais

Mr. Brian Masse

Mr. Mark Nantais

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1655

Mr. Brian Masse

Mr. Mark Nantais

Mr. Brian Masse

Mr. Michael Cleland

Mr. Brian Masse

Mr. Michael Cleland

Mr. Brian Masse

The Chair

»

1700

Mr. Mark Nantais

The Chair

Mr. Mark Nantais

The Chair

Mr. Mark Nantais

The Chair

Mr. Rick Hyndman

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

The Chair

Mr. Dan McTeague

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1705

Mr. Michael Cleland

Mr. Dan McTeague

Mr. Michael Cleland

The Chair

Mr. James Rajotte

Mr. Michael Cleland

Mr. Rick Hyndman

Mr. James Rajotte

»

1710

Mr. Rick Hyndman

Mr. James Rajotte

Mr. Rick Hyndman

Mr. Paul Crête

Mr. Mark Nantais

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1715

Mr. Jonathan Hodges (Director, Automotive Affairs, Canadian Vehicle Manufacturers' Association)

The Chair

Mr. Paul Crête

Mr. Mark Nantais

The Chair

Mr. Mark Nantais

»

1720

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 011

l

2nd SESSION

l

37th PARLIAMENT

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EVIDENCE

Wednesday, December 11, 2002

[Recorded by Electronic Apparatus]

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[English]

    The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): The order of the day, pursuant to Standing Order 108(2), is a briefing on the potential economic impact on Canadian industry of implementing the Kyoto Protocol.

    I want to thank the witnesses for being with us today, especially on short notice. The industry committee has been trying to have a number of hearings on Kyoto.

    Today we have, from the Canadian Association of Petroleum Producers, Mr. Rick Hyndman, senior policy adviser; from the Canadian Electricity Association, Michael Cleland, senior vice-president, government relations; from the Mining Association of Canada, Gordon Peeling, president and chief executive officer, and Dan Paszkowski, vice-president, economic affairs; and from the Canadian Vehicle Manufacturers' Association, Mark Nantais, president, and Jonathan Hodges.

    I welcome you to the committee. We normally have all the witnesses speak for about ten minutes, and at around nine minutes I will probably start giving you some signals. Then, when we've gone through all the presentations, what we do then is go into questions. If I cut you off a little short, please make sure that you cover your items during the question period. Depending on how many members we have attending, I may be a little lenient from time to time.

    Mr. Hyndman, from the Canadian Association of Petroleum Producers, I understand that you're going to begin, sir.

    Mr. Rick Hyndman (Senior Policy Advisor, Climate Change, Canadian Association of Petroleum Producers): Thank you, Mr. Chairman.

    I'd like to give you a little background on the context of our position on what policy should be for our sector and for industry in general.

    It's useful to think about oil and gas production in the context of the global energy supply system. If you look at where the primary energy supplies come from in our country and around the world, you'll notice that oil and gas and coal are the overwhelming, dominant supply, the primary forms of energy supply.

    Actually, as Mike Cleland will no doubt point out, Canada is much more of a hydro country than almost any other country in the world, with a few exceptions in Scandinavia. But globally, oil and gas are the dominant energy forms in the world.

    The energy system is a very capital-intensive system. It takes a long time to change the sources of primary energy and the way we use energy, so it's pretty clear that oil and gas are going to be the dominant forms of energy in the world for many decades to come. If you look at projections--there's one in here I have from Shell International on page 6, a projection of what the primary energy forms will be--you'll see that even with a lot of expansion of renewable energy forms, the rise in energy demand, especially in the developing countries, is going to keep this world dependent on oil and gas well through the middle of this century.

    The issue is not whether we are going to phase out oil and gas here in the short term. As you know, Canada's oil and gas industry not only meets a lot of Canada's demands but presents a major opportunity for economic development, in that it supplies energy to the United States. We see a market being there for the foreseeable future.

    How do oil and gas and what we might do on oil and gas fit into Canada's contribution on climate change in the international framework? If you think of what has to happen globally over the long term, we need to figure out what ways we can use hydrocarbons without emitting carbon dioxide. There's been a lot of talk in Canada of carbon dioxide capture and storage technology, where we could use coal or oil and gas centrally, capture the carbon dioxide, dispose of it geologically, and then use hydrogen electricity for the end use. That's one way the world could go, and in addition to that we can go to other forms of energy that don't emit carbon dioxide: nuclear, hydro, wind, solar, and so on.

    Because the main growth in energy demand and emissions globally is going to come from the developing countries, what we need to do in the rich countries, including Canada, is to help develop solutions that will be adopted globally, both on how we use energy and the way we produce it. We can only do that if we have thriving, prosperous industries in this country.

    We think that rather than getting Canada's emissions of greenhouse gases down by shifting our energy-intensive industries to other countries, which would simply move the emissions and not reduce them globally, this at great cost to Canada, we ought to be focusing on keeping those industries in Canada. Meanwhile, we should be providing incentives for them and encouraging them to become much more energy efficient and much less emission-intensive, and we should be developing solutions the rest of the world will actually adopt. If we don't have an economic solution for the third world to become more efficient in its use of energy or if we don't develop non-emitting forms of energy, we don't have a solution to the greenhouse gas issue globally.

    CAPP has put forward a proposal for what we think the policy ought to be for Canadian industry. Let me point out that our view has always been that we can make a contribution to the global effort on climate change either in ways that are very costly to Canada or in ways that are not so costly. If you focus on making industries more efficient as opposed to loading up costs on them, then we'll keep those industries here. They'll become more efficient, the emission intensity will decrease, and we'll develop technologies that can be used here and abroad. But if we simply load costs onto our industry, you're going to drive investment to other countries, and that will be very costly.

    The proposal we have put forward is that as part of the large industrial emitter target system the federal government has put forward in broad terms in its plan, we have a system of emission intensity improvement targets. It applies to our sector at least, and you put the industry on a kind of treadmill where you say, we expect you to improve faster than you have done historically but not so fast that it's just a stretch and essentially a big tax on the industry. You'd say, we expect you to go on improving indefinitely and bringing down your emission intensity, and that will make production more efficient. As far as the total emissions go, that depends on what the total level of consumption is in Canada and the world.

    So, I repeat, moving production around is not the way to reduce emissions. It's about becoming more efficient in the end use and in the production process.

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    There are also some other targeted measures we could undertake in our sector to reduce fugitives in the upstream industry. In Alberta there has been a program to reduce the flaring of solution gas associated with oil production, and that has reduced that flaring by about 50% over the last four years. So the industry has done a lot.

    We think that investment in research and development on both the capture and storage technology but also in other areas for the upstream industry, as well as other industries, of course, is the important thing we can do over the longer term. This is a century-long issue. We need to make sure we're strengthening our industry efficiency and competitiveness in order to make this contribution.

    We have another view on how all of this is implemented. The oil and gas industry reports to the provincial governments in a very comprehensive way. Take the example of Alberta. The industry and the government are spending tens of millions of dollars developing an electronic system for filing information on production, energy use, and emissions. As we go forward in this country to develop a national plan, we hope it's joint federal-provincial and that we can use the systems that are in place for the reporting, monitoring, and enforcement of this. We don't want to be stuck with having a whole new layer of a system laid on top of us that duplicates a lot of the efforts that are already in place for the industry and imposes costs on us and the taxpayers to do that.

    I think with that, Mr. Chairman, I'll pass it over to my colleagues and eagerly await your questions.

    The Chair: Thank you very much.

    Mr. Cleland.

    Mr. Michael Cleland (Senior Vice-President, Government Relations, Canadian Electricity Association): Thank you, Mr. Chairman. I'll endeavour to be as brief as Mr. Hyndman, but maybe you'll indulge me while I walk you through the presentation. I believe you have copies of it in front of you.

    What I want to do is put the electricity challenge in perspective, talk a little bit about what we can do to take it forward. As was said by my colleague, Mr. Hyndman, the electricity industry has put forward some specific proposals that we think will work and that we think will help us come to grips with it. Then maybe we'll look a little bit past 2012.

    To put it in perspective, electricity is producing about 16% or so of the emissions in Canada. The manufacturing sector is around the same and the oil and gas industry are about the same. So we're at 16%, and in all likelihood will go to a slightly higher proportion as we approach 2010. I'll come back to that.

    Page three of the presentation gives you something on the demand growth for electricity. The main point there is that as we look at demand growth going out, we're looking at 1% to 1.5%, in that range, and if we push hard on energy efficiency programs we think we can be near the bottom of that range. If other factors intervene, it may be closer to the top. It would be very difficult to get much below that, given historical experience and what we know about the growth of the Canadian economy and population in the future.

    Page four gives you what that implies, broadly speaking, for supply growth. The big bar is, if you will, the existing system starting in 2000, then 2010 and 2020. Sitting on top of that are two elements: one is replacement capacity and the other one is new growth, new capacity. Below that is what we think can readily be achieved with energy efficiency programs.

    What that tells you basically is that we're looking at something in the order of 20,000 megawatts of new and replacement capacity by 2010, and that much roughly again by 2020, about a 35% increase on 2000 production by 2020. A good chunk of that is going to be low or zero greenhouse gas emissions power, but a good chunk of it will have greenhouse gas emissions associated with it and therefore will be pressing our emissions upward.

    The next page gives you a sense of what that means. The simple fact is that as of today we are up from 1990 levels by about 30 megatonnes. It looks like another 10 megatonnes going forward, which is a long way off anything like Kyoto for the electricity sector.

    That's a consequence of a lot of factors. The largest one of all was between 1995 and 2000, with the layup of the nuclear reactors in Ontario. It has had a huge impact on the system. The nuclear reactors are, for the most part, going to come back, but there are other factors at work, including demand growth, including new gas coming on. A lot of what will come on in the future will be gas, and that brings emissions growth with it.

    The next page shows you the regional picture across Canada. We could spend a lot of time on this. Something worth noting is the diversity across Canada, which is a good thing. We have lots of options. It's also a bad thing. Electricity, probably more than any other sector, is subject to the risk of regional imbalances and tensions, if we get it wrong in terms of reducing greenhouse gas emissions.

    As I say, you could go across the country from one end to the other. We have a lot of hydro in Canada, and that's a plus, but looking forward, even in the hydro jurisdictions--B.C. and Quebec in particular--a lot of the new growth in the next decade will come from gas. Even though gas is low compared with coal in greenhouse gas emissions, it does bring additional emissions to our sector.

    Page seven puts that in perspective compared with other countries. Canada has very low greenhouse gas emissions from the electricity sector on an intensity basis because of our strong hydro and nuclear components.

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    The problem is, as we go forward, a lot of the pressure on us is up rather than down. Just to put that in perspective, at two ends of that graph, Norway is a pure hydro system and Australia is pretty much a pure coal system, and the others are pretty much in between. So Canada is in a good position now, but the growth pressures will tend to push us off that.

    The next page just talks about some of the constraints. I'll leave it to you to look at those in detail, but there are a number of constraints, including consumer resistance to demand management and to price increases if that's directly induced. We've seen that recently in Ontario. Consumers don't like price increases, and they make governments pay for it when they see them.

    Electricity is a long game. Electricity has very long lead times to bring new capacity into place, so we need to be planning with a much longer time horizon than we have now for Kyoto. We have technology options going forward, but again, those are still way out, and they're not consistent, for the most part, with Kyoto.

    Finally, early shutdown of coal is an assertion that I'm prepared to discuss with you as to why we think early shutdown of coal capacity makes no economic or environmental sense.

    That said--page 9--we can start to make important progress on several fronts without generating consumer backlash or compromising reliability. We can do things with offset purchases. We can put in place a framework now that gets us moving--and I'd like to expand on that.

    We do need to deal with the other air issues, and we need to deal with them now, because those are much more immediate issues, and we have the technologies available to do that. Then there are several other files--tax treatment, regulatory efficiency, and R and D--that will all help move forward as well.

    Next, on page 10, are some pitfalls. We need to be realistic. We shouldn't overestimate what we can do, for example, with energy efficiency. We shouldn't clutter the system with too many technology-specific policies. We need to be realistic about what can be done in particular timeframes. We shouldn't strand existing assets. We'll pay an economic cost for that, with almost no environmental benefit.

    Finally, we should not underestimate the staying power of coal. It will be with us in the world. The U.S. will burn coal; China will burn coal; India will burn coal. In western Canada, coal is an extremely economic source of fuel for power production. It would be very, very difficult to move coal out of our system. Our priority should be on making coal clean, and trying to do both at the same time is probably not very rational policy.

    We have put forward a framework. The electricity industry put forward a framework three years ago, and it has been under some discussion with governments, much along the lines of the things that my colleague Mr. Hyndman was talking about, sector-by-sector agreements, an approach that gets you some results in the near term, and much farther out, a combination of commitments by industry and policy undertakings by government--a national framework with common standards but implemented at the provincial level where our power plants get their licences. We think that can be made to work if we have the provinces at the table, although again it does need to be in a national framework.

    As I said on page 12, we have put forward a specific proposal, and I can come back around that, if you want, in the question period. But it does have some very specific ideas for what we could do that gets us moving in the right direction by 2010, and starts to get serious results a little farther out, but isn't getting you anything like Kyoto.

    The next page outlines some of the supportive policy elements, and again, we can expand on those if you wish, but I'll just leave it with you. The important thing here is that we believe the core of it is an industry commitment to meet certain standards on a performance basis, much like what CAPP was talking about, and then, supportive of that, a number of actions on the part of government that will help to make it work.

    We're very close. As far as we're concerned, we could put a framework like that in place very quickly if we could get a response from the government.

    Finally, just to wrap up, looking past 2012, I want to underscore how important this is. We keep treating climate change as a near-term file. It's not. It's a 20- and 30-year file, and we have to get it onto that kind of a track.

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    As we look at the 2008 to 2012 period, the actual physical emission reductions consistent with Kyoto are actually not possible. The question is how much of it we will have to buy. We think it will be a lot.

    We think there may be better ways of designing our policy going forward. Next time, we think we need to put it in the North American and Canadian context. To get there, we need a credible effort by industry working with government—a credible effort by industry, I underscore. We absolutely have to do that, so we position Canada better next time around and not only enhance Canadian credibility but also bring our American and less developed country friends into the solution.

    Thank you very much.

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    The Chair: Thank you very much, Mr. Cleland.

    Mr. Peeling.

    Mr. Gordon Peeling (President and Chief Executive Officer, Mining Association of Canada): Thank you, monsieur le président, and ladies and gentlemen.

    First of all, I want to start by saying that the Mining Association of Canada is fully supportive of reducing releases to air and water. This has been a primary focus of our activity for the last 20 years. Certainly in terms of energy efficiency, we've been focused on that particular file for the better part of 30 years through CEPA. So we've had a long history of paying attention to both resource or energy efficiency, and reduction in overall releases into the environment.

    We're a major consumer of high-tech products. The minerals and metals industries count as among the most productive and innovative sectors of the Canadian economy. We operate in a highly cyclical and globally competitive environment. We're a price-taker, and as a price-taker, the Canadian mining industry has focused on reducing costs, increasing productivity, and in investing in research and development to improve its global competitive position.

    As such, we're familiar with the potential costs of carbon dioxide emission limits and the potential risks to business performance and asset values. With 15% to 30% of mine production costs tied to energy use, the status quo has never been an option for us. That is why I say we've been focused on energy efficiency and reducing overall energy use and operations for over 30 years.

    Our members recognize that major technological changes will be required, and that longer-term investments in energy efficiency and clean energy technologies will further stimulate innovation and improved business practices. The ideal solution for us is one that meets the target of reducing greenhouse gas emissions while at the same time improving the bottom line by reducing our costs. We need win-win solutions. With federal and provincial agreement on a plan as we go forward, this will hopefully become possible.

    So our goal of continued energy efficiency will require significant capital expenditures and the creation of a business environment encouraging investment and innovation on the part of industry. This can only be made possible through the development of supportive programs, tax provisions, and the creation of efficient, effective, and flexible regulatory regimes.

    On page two, I've given you two snapshots on our achievements as a sector in the period from 1990 to 2000, both in terms of energy consumption and greenhouse gas emissions. Just let me touch on the greenhouse gas emissions portion, where metal mining has decreased its total GHG emissions, both direct and indirect, by 19%, and improved overall greenhouse gas intensity by 18.5%. Non-ferrous-metals smelting and refining increased its greenhouse gas emissions by 1.2%, but improved its greenhouse gas intensity by 20%. So we've seen significant improvements on a voluntary basis under an existing energy cost structure, which has been left by and large to the marketplace to determine.

    To maintain this trend, additional research will be required to build on and bring new technologies to commercialization. They don't really fit within the 2010 framework. I agree with Mr. Cleland and Rick's earlier point that this is a long-term issue for us. Certain things can be done between now and 2010, but if we are to stay on the track of further reductions beyond that period, then we need quite different technological solutions, which are not necessarily evident in a commercial sense today.

    We have done some analysis. The government's analysis and and modelling group--AMG--estimated the impacts of meeting Kyoto on Canada's precious metal, base metal, and iron mines. Using a charge of $30 U.S. per metric tonne of carbon dioxide, which is in the middle range, the AMG identified the following potential impact on our industrial sector. As you see at the top of page three, the range of results does represent the quite different circumstances facing different product lines, different geographic locations, abilities to fuel-switch, and existing fuel inputs into the processes, etc.

    Depending on the commodity, we see a 3% to 22% decrease in gross output; a 5% to 27% drop in the sector's contribution to the gross domestic product; a 3% to 21% decline in employment; a loss of between 3% and 20% of annual exports; and, what is startling and very disturbing to us, a 5% drop in total factor productivity. As I said, over the last 15 to years to 20 years, we have outperformed our U.S. counterparts, have outperformed the average in the Canadian economy, and are in the top 10 in terms of total factor productivity. We're about to see a reversal of that going forward, which is going to put us in a very difficult competitive position vis-à-vis our global competitors around the world.

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    The AMG also identified potential regional impacts resulting from Kyoto. For example, 77% of the increased cost burden on the national metal-mining industry would be borne by three provinces: Newfoundland, not including Voisey's Bay, Ontario, and Quebec.

    We then married that particular government-generated data with data from Brook Hunt, a globally recognized consultant that does a lot of work for the industry worldwide, on the competitive cost structure of the industry. We looked at what the impact would be, particularly on the non-ferrous smelters and refineries in Canada. That indicated a 13% decline in terms of increased total average cash costs, a decline in our competitive position: 13% for domestic zinc smelters, 19% for copper smelters, 18% for copper refineries, and 10% for nickel plants. These are not small increases.

    Benchmarking these additional costs against our western world competitors, Brook Hunt concluded that our competitive cash cost global ranking would decline by 17% for zinc smelters, down to 30% for copper refineries.

    In light of these economic risks, the competitiveness of the mining, smelting, and refining sector must be considered in the context of the global competitive marketplace, where each mineral and metal product produced is subject to different competitive factors and market considerations.

    Climate change measures that impose costs on Canadian operations impact our international competitiveness. When you look at the table on page four, for every product line we compete in--and we're really talking about the U.S. market, where 80% of our product goes--we're competing against the rest of the world for that market as well as the U.S. domestic producer. For every commodity line that we produce, except potash, our major competition comes from countries that will bear no Kyoto burden in terms of costs. That means we have to be very sensitive in terms of how we develop a plan going forward that leaves this industry in a competitive position, or quite frankly we will be out of business.

    As one of the many domestic price-takers facing intense competition from producers in countries with less stringent or no GHG emission reduction obligations under the protocol, we cannot pass cost increases on to the consumer. Given that most countries are not subject to the provisions of the Kyoto Protocol, it remains a valued and significant competitive concern for us in terms of how our Kyoto commitments are managed.

    The path forward: A great deal of progress has been made by the federal government in its attempt to deal with the climate change challenge. MAC believes that Canada can meet the challenge of climate change, but this is contingent upon the development of a sound implementation plan.

    High-cost short-term solutions are not the answer. The solution for achieving a less carbon-intensive future rests with improved energy efficiency, fuel switching, and fuel availability. We can look at switching from coal to gas, but in large parts of this country gas is not available. In some of our processes there is no opportunity to switch to hydro. We're stuck with diesel fuel if we're in remote and rural Canada. These things cannot happen quickly.

    The mining industry is ready to implement practical and economically feasible measures that can build upon the progress we've achieved to date. Let me emphasize again, we've achieved that on a voluntary basis within an existing cost structure of energy, which we understand and which has been driven by a competitive marketplace.

    A climate change strategy that does not impede environmentally responsible growth must be the preferred path forward. Starting elements for what we would see as a “works for Canada” strategy would include a focus on energy and GHG emissions intensity, rather than absolute targets; a longer timeframe for reductions; technology-based sustainable solutions; appropriate fiscal measures; and GHG performance management agreements or covenants for industrial sectors.

    This next section gives you a long list of things we have put into the system in the past in our various submissions as to what we think is a reasonable mix of measures and options. I'm not going to go through every one of these, but let me emphasize obviously the focus on energy conservation and energy efficiency; intensity of use is important, we think, and more important, an appropriate target; the negotiation of covenants or management agreements, performance agreements; and I'll echo Rick's words, emission intensity improvement targets, and they can be rolled into the future.

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We are as an industry dedicated to continuous improvement, and this is one other element of continuous improvement for us.

    There are incentives related to research development, demonstration, and commercialization of new technologies that are performance-based and linked to stronger emission reductions.

    There's the elimination of capital taxes. We manifest the implementation and placement of new technologies. Those new technologies are capital-intensive, and when we're taxed on them it's a disincentive. We need the removal of capital taxes if we're going to make serious strides forward, be competitive, and achieve greenhouse gas reduction targets in the longer term.

    On investment tax credits and a competitive tax structure, I won't go through any more of those in detail. Mr. Paszkowski or I will be happy to respond to any questions you might have about them. But we believe these considerations, while not exhaustive, will make an important contribution toward reducing GHG emissions and addressing the uncertainty about Canada's climate change policy, while ensuring that we remain internationally competitive.

    As rapidly changing market conditions pose new challenges, we must view innovation as more than just improving management practices, research, or technology adaptation. It's also about levering our advantages, building upon our inherent resource strengths, and reducing the costs, risks, and impediments of reducing greenhouse gas emissions.

    For Canada to be an attractive place to invest, we need a plan that ensures a competitive and efficient tax regime, supports and rewards innovation, and places more financial resources in the hands of the private sector. Capital is very mobile, and if it can earn a better return on resource development outside of Canada, it will flow to those jurisdictions with no Kyoto obligations. That's just not Canadian capital, that is New York capital, Zurich capital, London capital--all those markets this industry goes to for both investment purposes here in Canada, and investment purposes and opportunities outside of Canada.

    Maintaining and creating new jobs in rural and remote Canada and with our aboriginal communities really does depend very much on how we go about developing and implementing a Canadian plan. We hope to be part of that process as we go forward. It is not without challenges, but we also think there are solutions there, and if we get this right, we can have a win-win solution that reduces our costs, reduces greenhouse gas emissions at the same time, and put us in a better competitive situation.

    Thank you.

    The Chair: Thank you very much, Mr. Peeling.

    Mr. Nantais.

    Mr. Mark Nantais (President, Canadian Vehicle Manufacturers' Association): Thank you very much, Mr. Chairman, and good afternoon to the committee members.

    You need to know that between the two organizations that I and Mr. Hodges represent, we represent virtually every vehicle manufacturer and distributor that operates in Canada.

    What we're really interested in is managing the risks associated with Canada's ratification of the Kyoto Protocol, the absence of our major trading partners, and major shortcomings in terms of our knowledge of the costs related to the steps we will be required to take in order to meet our obligations and objectives.

    In our industry there are very real impacts relating to the competitiveness of our manufacturing facilities and their existing and future product mandates, our suppliers, and our products, depending on how the government proceeds with its implementation plan and associated policies.

    Economically speaking, I don't think there's any doubt that the automotive industry is one of Canada's largest and most strategic of the cornerstones of its economy, with about 560,000 direct and indirect jobs across the country associated with this activity. Our industry produces a wide range of vehicle types, including trucks, mini-vans, and full-size cars, primarily for the North American market.

    Kyoto-driven actions and targeted measures that adversely affect the automobile manufacturing sector will have significant ramifications, primarily for the province of Ontario but also in various communities across the country. If the measures implemented under the plan contribute to any loss of plants in Ontario, it will have swift and wide ramifications in the supplier chain and downstream in communities across the province in terms of job losses and, most importantly, permanently lost investment.

    This is particularly disconcerting as the federal government and the Ontario government--and, I might add, Quebec--are currently committed to developing a new automotive policy for Canada through the Canadian Automotive Partnership Council. The council has been given the mandate to develop a new automotive strategy to ensure that the automotive industry in Canada remains globally competitive and, quite frankly, able to attract new investment. It relates to issues of competitiveness over and above the challenges posed by the Kyoto Protocol.

    The automotive industry's position is really quite simple: we are interested in working in partnership with the Canadian government to develop a suitable path forward for Canada, one that deals with our nation's contribution to addressing climate change, but without diminishing our industry's future economic potential or our competitiveness and productivity as a nation.

    We have a remarkable record of performance on environmental issues. The five vehicle manufacturers in Canada--DaimlerChrysler, Ford, General Motors, Honda, and Toyota--are voluntary challenge and registry participants, with very aggressive vehicle manufacturing energy efficiency improvement targets by 2005, and all have filed plans, which would be very interesting for you to review when you have time.

    According to the Canadian industry program for energy conservation, the energy intensity for the transportation equipment manufacturing sector has dropped roughly 18% between 1990 and 1999. This is a continued commitment to energy intensity reductions of 1% per year to 2005. These reductions have been achieved or will be implemented based on a cost-benefit analysis that does not inhibit international competitiveness, a very important point.

    On a global basis, each company has spent literally many billions of dollars developing new emission control, safety, and vehicle fuel efficiency technologies. The auto industry has doubled the fuel economy of the Canadian fleet since the mid-1970s despite several iterations of tailpipe emission requirements and vehicle safety regulations that add weight to the vehicle and actually make it more difficult to improve fuel economy.

    In roughly the same period automakers have introduced five successive generations of environmental equipment on new vehicles. Today's motor vehicles reduce smog-caused emissions by over 99% from uncontrolled levels. And we're not stopping there. We are now working with Environment Canada to finalize standards that will be the most stringent national standards in the world. We have merged into one regulation the requirements for passenger cars, light trucks, and, for the first time, medium-duty passenger vehicles. The program will be phased in on a harmonized basis across North America, beginning with the 2004 model year and continuing through the 2008 calendar year.

    As we speak, the auto industry is in a global race to develop and bring to market more advanced technologies that will virtually take the automobile out of the environmental equation in terms of tailpipe emissions. The technologies will require more time to develop, and costs must come down before widespread commercialization is achieved. Nonetheless, as a country we are positioned to play a leading role in that race with companies such as Hydrogenics, General Hydrogen, Dynatech Industries, Stewart Energy, and Ballard Power Systems, all of which are working closely with major automakers on new technology development.

¹  (1555)  

    When we study the climate change plan, the area that is most confusing is the implication that transportation actions already underway include negotiations for a 25% improvement in new vehicle fleet fuel efficiency by 2010. This transportation was not included in Action Plan 2000, as was suggested by the climate change plan. The government's choice of a 25% target, without due diligence for what is achievable in the stipulated timeframe, given the other very important considerations of consumer safety, technological feasibility, and economic impact, is a major concern. It creates, quite frankly, unrealistic public expectations for both government and our industry. If we put it another way, we're being set up for failure.

    As you know, the automobile industry is integrated across North America. We produce products for the entire North American market. But having been assured that the government favours harmonization of standards within North America, we do look forward to additional discussions with department officials on the elements of the plan. However, as a plan, it is devoid of any fuel-pricing signals in the market or specific support for the introduction of and consumer acceptance of more expensive advanced-technology vehicles. We feel that the specified vehicle fleet fuel efficiency target is not achievable in the timeframe stipulated.

    Fuel efficiency, along with almost all environmental and safety requirements, has been harmonized across Canada and the United States for many decades. The harmonization of standards provides Canadian consumers with the greatest environment and safety benefits simply at the lowest cost. It also offers the widest choice of vehicles and ensures the new technologies penetrate the market faster and more broadly. This is very critical as we move forward on a wide range of environmental issues, not just in terms of carbon dioxide reduction. This position has been supported in the past by the government, and considering our market size, we think it offers Canada the best of what is new, at an affordable price.

    In the U.S., the National Highway Traffic Safety Administration is the authority that is responsible for setting new fuel efficiency targets. By law, NHTSA, as we call it, is obligated to set new vehicle fleet fuel efficiency targets at the maximum feasible level that manufacturers can achieve, based on technological feasibility, environmental considerations, consumer safety, and economic concerns. Recognizing the integrated nature of our industry and our markets, we think this approach should work equally well for Canada.

    The transportation table, if you will recall, considered unique to Canadian fuel efficiency targets, rejected this idea because it would have limited impact in reducing emissions, and the size of the Canadian market was too small to drive vehicle design. The cost of the unique approach was prohibitive. In fact, the table determined that it would cost roughly $74 per tonne reduced, under a harmonized approach with the U.S., and more than double that per tonne reduced if Canada went it alone. Yet, guess what we're doing. We're going it alone under the new climate change plan, at a cost of more than 15 times that of the $10 per tonne referenced elsewhere in the plan, and at the potential cost of tens of thousands of jobs in auto assembly plants, parts facilities, and dealerships right across the country.

    Today, all the manufacturers are focusing on developing and bringing to market a suite of new technologies to enhance the fuel efficiency of their products. These include, but are not limited to, things like continuously variable transmissions, cylinder deactivation, variable valve timing, and greater use of lightweight materials. Some expertise, of course, resides in Canada in those areas.

    This grouping of technologies includes the introduction of hybrids as a bridge to fuel-cell vehicles, which promises to be a key element to future solutions to climate change issues. However, as with all new technologies at introduction, the vehicles are expensive, they are complex, and they still require more time for technological refinement.

    Fuel economy targets harmonized on a North American basis will ensure that Canadians continue to have access to the broadest range of vehicles that balance consumer safety, technological feasibility, and environmental considerations, while maintaining affordable vehicle choices for Canadians.

    We cannot afford to pursue an unrealistic fuel efficiency target that may well jeopardize the production of many of the types of vehicles we now produce here in Canadian plants. We strongly urge the government to continue to take that harmonized approach to all vehicle standards, including fuel efficiency.

    Right now, I might add, we are engaged in some other areas of vehicle standards that, again, are not harmonized on a North American basis, and are detracting and pulling away valuable resources that we could be using to develop advanced technologies, some of the technologies that you are actually, as a government, seeking as part of the solution to climate change.

º  (1600)  

    We maintain again that this approach is the most feasible, in terms of providing affordable, safe, clean, and fuel-efficient vehicles for all Canadians. It's essential that we retain and focus our resources, which are limited in the area of R and D, and develop and bring to market the longer-term technologies that will ultimately play a significant part in the solution.

    On the other hand, we are very encouraged that the climate change plan indicated that support for new technology development would be involved in future plans. We firmly believe that the key to addressing climate change is to develop and bring to market a variety of new technologies that will succeed in the marketplace. Being feasible and available is one thing, but succeeding in the marketplace is entirely different.

    We are also encouraged by the plan's recognition of the role of the consumer and the need to educate the consumer. Ultimately, the consumer who makes the choice to purchase the more energy-efficient product and change their consumption pattern will determine the magnitude of the GHG reductions and just how successful our country will be in meeting its obligations.

    The plan makes general reference to consumer incentives to change behaviour, and in this regard we would support GST rebates for the purchase of fuel-efficient technologies, including hybrid, alternate fuel, and fuel cell vehicles.

    We already see in the United States that they have put $800 million into the FreedomCAR initiative to develop new energy-efficient technologies. Individual states like Michigan and Ohio are aggressively pursuing energy technology companies, including those presently located in Canada, to actually relocate to their jurisdictions.

    Canada has a fragile toehold on the companies we have here today, but we are in immediate and serious danger of losing these companies and our strategic advantage unless we rapidly put in place an effective automotive strategy that provides a business environment conducive to the development and commercialization of these leading-edge technologies for production in our facilities in Canada. To this end, we have been encouraging the government to identify specific policy instruments and mechanisms to support this kind of technology development and early commercialization of drive-train and vehicle technologies in Canada for sale abroad.

    The Canadian automobile industry now faces the challenge of a global overcapacity of roughly 20 million units, in terms of automotive assembly. Over 85% of our assembly in automotive output is exported to the United States. Any constraints on production output, increased energy costs, and corresponding increases in the cost of energy-intensive components such as steel, aluminum, glass, rubber, etc., will result from the targeted measures outlined in the climate change plan. These increases will negatively impact our competitiveness. The only detailed modeling conducted by the federal government that has been shared with our industry shows an 8% to 16% drop in automotive-related GDP if we proceed as planned. This equates to as many as 40,000 to 80,000 lost jobs in our industry.

    We are concerned, quite frankly, that the federal government has failed to adequately assess the multiplier impacts on energy-intensive manufacturing suppliers, through to end-user vehicle manufacturers and consumers. The modeling to date does not appear to accurately account for the impacts of small incremental increases in energy costs, which quickly become compounded through the entire automotive parts production and shipping processes, resulting in an uncompetitive cost structure and an unlevel playing field for Canadian parts suppliers relative to their major competitors in countries like the United States, Mexico, or even elsewhere. There is also a strong potential of jeopardizing the just-in-time delivery infrastructure in Ontario, which in turn has cost impacts on the supply chain, through to manufacturers and ultimately consumers.

    In conclusion, we remain concerned that Canada's climate change plan needs to take into account the fact that Canada is the only country in the free trade agreement of the Americas to have Kyoto constraints. The U.S. will not be subject to Kyoto constraints, and Mexico has no targets. Canada must ensure that its regulatory policies, including vehicle fuel-efficiency targets, remain harmonized on a North American basis, and do not hinder consumer access to the most affordable, safest, cleanest, and most fuel efficient vehicles.

    Thank you.

º  (1605)  

    The Chair: Thank you very much.

    We'll now begin questioning. You have six or seven minutes, Mr. Rajotte. I would ask you be very pointed, and the answers should be pointed also.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chair.

    Thank you, gentlemen, for coming out today. I certainly appreciated your presentations. I have about a hundred questions, but I'll try to keep them very brief and very specific.

    There seems to be a common theme that the Kyoto targets are not achievable. Of course we certainly agree with you, but given that it has been ratified, we're trying to make the best of the situation. I'd like you all to address the question of how long you think we need to achieve the Kyoto targets.

    I'll try to be more specific and address the situation, Mr. Nantais, with the automobile industry. Yesterday I asked the environment minister about the concern about the president of GM Canada saying the different standards in Canada and the United States would certainly be a challenge for the industry. His response was that there were different standards in California, so there shouldn't be a challenge for the industry.

    I just want you to clarify whether there will be a challenge for the automotive industry, particularly for the plants in Canada, if there are different emission standards for Canada and the United States.

    Mr. Mark Nantais: The answer is unequivocally yes. We'll have major challenges. On top of that, it will ultimately mean a higher-priced product for Canada or that certain products simply won't come to Canada. Some of those products that may not come to Canada may be the very types of products we want here in terms of improved fuel efficiency. We already have examples of unique vehicle safety requirements that are under consideration, and I know for a fact that some of the vehicles that are going to be impacted by those types of unique regulations will be the types of vehicles that are not likely to come to Canada.

    Second, in terms of California, people fail to remember that certain unique requirements were put in place for some very specific purposes--i.e., smog and air quality problems in California. We're talking about emission standards. When we talk about fuel efficiency, we're not talking about emission standards. Most importantly, as we adopt, as I referenced, the tier two emission standards, which will start in the 2004 model year--some will actually come to market next month--these standards actually begin to dovetail, the California standards and the U.S. federal standards, so the uniqueness is starting to go away. In any case, we still have different test requirements and we still have different compliance requirements, so in essence, even though one would turn to California as an example, it still means that we would have a third vehicle that again would be unique and therefore would probably not come to Canada, period.

º  (1610)  

    Mr. James Rajotte: Has there been any indication from the federal government? One of the proposals being floated is obviously the greater use of hybrid vehicles. Yet when we asked the representatives of the finance department, they had no indication that there would be any sort of incentive in upcoming budgets.

    Am I correct that hybrids are at least $8,000 per car more? There doesn't seem to me to be any reason, unless there is some sort of fiscal incentive, to move to a higher-efficiency car of that type unless there is some sort of tax credit or even a subsidy, and that's certainly not in the works right now.

    Mr. Mark Nantais: I think that's a fair comment.

    People seem to imply that Canadians are not being responsible in their vehicle purchasing choices or that they're not being responsible in how they use their vehicles. When you look at how the fleet is structured, it tends to be a more fuel efficient fleet than in the United States. We tend to drive less, and there are a lot of factors that contribute to that. Really, consumers are being quite responsible in the types of choices they're making and in their behaviour.

    When we talk about hybrid technology and how we might give incentives to accelerate its penetration into the Canadian market--and quite frankly, we don't talk about the Canadian market in our industry, we talk about the North American market--we think that some form of meaningful support to the consumer will be necessary to offset some of these costs, these premiums associated with these technologies. Think about it. We are introducing essentially two different power sources in a vehicle now. We have an electric drive train, so to speak, and we have a conventional internal combustion engine as well, so we're adding a great deal of complexity. With that comes costs.

    Yes, the range of $8,000 to possibly $10,000 is clearly the cost premium I've heard about.

    Mr. James Rajotte: Thank you for that.

    I want to move on to Mr. Peeling and the mining industry.

    I think you have some excellent information on Canada on page four. You have the mineral, you have the export market, you have the competitors, and you have whether they're part of annex 1 and whether they're ratifying Kyoto. This is quite shocking here, in the sense that we are competing with countries that are either not ratifying but are in annex 1 or countries that are not even part of annex 1. Given these statistics, have there been any rumours as to...? Obviously you can't move minerals from one country to another, but investment moves very easily and very quickly. Have you felt any effects in your industry even around the discussion on the ratification of Kyoto in terms of the mining sector in Canada?

    Mr. Gordon Peeling: Well, I won't say specifically with respect to Kyoto in the sense of being the critical factor that will suddenly change the direction of investment, but we've already seen it for other reasons, of a lack of tax competitiveness in the Canadian jurisdiction, for other operating realities.

    Canadian industry has invested about $7 billion in Chilean copper assets and gold assets. We've invested about $4 billion in Peruvian copper and zinc assets. We own a good chunk of the U.S. gold industry. We own a good chunk of the Australian gold industry. Industry has unfortunately been investing abroad as other jurisdictions have realized that they're in a very competitive market for capital and they've changed constitutional laws and mining laws to make themselves more attractive. They have good geology; I won't say necessarily, in all circumstances, as good as Canada's, but when you add this to the investment decision mix, this is not a good signal for Canada in terms of trying to remain attractive to capital investment here.

    I dare say, we're going to have to work very hard to improve the investment climate in Canada to retain the interest of Canadian investors and foreign investors. But there are, no doubt, opportunities abroad.

    This is one of the problems of Kyoto. If a negotiated outcome had put everyone in the same basket, we'd all be bearing some burden with respect to Kyoto adjustments, and we could relatively see our way fairly easily to competitive outcome. But in this situation, as you've noted, with every competitor we face in key markets, the United States being the most important, but whether it's Japan, China, or the European Union, we're going up against competitors who will bear no Kyoto costs, at least in the near to medium term. As we know from the recent meeting in India, there is no great rush for the developing world to embrace those Kyoto costs in the future.

º  (1615)  

    Mr. James Rajotte: Thank you.

    The Chair: Thank you, Mr. Rajotte.

    For the next round, Mr. McTeague.

    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Chair, thank you.

    I guess it is a sobering morning after the vote, because we have to figure out where we're going from this point forward.

    I was very interested in all your presentations. I have a riding that is very reliant on the automotive industry, the health of the automotive industry. Mr. Nantais, I guess you would know that better than most, being someone who is from the automotive industry.

    Mr. Cleland, I have one of those large nuclear reactors. It is the much-vaunted power source that is a replacement for the so-called clean technologies that everybody keeps touting, except that our reactors are in pretty bad shape.

    A number of us have spent some time on the issue of gasoline and the gas industry, Mr. Hyndman.

    I'm interesting in hearing from all three of you on a couple of questions.

    First, gas as an alternative has been bandied about by many. I know the proved reserves for natural gas in Canada have been drawn down rather significantly over recent time, most importantly as a result of the agreement we have with our American clients. I suspect that there is some concern with respect to the amount of gas that is available, and therefore the question of affordability comes.

    I just happened to notice this morning that as a result of gasoline prices going up only 10% in Canada in the past year, the consumption now is down 6%. I'd like all of you, those who I've mentioned, to perhaps give me a best-case scenario and a worst-case scenario. I think many of you have.

    With all due respect, Mr. Peeling, I think you've done a very good job at that.

    I'd like to hear from Mr. Nantais and Mr. Cleland. We talk about Canada having a wonderful mix of energy. We talk about a relevant market being the United States. When I see Mr. Nantais, I know that most of the vehicles that are manufactured in Canada are large-platform. The anchor to the Toronto economy, as an example, is Oshawa in the east; Brampton in north, building the Intrepid; and of course Windsor and Ford through the St. Thomas and Oakville plants. Those are not building hybrid, state-of-the-art new vehicles.

    Without the protection of the Auto Pact, what is the cost to the economy and your industries? What is the cost to employment? I guess I'm looking for some sobering figures here.

    Mr. Mark Nantais: Shall I start? I'm not sure I want to.

    You ask a question to which, of course, we'd all like to know the answer. We have roughly 50,000 assembly jobs in Ontario. We have a multiplier of basically seven to one. So for every one assembly job, we tend to have seven or seven and a half spinoff jobs. Clearly you can see that if one plant were to be lost as a result of becoming non-competitive under a scenario like this, with a ratio like that, the implications for the local economy, and ultimately Ontario's economy, and ultimately the Canadian economy, become quite clear.

    I can't give you a specific. All I can say is take a look at the numbers of jobs related to assembly plants. Take a look at the people who are involved in the supplier community and throughout the whole value chain, as we call it. Any loss of any plant or any number of plants would be really quite dramatic and quite devastating to the economy.

    Mr. Michael Cleland: It's a big question, but let me take a piece of it and see if it helps.

    You were talking particularly about gas as an alternative. For electricity, there are a whole suite of alternatives available to us. We'll have to see what happens with nuclear. We believe the nuclear plants can come back and that the majority of them will come back. The future of nuclear power beyond that is less clear, although I think new technology holds considerable promise. Similarly, we can build new hydropower. But one way or another, we are going to be continuing to put new fossil-powered electricity in place in Canada, both coal and gas.

    Let me just talk about gas for a minute. Mr. Hyndman would be better placed than I am to talk about the availability of gas supply. The working assumption we have in our industry is that gas prices will be volatile looking forward, and there's a likelihood of a long-term increase. But at a minimum, there will be price volatility.

    So if you take one of my members in western Canada, for example, and look at what they're going to do with an existing coal-fired plant, their rough estimates are that they can put on a complete suite of pollution control technologies to deal with all of the other air emission issues, for approximately the same capital cost as replacing that plant with gas-fired capacity of approximately the same scale. The difference is the fuel price. Whereas even at current prices, the fuel price is about three times as high as it is for coal—and has the additional problem of having much higher price volatility—coal has very low volatility. For the most part, the coal used in western Canada is right at the plants. It really doesn't have another market. The price is stable.

    So from an air emissions perspective, and from a consumer interest perspective, and a price management perspective, coal is clearly the option, even at the same time they're investing in the technologies to be able to deal with carbon dioxide. We think these technologies start to become realistic some 10 to 15 years out. They don't become realistic in the Kyoto timeframe.

º  (1620)  

    Mr. Rick Hyndman: On the gas supply question, what you have seen in the last decade or two is a rapid rise in the production of natural gas in the western Canada sedimentary basin. What that has done is drawn down the ratio of reserves to production dramatically. In the good old days of regulation we had a 25-year life of reserves. Producers are exploiting their gas resources much more effectively now, and they only need about a nine- or ten-year reserve life as a way of producing those.

    There are many views that say the level of production of conventional gas out of the Alberta basin is nearing its peak. Obviously that peak is a function of what the economics are--that is, the market price and the tax and royalty regime. But there are a lot of other resources around. Northeast B.C. is another region that has opened up, and there are a lot of discoveries and growing production there. The north, as you know, has a lot of reserves and potential, and when it is economic to bring that down it will open up a whole new area of supply.

    Also, within the traditional areas, coal bed methane holds great potential. There are huge resources there. How many of them are economic at the kinds of prices we are likely to see over the next decade or so is still not known, but there are a lot of companies that are active in starting to get into coal bed methane to see whether they can produce it economically, and to examine the various technical questions associated with that.

    If I could add a point on the economic effects on industry, we don't have an answer. The Canadian Association of Petroleum Producers hasn't come out with any precise answers about what the effects of ratifying Kyoto would be on jobs in our sector because it depends entirely on the policies. One thing I would point out, and you might have seen it this morning in the Calgary Herald, which you probably don't read every day, is that Nexon, one of the big Canadian companies that operates internationally, delayed a $2.5 billion oil sands project by a year. They have cut back $55 million in the early stages of engineering and planning costs for next year as a result of the uncertainty around what those policies would be.

    We thought we were moving over the last few weeks towards a reasonable policy environment. The Prime Minister made a speech that was well received in Edmonton last week, seeming to suggest that we would be facing a reasonable policy environment. However, in the discussions around what kind of price the government was willing to assure industry they would not have to exceed in terms of its cost, we found that the volume question started to move around. What looked like it was converging all of a sudden diverged in the last few days.

    I think you'll see some uncertainty showing up in the oil patch. There are some other things in the National Post about what companies are doing. The big effect is that if companies think they face serious costs in the near or medium term, they are going to evaluate the relative economics of their investments here versus other supply regions in the world.

º  (1625)  

    The Chair: Thank you very much. We must move on.

    Monsieur Crête.

[Translation]

    Mr. Paul Crête (Kamouraska—Rivière-du-Loup—Témiscouata—Les Basques, BQ) Thank you, Mr. Chairman.

    I have two brief comments to make before asking my questions.

    Earlier, I thought I was dreaming, I thought we were back in 1974-75. Regarding your comments about the loss of plants, we have heard them before in Quebec on the issue of sovereignty. So, I want to warn my colleagues that we are immunized against this. You will not leave; I am convinced that there will always be money to be made in Canada.

    Secondly, it is a fact that it would cost less if we did not treat patients with cancer, but they would die. Our planet is cancerous and needs care. We must, among other things, get those who have in large measure created the current situation to foot the bill.

    I would like to ask a question in connection with what Mr. Hyndman just said. It is indeed possible that we will have to choose to invest elsewhere in the future. The $2.5 billion which will not be invested in oil will not necessarily be invested in another country. They could be invested in another province, another sector. 

    Do you intend to diversify your investments in that way or to invest in clean energy sources?

[English]

    Mr. Rick Hyndman: Thank you, Mr. Crête. Excuse my reply in English here.

[Translation]

    Mr. Paul Crête: No problem.

[English]

    Mr. Rick Hyndman: The reality of the oil- and gas-producing companies is that they're in the business of producing oil and gas. They don't have any particular expertise in wind or hydro. So if you look at what they have, they have geologists and petroleum engineers out doing things. When they look at the investments, they are not looking at whether they build a windmill manufacturing facility in Canada or whether they drill for oil and gas. They know what they do well, and they look for where they can do that around the world. So within the companies their own choices are where, not what.

    If you look at the financial markets, I suppose if the financial markets thought that oil and gas were the fuels of the past they would divert their resources into other things. But if you look practically, as I said in my opening remarks, at where the world's primary energy is going to come from, there's going to be a market for many decades for the oil and gas we can produce in Canada. So our industry isn't only, as I said, a way of supplying Canadians with energy; it is an economic activity in this country, and that's the way the companies make their decisions on what they're going to produce.

º  (1630)  

[Translation]

    Mr. Paul Crête: You will agree with me, Mr. Hyndman, that before the invention of automobiles with gasoline engines, we used horses, but when gasoline-aotomengine automobiles became a reality, investors were found to finance their construction.

    We will probably soon have to opt for electric vehicles, and there will no doubt be people who will be willing to invest in that industry since it may be extraordinarily profitable.

    We could take the lead in this area and become capable of offering the rest of the world such possibilities. Do you not agree that ratifying the Kyoto Protocol gives Canada the opportunity of making choices that will allow it to get a five or ten-year edge on the rest of the world? The question is addressed to all of you.

[English]

    Mr. Rick Hyndman: If I could continue on my comments, I don't think it is a question of either we invest in the activities in the oil and gas production or we invest in windmills. We can do both.

    The companies that do the oil and gas investment are not likely to be primarily the ones producing the alternative energy forms in this country. But we by no means suggest that we should not push renewable energy sources, we shouldn't push more hydro. We should do those things, but we shouldn't cripple the engines that grow this economy in order to do that.

    In fact, it is the thriving industries, our export industries, that make this country prosperous and will allow us to invest in the R and D and promotion of these other forms. So it's not an either/or; it could be both.

    Mr. Dan Paszkowski (Vice-President, Economic Affairs, Mining Association of Canada): We are taking a look at a lot of different technologies in the mining industry and we're doing a considerable amount of research as well into those new technologies. For example, we're working with the federal government on a fuel cell locomotive for underground uses that's been quite successful.

    The problem we face is that the research we're doing right now on these lower-emitting technologies is at the pilot stage. So we know what the technology will be in roughly ten years, and this is the big concern, that the technology that will be available at that point in time won't be enough to get us there. So that's one of the major concerns.

    The other issue is fuel availability. In the parts of the country where we operate we don't always have access to hydroelectric power or to natural gas. Quite often, as Gordon Peeling had mentioned, it is diesel, it is bunker C fuel in the case of the iron ore mines. You have to take into consideration that if you don't have the fuel availability it's very difficult to put the technology in a place that will get you to that next level of reductions.

[Translation]

    Mr. Paul Crête: Here's a question which is addressed to Mr. Cleland. I would like to know what allows you to say in your document that we will not be able to find a substitute for coal-based electricity. The Chinese, for instance, decided to invest billions of dollars in the Three Gorges Dam because their cities are grappling with very severe coal-induced pollution.

    Why would we not make a similar choice in Quebec and Canada, so that 20, 30 or 50 years from now we will no longer have industries that use coal as a source of energy? These industries are dangerous, they are a source of pollution.

    Mr. Michael Cleland: I'm sorry, but it is easier for me to reply in English, and what I have to say will be clearer for you.

[English]

    It's a question of balance, mix, and timing. China is investing massively in all forms of power production technology, including hydro, nuclear, coal, and gas. China's coal usage vastly exceeds that of any other country in the world, and it will continue to grow, not in relative terms, but in absolute terms.

    My point about coal is that if you look at it worldwide, China, India, and United States, for whom this is a geopolitical energy security matter, all of those countries will continue to use coal for the next 20 to 30 years. The focus will be on trying to do it in a way that reduces virtually all atmospheric emissions. We think that's possible, and that's where we should be investing. If it proves not to be possible, we may have to take another course.

    For Canada, and western Canada in particular, coal is a very economic source of energy. The problem with Kyoto is it tries to drive that change in a time horizon that is not realistic. Canada also has a lot of opportunities in hydro, and we're arguing to clear the way to be able to develop more of our hydro resources. That's a matter of regulatory efficiency.

[Translation]

    Mr. Paul Crête: Mr. Cleland, I think we are getting to the heart of the issue. You say that economically speaking it is very profitable to produce electricity from coal, but less profitable methods should be assessed from the sustainable development perspective and should include the overall costs to society. Seen from that angle, coal may be less profitable because of the negative effects of pollution.

    I'm not saying that people did not act in good faith; that is not the issue. The situation we are faced with today is the result of 50 or 100 years of economic activity. We realize that we can't go on like this.

[English]

    Mr. Michael Cleland: There's a point to that, but it's also a question of resource availability. In Canada, electricity really shows that more clearly than any other, and depending on where you are in Canada, you have different resource options.

    In at least five Canadian provinces, far and away the most economic one happens to be coal. Every coal-based electricity producer is investing in pollution-control technologies to reduce nitrous oxide, sulphur dioxide, ultimately mercury, as well as particulate matter. They are investing in technology to allow us to economically deal with carbon dioxide. If we can do that, coal will be a real option for the world going forward.

    If we're not investing in that, the problem is that countries like China and India, which will be using massive amounts of coal, will be a big part of the problem 20 years from now, rather than part of the solution.

º  (1635)  

    The Chair: One short remark--go ahead.

    Mr. Mark Nantais: In response to Monsieur Crête on technology, certainly in the auto industry we operate under the principle of technical preparedness. In other words, we will invest in, research, and develop a whole slate of technologies. We've already produced a number of alternate fuel vehicles. We're in the process of further developing hybrid vehicles. We're in the process of ultimately getting to fuel cells.

    But we need to turn to what is going to make it viable for the commercialization and ultimately the market penetration of those technologies. We need to look at what's going to remove the current barriers to those technologies into the marketplace. In our case, certainly things like fuel quality and cost represent barriers. We need to think about why we innovate and develop technology. That's something we've been engaged in, as part of the Canadian government's innovation agenda, for instance.

    Let's find ways that make it more feasible to innovate and commercialize technologies. We don't respond to regulation, and innovation is not created or generated by regulation. Innovation is generated by market demand and economic merit for industry to gain a competitive edge in the marketplace. So we need to think perhaps a little more broadly about why or how we can get commercialization of these technologies into the marketplace. Taxing the consumer is not the way to do it.

    The Chair: Mr. St. Denis.

    Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Thank you, Mr. Chairman, and thank you, gentlemen, for being here.

    I have a couple of areas I would like to inquire about. I'll start with an issue that really didn't come up today--I don't remember anybody mentioning it. It's the issue of early action and being recognized for early action.

    I think the constituencies you represent were some of the folks who spoke out quite clearly on the need for governments to take into consideration efforts by industry to prepare for this, whether it was inevitable or not--to us inevitable, the Kyoto ratification.

    There was a program agreed to in 2000 and implemented in March 2001, which was the baseline protection initiative. If I may quote from the baseline protection initiative, or BPI, website:

    “The BPI ensures that organizations that act early to reduce greenhouse gas emissions are not disadvantaged should potential climate change policies based on emission levels be implemented. Participants in the BPI will have their emissions baselines adjusted to reflect the reduction actions they have taken since January 1, 1990.”

    It was a voluntary program, but presumably if a company was worried, they would kind of get on board. I just wonder, from your constituencies, what the uptake was, if you're aware of that.

    I assume that, going forward, as various covenants and agreements are made with the various sectors, this issue is going to come back. So I wonder if you could characterize the participation of your constituency, maybe starting with Mr. Hyndman and CAPP.

    Mr. Rick Hyndman: Sure. That's a good question. This is one of the contentious aspects of the whole policy question.

    One thing about the baseline protection initiative, as I understand it, is that it was totally flexible on when you put the information in. I don't think too many of the upstream oil and gas companies have spent a lot of time filing information yet on the baseline protection initiative.

    Part of that is because when this was being discussed, what CAPP said to the governments doing it was we don't think you're going to come up with a policy that is based on historical emissions as a way of allocating targets. We think what makes sense is an emission intensity approach, taking into account the international competitiveness situation of our major exporting industries, and so on. So we think this particular design is going to miss the mark.

    As it turns out, that's the direction the government is going in, towards an emission intensity target for industries. So the relevance of that particular form of it is much less.

    There still remains the question of when you're setting these emission intensity targets, how do you take into account the difference between those companies that had done a lot more already, compared to others that might have done less? The government has been telling us that they will deal with that in the particular design of the formulas for these emission intensity targets. I think we agree that this the place to deal with it, but it doesn't solve it. It's still a difficult issue to deal with. We think it could be dealt with in the way you design the formulas for intensity.

º  (1640)  

    Mr. Brent St. Denis: Are there any other comments?

    Mr. Michael Cleland: Maybe just to concur with Mr. Hyndman's point, from our industry's perspective, I'm not in a position to tell you exactly who may have registered under that program, but I think, for much the same reasons, the uptake probably hasn't been that much, at least not yet.

    I think one of the real advantages of working up sectorally based approaches is that it then creates a sector-by-sector opportunity to look at what the particular circumstances are of a sector, what has been done, taking a bunch of factors into account in arriving at what's an overall realistic approach. Actions taken over the last decade would be among the things you would take into account, but it's probably going to be a less precise kind of thing than the baseline protection initiative contemplated.

    The Chair: Anyone else?

    Mr. Paszkowski.

    Mr. Dan Paszkowski: We had a number of our members participate in the baseline discussions, and got to a few of our members pulling together the data to work underneath the baseline protection discussions.

    We ran into a lot of complexities on what was considered progress in reductions and what was considered additional. A lot of the investments we've made over the past decade have been related to other environmental codes and regulations. We started getting into debates as to whether the investments were made to reduce emissions, sulphur dioxide, or some other air emission. So it started causing problems for us. But the baseline protection discussions helped us focus on getting the information in place, so we could prove we did make the reductions.

    Early action is critical for our sector, if you look at the numbers for the mining, smelting, and refining sectors, which have improved the intensity of greenhouse gas emissions considerably over the past decade. We believe there should be some recognition for that, to ensure our competitiveness into the future.

    The Chair: Mr. St. Denis.

    Mr. Brent St. Denis: Thank you, Mr. Chair. Thank you, gentlemen.

    I take it then that while the baseline protection initiative maybe didn't rally the enthusiasm of the industry as these governments hoped it might, it's still an issue for you in going forward.

    Talking about going forward, are you satisfied or not that a system is in place? One forum for you to speak up in is the committee process. But are there other fora involving federal and provincial governments that you feel satisfy your need to have a role in the process? I think it's obvious there's no detailed plan for between now and 2012. That will be a work in progress for some time, and will probably be adapted throughout the process.

    Could you tell us whether or not there is a process that engages your industry in going forward? There have been various involvements in the past. I assume that has to change now, and there has to be a new phase of discussions. I'm just wondering if you could describe what those should be, to make sure your issues are brought forward appropriately to the federal and provincial agencies and departments involved. Maybe we could help recommend a better process, in that case.

º  (1645)  

    The Chair: I think the question is that knowing Kyoto has been approved, that's the mission. Now we're going to the initiatives, so what is the clearest way you'd like to get your point of view across, to make sure it's best for your sector?

    Mr. Rick Hyndman: There are two things. First, we know that the federal government is planning a series of discussions with large emitters in total, and then sector by sector, to talk about what they refer to as covenants, and what we in the oil and gas sector refer to as sector agreements. The details of that aren't perfectly clear, but we're confident they are going to follow through on that. It will be a process in which we can seriously engage.

    On the larger question of what happens to the rest of Canada's plan, and where Canada will actually go, I don't see any process at the moment. I'm not sure what the right one is. Earlier, industry was very worried not only about the policies being put in place, but about the policies that were not being put in place that might have to be put in place. We have nothing clear on that latter one, and I guess we are concerned about what would happen if Canada decided to try to reach that target, come hell or high water, even though we might fall well short of the reductions required.

    Mr. Michael Cleland: Perhaps I can add just a couple of things, and again, I'll be brief.

    We're heartened by the kinds of directions that we see coming out of Natural Resources Canada and the work on sector-based approaches. We think that's the right way. We think a lot of the kinds of things they're now starting to talk about are the right approaches. In fact, they're consistent with the proposition that the electricity industry put on the table three years ago. So we're glad to see that the government is catching up.

    So we think the structure is potentially there. What it's trying to achieve is more than realistic, but at least the conversation is going on.

    The conversation needs to look beyond 2012, both so we position Canada more effectively next time around, and so we can start thinking about a framework that is consistent with our investment-planning horizons.

    There are a couple of things I think people are going to have to think very carefully about. It's really going to stretch everyone's resources, including yours, I'm sure, in terms of working through this. It's going to be very tough to do this on a sector-by-sector basis. So it will need a commitment of senior people to make it work and an ability to pull it all together into an overall umbrella framework. Some things need to be dealt with in the umbrella framework, and some things at a sector-by-sector level.

    Finally, we have to bring the provinces back around the table, for our industry and I'm sure for others. Our licences are issued at the provincial level, and we need to make sure that whatever we agree to is effectively being taken on board at that level. That's where it really has to be implemented.

    The Chair: Mr. Peeling, would you like to add to that?

    Mr. Gordon Peeling: Yes. It gets easier as we go across the table.

    The Chair: Yes, absolutely.

    Mr. Gordon Peeling: Let me just echo, obviously, the approach to sector agreements, the large emitters group. We expect those to carry on. We expect those to get much more involved in terms of the detail of the discussion. That's all very positive.

    I do want to echo what Mike has said: it's important, because the provinces own the resources, they need to be at the table. They provide our land tenure, and so on, and our permits for access. So it's important, just as it is as we see that export side and our international competitiveness. Obviously, the prime importance and focus of both ourselves and the federal government is remaining whole at the end of the day so that we can provide jobs in rural and remote Canada.

    But also, I think, within those sector agreements, because we do represent a very complex sector, we really have to look literally product line by product line. It has quite distinct geographic challenges and opportunities that we obviously need to get to grips with, but we also need that clear recognition of early action, because this industry has invested a lot in early action.

    As you make each incremental change and you exhaust the harvest of early fruit, it gets much more expensive with each incremental change. And if those who have invested already are put on the same footing as those who have done nothing, that really does a disservice to those who have moved early and does a disservice to the ultimate competitive outcomes of our situation. So that has to be part of this mix going forward.

º  (1650)  

    The Chair: Mr. Nantais.

    Mr. Mark Nantais: Thank you.

    I certainly agree with all the comments made, particularly taking a longer-term view of some of these things. But quite frankly, I think we've taken our eye off the big picture here. We have a plan that, in my view, does not connect the dots, so to speak. We need something or some approach that is going to take a look, in our case certainly--I'll speak to our sector--throughout the whole supplier chain. I'm referring to these incremental cost increases that are going to occur. Clearly we don't have an idea of what that is ultimately going to mean throughout that supply chain, and ultimately what it's going to mean not just to us as assemblers, in terms of our competitiveness, but also to our parts makers, who quite frankly are, in many cases, building plants to service those plants that have been highly incentivized and moved to southern states, for instance.

    I think we need to look at a total systems approach, as we call it, throughout the whole supplier chain, which includes many of the people at this table already. We need to talk about what the costs are, associated with the initiatives that we may take on the supply chain, and how, for instance, in products that have a great deal of imbedded energy in them, they're going to get some sort of ameliorated effect by virtue of the fact that they have energy and that it's going through a jurisdiction that of course is going to benefit from that.

    We have to be careful not to dismantle industry structures that, quite frankly, have provided a real economic benefit and contributed significantly to various societal objectives. Again, in our case, I'm talking about the integrated automobile industry, which has paid off real benefits in terms of jobs, and to consumers in terms of some of the safest and cleanest vehicles in a most affordable way. I'm not really redressing the process as such, but I think the process needs to look at some of those things as it goes forward.

    The Chair: Mr. Masse.

    Mr. Brian Masse (Windsor West, NDP): Thank you, Mr. Chair.

    Mr. Nantais, with regard to auto policy, I asked the minister again today about the fact that there's an investment opportunity out there, and the CAW, the big three, and 26 mayors representing 83% of the population of Ontario are calling for auto policy. You described it as a “fragile toehold” with companies unless we put in a rapid strategy. The minister today said that everything's fine, basically. We're going to have our second meeting with the Canadian Automotive Partnership Councilnext week, after the first one in June. Who's right and who's wrong in this?

    Mr. Mark Nantais: Perhaps, Mr. Masse, the best thing to do is clarify what I did say. I was referring to those research and development companies that are working with not just the big three, but others as well, developing some of the most advanced fuel-efficient technologies, such as fuel cells, and I'm taking Ballard as an example. I'm talking about those industries that are being courted by jurisdictions in the United States and elsewhere to relocate there. That's the fragility I'm talking about.

    In terms of the auto assemblers, the big five, if I may, things are going well right now in terms of sales. As I mentioned, we do have an overcapacity situation of 20 million vehicles worldwide. We already have plants where quality is very good, and the cost structures are very favourable. We have to be careful, whether it's Kyoto or any other of the line items that go into creating a business case, to retain investment here, let alone attract new investment. It's the total thing here, and we have some real vulnerabilities in terms of the overall automobile industry in Canada. We're doing well at the moment, but we do have vulnerabilities, so we're both right.

    Mr. Brian Masse: How are we doing well when we have production going to the plant in Ohio, and all of the southern states, and then we have the fact that DaimlerChrysler will build a plant in Windsor if there's auto policy, and they won't if there isn't? What do we do, or what can happen? You came out with a practical suggestion on GST rebates on purchasing alternative fuels. What other things can be done to develop that?

    Mr. Mark Nantais: I think one needs to see the outcome of the automotive council work. Yes, we are about to have the second major meeting. There are a number of working groups that will be reporting to the overall council. I've seen many of the recommendations contained therein, and they're substantive in terms of their content. And I will tell you this, that the CEOs who sit around that council will be looking for results, but there will be some very constructive recommendations offered through that process.

º  (1655)  

    Mr. Brian Masse: Can they match, if the government so chooses, to offset some of the concerns the auto industry has with Kyoto, and the targets and what not? Iif there is movement on those particular formats and suggestions, will that offset the majority of Kyoto concerns?

    Mr. Mark Nantais: To the extent that it contributes to a strategy that strengthens our industry, then that will be beneficial. There will be short-term, as well as long-term, recommendations contained therein. There will be some matters cited therein that will be for immediate action, and some of those immediate action items will include things like standards harmonization for vehicles. We cannot afford to dismantle the industry structure I talk about, where we're premised on providing one product for the entire North American market. That's how we can get our costs down. That's how we can get the technology out into the market more broadly, and faster, quite frankly. So the recommendations in there will be substantive and they will be looked upon for action.

    Mr. Brian Masse: I'll move on from auto then.

    I have a general question with regard to wind. I know that looking, for example, at this chart, we don't have anything on it with regard to wind, which is really non-existent for the most part in Canada. What types of benefits can it have, and how influential can it be for different operations, for example, in terms of your concerns with fuel availability in certain sections and regions? How realistic is this? And what type of contribution should we expect from wind as it becomes more developed in our country, as it has in other areas?

    Mr. Michael Cleland: Wind is a real option, and it's an important one going forward, but it's a matter of keeping it in perspective. A lot of people say that's the answer. The answer going forward I think is going to be all of the technologies that we have and more coming on, including wind. Right now, wind is somewhere in the order of 300 megawatts of capacity. In proportion, we're talking about a system of 110,000, so it's very small. Looking forward, we could see another 1,000 or 2,000, maybe more, come on in the Kyoto timeframe, but not much more.

    In terms of its total contribution to power production, wind's capacity factors tend to be anywhere from a third to a half those of the system average overal. So you have to put that in perspective. Most Canadian electric utilities today are investing in wind because they see that as part of the future and they're learning how to integrate it with their systems. As we look farther out, we'll see more, but it's unlikely to become a really large part of the mix.

    Mr. Brian Masse: I have a general question. I know you may not be able to answer some of this, but I'm going to throw it out there anyway, because I have had people ask me. What about personal energy production for your own home and what not?

    People have mentioned to me that you have escape turbines in your house for hot air and what not, a small generation capacity, which collectively, similar to down-smoke removals on areas of flood streets, if you put them together you might be able to operate some outdoor lighting and what not. What type of a market is there? What type of opportunity would it offer to businesses to get into this if the incentives to get the technology to the market were there and it were affordable to the consumer?

    Mr. Michael Cleland: Ten years out, I think distributed generation technologies like that are going to be a bigger and bigger part of the mix. I doubt if you'll have them in your house, but your office building very well might be using those kinds of technologies. It could be micro-turbines, it could be fuel cells.

    There will be a bunch of questions. There are technical issues with system integration. There are some issues like net-metering and all that kind of thing. But those are all solvable, given enough time.

    Again, that's going to add to the mix. But remember, any of the distributed technologies that are based on natural gas are adding greenhouse gas emissions. So it's a win, in several respects. It adds to system stability and system reliability if it's integrated in the right way, but there are always downsides.

    Mr. Brian Masse: Thank you.

    The Chair: Thank you very much, Mr. Masse.

    I'm going to take the liberty, as the chair, to ask a few questions and then I'll give it back to other people.

    Mr. Nantais, you talked about Mr. Grimaldi making comment on different standards. I thought I read, when he was saying that, it “could” create different standards. I think that was his quote.

    Don't you see this as an opportune time for a Canada and U.S. or a North American standard on safety, on fuel efficiency, such that we could do away with having different standards in order to meet our Kyoto objectives? Isn't this a good time to put everything on the table to try to make things happen?

»  (1700)  

    Mr. Mark Nantais: We agree with taking a total North American approach, which is why we were looking forward to working with the government under the Action Plan 2000, which clearly said a significant improvement to fuel efficiency on a North American basis. Clearly, that's exactly what we want, Mr. Chairman. We want to develop products to one product standard for all of North America, whether it be safety, fuel efficiency, or emissions.

    The Chair: Isn't this a good time to put that all on the table now and try to achieve that objective?

    Mr. Mark Nantais: It is, but the plan is calling for a unique 25% improvement to fuel economy, not on a North American basis any more. Something has changed from the Action Plan 2000 to this action plan.

    The Chair: You made the comment about “Innovation is not created or generated by regulation”. Of course, you know my background--

    Mr. Mark Nantais: Yes.

    The Chair: --of having designed engines for a few years and made them. When the U.S. decided to put in CAFE regulations, all the automobile companies were driven all of a sudden on innovation. So I'm not sure you're too accurate when you say regulations don't drive innovation.

    Mr. Mark Nantais: In that case, there is some truth to that, yes. But the innovation I'm talking about is going beyond regulation. I'm talking about the advancements we're looking at, in terms of some of the hybrid technology: the direct-injection diesel engines, the fuel cells, things that are going well beyond what is required by regulation now.

    There's no doubt about it, if you put a regulation in place, if an industry wants to remain operating in that type of market, obviously they're going to put the resources into meeting that regulation. But I'm talking about what innovation is required to go beyond regulation, to look to the future.

    When we talk about these technologies, a lot of them are not going to be in the first commitment period. Fuel cells, in any large numbers, are not going to be in the marketplace until roughly 2020, 2025. So this is why it's so important to take that longer-term approach in setting some of our objectives.

    So I think industry, for the longer term, in order to respond to the market and continue to be competitive in the market, will respond to consumer demand and being able to do it because it makes economic sense to do it.

    The Chair: That leads me to your remark on cleaner fuels. I thought maybe Mr. Hyndman was going to come there and say do some rework on cleaner fuels.

    My next question, Mr. Hyndman, is to you. I know the work that Irving has done on removing sulphur: they've budgeted over five years and they've obtained cleaner fuels. Mr. Nantais keeps mentioning about how if we could have cleaner fuels, we could achieve some objective. I don't want to be biased, but I happen to be with him on this one. What is your remark on that?

    Mr. Rick Hyndman: If he could just get the efficiency up in his cars too.

    I do represent the upstream, and the refining business is the downstream, and I'm not particularly informed about that. However, I think the key on all of this stuff is making sure that when you intervene to make things better you do it in a way that isn't disruptive and unnecessarily costly. Because of the integrated nature of the energy markets, and even gasoline flows back and forth across the border, harmonization with the U.S. on most of the things we do here is an important way to keep from imposing unnecessary costs on industry. But I'm afraid I can't help you out on the details of cleaner fuel technology.

    The Chair: We'll wait for your answer on that.

    Mr. McTeague, do you want to ask a few more questions? Then I'm going to go to Mr. Fitzpatrick, and then I'm going to go to Mr. Crête for a short question, and then back to Mr. Rajotte.

    Mr. Fitzpatrick, are you going to ask a question?

    Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): No, I'd rather give my time to Mr. Rajotte.

    The Chair: Fine.

    Mr. McTeague, you want to just....

    Mr. Dan McTeague: Very briefly, Mr. Chair.

    ZECA, the Zero Emission Coal Alliance in the United States, has developed a plan, not of sequestration--which I don't want to get into--into empty oil wells, but in fact providing fossil fuel. We know that the United States, for instance, derives 56% or 57% of all of its non-automobile energy from coal.

    Is it the intention of your industry, Mr. Cleland, to look at the possibility of not necessarily advocating natural gas, which is in fact an emission, but perhaps looking at the new technology that is existing under the guise of the U.S. energy department? They're building four plants now in the United States that have zero emissions by using serpentine and other technologies to have zero emission on coal burning, and it doesn't matter what its sulphur content or others is.

»  (1705)  

    Mr. Michael Cleland: The short answer to your question is yes, pretty much all of the coal-burning members of my association are involved in an organization called the Canadian Clean Power Coalition, and that coalition is working with the government to invest in technologies that will effectively reduce all emissions from coal to zero or close to zero.

    What they're doing right now is looking at some nearer-term possibilities, including integrated gasificationwith combined cycle, and then capture and sequestration of carbon dioxide. But the ZECA process is part of that, and several CA members are continuing to invest in it. That's the dream, if you will, the ultimate way of doing it. It's still some way from being proved to be technically feasible. The other technologies, including capture and sequestration, we know are technically feasible; it's a question of making them economic. So we're working on all those fronts.

    Mr. Dan McTeague: Would those be economic in the context of liability? If you put carbon dioxide into the ground and suddenly it comes up en masse, it would probably have the effect of destroying people around it. Is this a concern as a result of sequestration?

    Mr. Michael Cleland: One thing we know for sure is once you start looking seriously at sequestration in deep aquifers and so on.... First of all, there are some ways of sequestration that may be more cost-effective, such as in coal seams from which you can get coal bed methane and the carbon dioxide is captured in the coal, and you can use it for enhanced oil recovery. But when you're looking at really large quantities of carbon dioxide and you're into deep aquifers, one of the issues that is clearly going to arise is whether you are truly putting it away. So there will be lots of environmental assessment work that will need to be done to deal with that.

    Mr. Dan McTeague: Thank you.

    The Chair: Mr. Rajotte.

    Mr. James Rajotte: I want to follow up on Mr. McTeague's comment.

    I appreciate, Mr. Cleland, your words about coal. It's interesting that the government's plan on page 36 talks about clean coal technology, and they also talk about a carbon dioxide pipeline on page 35. They talk about working with the provinces and industry on building this. Have they initiated discussion with either of you, Mr. Cleland or Mr. Hyndman, or with your industries on the building of this pipeline?

    Mr. Michael Cleland: Mr. Hyndman may have more to say on that than I do because some of the immediate sources of carbon dioxide actually come from the oil and gas industry from processing, and in particular are associated with the oil sands. The idea then would essentially be to put in place the infrastructure to be able to capture all of those various sources of carbon dioxide.

    We haven't been involved directly in discussions with the government. Perhaps, Rick, you have.

    Mr. Rick Hyndman: Yes. I know that both companies and the Alberta government have been involved in discussions with the federal government and federal officials on the technical feasibility and where is the right place to put the pipeline. As Mr. Cleland said, one of the cheapest sources of capturing carbon dioxide is off the units that produce hydrogen for the upgraders in Fort McMurray. So the idea is to get it from there down to where the enhanced oil recovery projects would be, which is more in the centre of the province, near Edmonton.

    Mr. James Rajotte: I wanted to follow up on something the chairman brought up, the issue of further refinement of gasoline. I think it's partly answered through your chart showing the end use, the refining and marketing and the production of pipeline. It states “a shift in production from Canada to other producers would not effect end use emissions”. If we decide to further refine gasoline, particularly if you're talking about the oil sands, the bitumen there requires much more refinement than normal oil. You're talking about a lot of refinement, which produces carbon dioxide emissions, so the more you refine that bitumen into synthetic crude or whatever you choose to, you're talking about more carbon dioxide emissions. Isn't one of the concerns that then the plants in Fort Saskatchewan or Fort McMurray would be either moved or not built, and then moved down to Montana or somewhere, but then it's just shipped back anyway, and the end result is that there's no emissions reduction overall, because of the integration of the two markets?

»  (1710)  

    Mr. Rick Hyndman: Nobody's going to move the plants that are already there, they're not on rollers, but it is a serious consideration for the new oil sands projects where the upgrading hasn't happened. So somewhere between the bitumen you pull out of the ground and the gasoline that goes into the cars you have to do the refining, and in the case of Syncrude and Suncor, and now the Shell project that's about to start up, that bitumen is brought up to the quality of light crude oil, which is sent to eastern Canada or central Canada and the U.S. But some of the new projects have a choice as to whether they locate the upgrading part in the U.S. or in Canada, near the production source, and if you're putting costs on doing the upgrading because of the carbon dioxide emissions associated with that energy use in Canada and not in the U.S., that will tip the balance towards locating them in the U.S.

    Mr. James Rajotte: There's debate about whether there has been an impact so far with investment, particularly on the oil and gas sector, and I'd just like you to comment as to whether you have seen any effects. We hear on the ground in Alberta that there has been quite an effect, there has been delay or stoppage of many projects. I don't know whether you can say it openly, but can you tell us whether there has been a delay or stoppage of any projects caused by the whole discussion about Kyoto?

    Mr. Rick Hyndman: The main one delayed earlier was the True North project, and there were a number of factors involved in their decision. Climate change is one of the uncertainties they face. I don't think it was necessarily the main one at that time. But I quoted earlier the Nexon delay that was announced this morning, and that one is clearly tied to the uncertainty about Kyoto. One of the things we were telling the federal government is that there are a number of decisions that have to be made about the spending to keep these projects on their current track, and those decisions are being made within the next few weeks. And if there's a whole bunch of uncertainty about what the actual cost will be to the industry, they're likely to push those off. That's hundreds of millions of dollars in next year's spending, and then further out, at a minimum, a delay in the projects and potentially an abandonment of them, if it turns out to be a serious cost.

[Translation]

    Mr. Paul Crête: Thank you, Mr. Chairman. I have two short questions for Mr. Nantais.

    First, I would like him to look into his crystal ball, so to speak, and tell me what the respective market shares will be in 20 years for the following: the electric automobile, the gasoline engine automobile, the hybrid automobile, and perhaps also the hydrogen-fuelled automobile, if that is in the cards. As auto manufacturers, tell me what the future will bring.

    Secondly, I would like to know if what was developed in California is something which may find a place in the market in the future. Do you think other states will experience the same kind of demand, or does this appear to be an isolated development?

[English]

    Mr. Mark Nantais: Thank you, Mr. Crête.

    I'll go back to my comment about operating under the principle of tactical preparedness, and I certainly invite my colleague here to contribute. Hybrids are clearly going to be a transitional vehicle, a bridge towards fuel cell vehicles. Over the next few years you will see an increasing number of hybrid models being introduced on the market. We still have costs we're trying to get down, but clearly, hybrids have a major role to play between now and the time we get fuel cell vehicles on the road.

    But I think we need to be clear that fuel cell vehicles may not be the solution we think they are. I can give you examples of technology, like a diesel-electric hybrid vehicle, that gets the same fuel economy as a fuel cell vehicle. We may be overlooking some of this potential technology because, for instance, we're adopting emission standards, the tier two standards I referred to, that have such a stringent knock standard, as we call it, that they prevent the introduction of some of the vehicles. We have the technology now in those areas, for instance, direct injection diesel engines, which are becoming very prominent in the European market. Why? Because the European market has put in place taxation schemes that shift the fuel from gasoline to diesel. Diesel is a good fuel. We can get cleaner diesel fuel, and we are getting cleaner diesel fuel. So we've seen a shift of over 32% of the entire European market into diesel vehicles, which accounts for why, overall, European fleet fuel efficiency is improving quite dramatically. Unfortunately, because of the regulatory barriers and the knock standards we have here, we probably won't see that technology in Canada for some time.

    So this may be an opportunity overlooked, and we need to think about those things, but clearly, you'll see a transition from hybrids ultimately, we think, into fuel cells over the next 20 to 30 years. Again, that's assuming that we can get the cost down, that a number of other barriers are removed, and that we gain consumer acceptance in the marketplace.

    I don't know if you want to add anything to that, Jonathan.

»  (1715)  

    Mr. Jonathan Hodges (Director, Automotive Affairs, Canadian Vehicle Manufacturers' Association): Again, it's very difficult to quantify where we'll go as an industry. There are several technologies being looked at today, continued improvements in internal combustion engines, gasoline or direct injection diesel. Hydrogen, obviously, is a long-term target for almost every vehicle manufacturer at this point. Once again, some of our members are developing hydrogen-powered internal combustion engines, some of them are going the fuel cell route. So even with a different fuel, there's more than one possible route to go.

    The hydrogen economy obviously depends a lot on infrastructure. We can develop the technology on the vehicle side, but if the infrastructure doesn't exist, the vehicles aren't going to enter the market, period. And there's a lot to be considered, not just carbon dioxide emissions, greenhouse gas emissions, but other environmental considerations, smog-forming emissions.

    Mr. Nantais made the comment about diesel technology increasing. I think the projection now is that 50% of vehicles in the European Union will be diesel-driven within a very short period, probably in the next decade, and that has consequences as well. There are fiscal considerations driving that, but there are also very big differences in emissions regulations in the European Union compared with what we have in the North American market. So there are a lot of things in play, and it's very difficult to have that crystal ball.

    Certainly our association can speak to hybrids quite well. All the hybrid products on the market today are produced by two of our member companies, Honda and Toyota, and there's been some press recently about Toyota globally having a target of introducing a hybrid drive train on every product they offer in the near future, within the next decade once again. That is obviously a very surprising target, if you talk to most industry analysts and engineers who work in the field. The question then is if they have the technology introduced, what volumes will it be introduced in? That's the big thing we don't yet know.

    The Chair: Thank you very much.

[Translation]

    Mr. Paul Crête: I had asked a second question on trends.

[English]

    Mr. Mark Nantais: He asked a question, Mr. Chair, related to California.

    The Chair: Go ahead.

    Mr. Mark Nantais: I think that the California situation also needs to be clarified. As I said earlier, they did put in place some unique standards to address a very acute air quality issue, which came to the fore back in the mid-1950s. Vehicle manufacturers did put in place some unique emission control technology. But California has had to pay for that. There were some vehicles that were not offered in California. On top of that, California took the total systems approach of which I speak. They put in place fuel quality standards, which ensured that those vehicles operated as they were designed to operate. Clearly, they took that total systems approach, and it allowed that technology to operate there.

    As we move forward here, what is often referenced is California's carbon dioxide legislation. If that comes to fruition, for lack of a better word, it will not come forward until 2009. But right now it's being contested by the federal EPA and industry. There's a real question of whether or not that will ever come into force.

    In any event, we're still seeing a movement to dovetail regulations, to get away from unique standards and requirements, and I think that's the way of the future. Ultimately, we want to harmonize and dovetail all regulations on a North American basis, but we're also having discussions now about harmonization on a global basis. We're participating in various fora with Europe and other jurisdictions around the world in pursuit of overall global harmonization.

»  (1720)  

    The Chair: Thank you very much.

    I want to thank you all. It was an excellent discussion.

    The Mining Association has a list of recommendations.You didn't go over them today, but you forwarded them to us in the package. If the other groups have similar types of recommendations, I would appreciate it if you would pass them on to the clerk so that our researchers and the committee would have those.

    I want to thank you all for coming this afternoon. It has been very good for us. We will put what we've heard into a format. In the new year members will look at the summary prepared by the researchers and decide what role this committee will play in the monitoring of Kyoto as we go forward.

    I have some bad news, though, for the committee members. It's our turn to have Monday and Wednesday afternoons as committee days. I hate to give you bad news, but Monday and Wednesday afternoons are our new time slots for the new year.

    Have a great holiday season. Merry Christmas and a happy new year to all of you.

    The meeting is adjourned.