NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Tuesday, March 31, 1998

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): I call to order this March 31 meeting of the Standing Committee on Natural Resources and Government Operations. For the record, I'll mention to all assembled that our committee is, among other things, studying the knowledge- and technology-based industries that have evolved over time both in and from the natural resources sectors.

We have heard from the energy sector, the wood and forestry sector, and the minerals and metallurgy sector. Today we are pleased to have with us representatives from what we might generically describe as the alternate energy sector. Represented here today are the Iogen Corporation, the Canadian Wind Energy Association and the Solar Energy Society of Canada.

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I would just advise our witnesses to try to keep their opening remarks to five or ten minutes in order that members of the committee will have lots of time to ask questions.

We're trying to get a better appreciation of the technology that has evolved from natural resources, and how governments help or hurt in that process. We know that knowledge is the basis of our future and future job creation in many ways. We're all interested in jobs, and we're also interested in Canada being a leader in these fields.

With that, I think there was a consensus among the witnesses to start with Jeff Passmore, of Iogen Corporation.

Mr. Jeff Passmore (Executive Vice-President, Renewable Energy, Iogen Corporation): Mr. Chairman, thank you very much for the opportunity to appear before the committee. The only reason I'm going first is that, as past president of both the Canadian Wind Energy Association and the Solar Energy Society of Canada, I realize this is not a hearing about climate change. Just to put it in context, though, I was hoping to be able to say that there are a number of technologies out there that are in a position to be able to deliver on the commitments that Canada has made vis-à-vis the Kyoto greenhouse gas emission reduction agreements. I did provide the office with overheads on Friday last, but I don't see anybody here with them. I'm not sure where the package is.

As you know, Canada has committed to reduce its emissions to 6% below 1990 levels, which is 21% below what they otherwise would have been in the year 2010. There are a number of people who are making the claim that we can't get there with technology. Natural Resources Canada has done three scenarios and has put up some suggestions. One of them goes to 2010, and it shows that we will be unable to achieve our commitments. What I've suggested—and NRCan is apparently doing this now—is that you need to run a scenario that says you can get there from here. In point of fact, you can get there from here with technology, but it's just a matter of determining what the cost will be.

What sorts of technologies are we talking about? Fuel cells, advanced gas turbines, fuels and electricity from biomass, advanced wind turbines, integrated greenhouse building designs, photovoltaics, and membrane technology. These are just some suggested technologies put forward by U.S. scientists who are looking at this issue, and they've called this group the “innovation path”.

In Canada, you're looking at enormous potential. I like to refer to it as stranded opportunities or stranded technological potential: wind, small hydro, landfill gas, photovoltaics, natural gas co-generation, bioenergy, and cellulose ethanol. The top six deal with electricity, and the bottom one deals with transportation fuel. That's the one I'll be talking about in a few minutes.

There has been some suggestion that if we do an alternative energy technological response to climate change, the economic cost will be far too great. Basically, I think that's bunk. I think technology is in fact going to create a huge opportunity for Canada. In the December 8 issue of Fortune magazine, it is essentially shown that there is a plus- or minus-2% margin of uncertainty, depending on how quickly alternative energy sources penetrate the market.

There are those who would say the economic cost analysis indicates that there is going to be a large economic penalty. Essentially, they say Canada's GDP will grow by 2% less than it otherwise would to the year 2010. In other words, it would grow by 36% instead of 38%. Frankly, 2% over a 12-year period is within the margin of error of any planning horizon. It certainly suggests that, depending on which assumptions you use, the impacts are probably neutral.

In terms of dollar value, the European Union has an estimated £156-billion opportunity for electricity alone from the technologies that you see there: hydro, wind, biomass, PV, and solar water heating. So there's an enormous opportunity from the European Commission in the market for renewable technologies, to 2010, and if Canada does not start to aggressively develop these technologies and pursue this opportunity, then we're going to be in a position of importing rather than exporting the opportunity.

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So there's the extent of the opportunity as far as the European Commission is concerned, and as I said, we'll end up in the situation where if we don't get going we're going to be importing technology much the way we are currently importing wind hardware, about which I'm sure Jim Salmon will have something to say later.

I'll take just a very quick look at what the opportunities are based on the innovation path. The Union of Concerned Scientists in the U.S. says that if you take the innovation path, the advantages are, in fact, a $2.8 billion growth in the U.S. GDP, a $14 billion growth in income, and 773,000 jobs created from the alternative energy sector to the period 2010.

As I say, what you've seen until now have primarily been cost analyses done by the Business Council on National Issues, for example, not cost-benefit analyses.

Shell International agrees, although I suggest that their forecast is somewhat conservative, certainly in terms of what we would like to see happen. Shell International has suggested that for the future, while traditional biomass is number one, of course, it's fairly flat and has been for some time, and coal doesn't seem to have a bright future. Oil and gas, at number three, plateaued in the late 1980s and are going to drop post-2000. As for nuclear and hydro, renewables actually, item number five, will be meeting more total energy demand than nuclear and large hydro combined by about the year 2020. And then, of course, they show number six, unidentified renewables, or what they like to call “surprises”, because we know there are technologies out there and we can't imagine what they might be. For example, imagine thinking about fuel cells 20 years ago.

So what I'm here to talk about in the remaining couple of minutes is technology. Basically, save a few drops for the car...ethanol. And is this technology being used and is it available? Yes, it is.

The ethanol that you can currently buy at Sunoco or MacEwen's in Ontario or Mohawk Oil out in western Canada is grain-based ethanol, that is, it comes from corn or barley. That ethanol we buy is 5% to 10% ethanol and 90% gasoline. However, as of January this year, Ford and Chrysler were putting E85 vehicles on the market. There will be 250,000 of them on U.S. roads this year, and this slide shows the governor of Montana getting into his E85 vehicle. E85 is an alternative fuel. Why? Because it's renewable. There are economic advantages and environmental benefits and it provides energy security. These vehicles are 85% ethanol and 15% gasoline. They expect to have 2 million of them on the road in the U.S. by the early part of the next century.

At a recent ethanol conference that I was at in the U.S., the basic question that was asked was “Why ethanol?” And the answer was that in the U.S., of course, the motivation is somewhat different from that in Canada. If the first motivation in Canada is climate change, it would rank about third in the U.S.

The first motivation in the U.S. is energy security and energy independence: “Would we be sending our soldiers over to the Middle East to fight wars if we weren't so dependent on the Middle East for fossil fuels? No, we wouldn't”, they say. And the comment that's made is “What happens if climate change isn't real?” And the answer is “Take out an insurance policy”, along with the recognition that the lowest-cost insurance is one that does not require changing the current infrastructure. It fits nicely into the existing infrastructure and the five-lab study makes it clear that the fuel of interest is cellulosic biomass—and we can get into that during the question period, the differences between cellulose biomass and corn-based biomass.

Again, just to look at what the Americans are thinking about in terms of the future of this fuel, one that fits nicely into the existing infrastructure, and this committee thinking about the future economy, they see the emergence of the carbohydrate economy. Ethanol's epic journey...this is obviously a quote from the Institute for Local Self-Reliance in Washington, D.C.:

Ethanol as an alternative is not a fuel strategy; it is a strategy for building the foundations of the next economy.

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When I was at this conference, we heard words to the effect that we have to do something to make the industry in this country explode. It's currently growing by 300 million gallons—notice gallons, not litres—a year. They want to see it grow by eight billion gallons a year. Eight billion gallons of cellulosic ethanol a year; who would it benefit? It would certainly benefit the American farm and the farmer harnessing the sun to fuel the world. Why does it benefit farmers? Because what we're talking about as feedstocks are things like hay and grasses, such as reed canary grass, brome grass and timothy. These are things that you find basically growing in farmers' hay fields, things such as switch grass, which is a native prairie grass, straws, cereal chaff, cornstalks, soybean stover and oat hulls.

Basically what you can be looking at as a feedstock are agricultural and forest residues, not to mention things like waste municipal paper and things like that. What does a field of switch grass look like? There it is right there: basically it just looks like a field of hay, and it can be harvested to turn into an automotive fuel.

What does Iogen Corporation do? Right now we make something called industrial enzymes. An enzyme essentially is a micro-organism that exists in nature. The micro-organism that we have was originally found by the U.S. army in Guam. It was discovered in the forties that it was deteriorating their canvas tents very quickly and they couldn't figure out why. It turned out this little micro-organism called trichoderma wanted to turn their canvas tents into sugar and eat them. So they tried to eradicate it, and then somebody got the idea that it would probably make more sense to put this micro-organism to positive, beneficial use.

It's the same sort of micro-organism that in nature would try to rot your back step. If you remember ever seeing a white crust on wood that's not treated out in the back porch, that is an organism in nature that says, I'd like to eat that wood. The only way it can eat it is to secrete an enzyme, the enzyme then breaks the cellulose down into sugar, which the micro-organism then eats.

What Iogen does is produce enzymes, which are currently used in three separate industries. One use is as a chlorine replacement for bleaching in the pulp and paper industry; second, in the livestock feed industry they're used to improve the digestibility of feed for poultry and swine; and third, in the textile industry they're used to pre-soften denim.

Those of you who are of the same vintage as me will remember that when you used to buy your blue jeans they had to be washed a hundred times to get them soft. Now when you buy them they're all pre-softened. They call that stone-washing; in fact, most of it is enzyme-washing, and it's a delicate balance for the blue jean industry to try to make sure the fabric integrity is maintained while at the same time they allow the enzyme to in fact attack the fabric and start to break it down to pre-soften it.

So we currently make enzymes. Those same enzymes could be used to attack those feedstocks that I put up earlier on an earlier overhead—the grasses, the hays, the waste paper, the agricultural waste—and turn the cellulose in that feedstock into sugar, and then what would happen is you would essentially have a process that looks something like this. Your feedstock is collected and transported to the site. It's pre-treated. Why is it pre-treated? Because wood and grass have something in them called lignin; lignin is what makes a tree stand up straight, but it also protects the wood from being attacked by the enzymes. Basically, trees are not meant to break down. They want to last for hundreds of years.

So we explode the biomass, which then exposes the cellulose to the enzymes. And you can see here that there are the enzymes we make, which I just showed on the previous slide. So we put them in a tank with this exploded cellulose, and something called enzymatic hydrolysis happens. After that Bob's your uncle, it's just a brewery. Fermentation and distillation are not technologies that need to be demonstrated.

I think I'll stop there, Mr. Chairman, because I've run out of time.

The Chairman: Thank you, Mr. Passmore. I'm sure there'll be some good questions about your presentation.

Are hemp jeans stiff when you buy them?

Mr. Jeff Passmore: I don't know, but they are when you smoke them.

The Chairman: We'll go right ahead then to the Wind Energy Association—Mr. Salmon needs the projector—and then we'll finish with the Solar Energy Society.

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Mr. Jim Salmon (President, Canadian Wind Energy Association): Good afternoon, thank you for inviting me here.

My name is Jim Salmon, I'm currently the president, not the vice-president, of the Canadian Wind Energy Association. I lost all my vices, so now I'm the president.

They said when I gave this presentation I had to show a wind turbine, so there it is. This is the only working wind turbine, the only turbine supplying electricity to Ontarians. They said it had to show the blades moving, so I hope you get the impression.

I want to start out by giving a background, which I think is probably necessary to get people up to date on wind energy. There's lots of wind energy available, and there's lots in use around the world.

I have a few quotes here. One is: Wind energy is the fastest-growing energy source in the world. That was true in 1996, and it was also true in 1997. It's growing at about 30% per year. Canada has a huge amount of wind energy potential. In 1996 and 1997 enough wind energy was installed to supply all the residential needs of metropolitan Toronto. That's a huge amount of energy.

In 1997, for example, in Germany alone, there was enough to supply the residential needs of London. Jeff has already alluded to Shell International, which has estimated that 50% of the world's energy was supplied by renewable resources, and a lot of that will be wind by 2050.

The United Nations stated that wind energy has been recognized worldwide as a technologically mature energy source that can supply clean, sustainable, reliable and cost-effective power—a lot of nice adjectives.

To get you up to speed, what are things like in the world? As to installed energy in the world, most of it, the country with the largest amount presently is Germany. It surpassed the United States last year. It has enough installed wind energy to supply 455,000 Canadian residences. That would be more like 800,000 European residences, because Canadians are energy hogs. The other big players are: the United States; Denmark; India is fairly big; the United Kingdom; Spain is coming on strong. Of that group, three members of the G-7 tend to be missing: Canada; France; and Italy. France and Italy have, just this year, started fairly major wind programs. Canada will be the only one missing from the top group, come 1999. You can see Canada there. It's just above Costa Rica.

Who makes wind turbines? Who makes hardware for the wind turbine energy? If you look down this list, which is current to 1996, you can see that Denmark is really the big manufacturer. The reason for that is, in the 1980s the Danish government decided it was going to support wind energy in a big way. It did, and now they've just taken over the world. They supply about 75% of the world's wind turbines, and it makes them about $1 billion a year in export income. It's the second biggest export in the country; number one is agricultural products.

In wind energy, the price keeps coming down. A lot of people say, well, wind energy is too expensive. It's not, and it's going to be cheaper. It's a high-value product; it's a premium product.

Here's a graph for England, which has a different regime in terms of supporting renewable energies, but again, the price just keeps coming down and there is no reason to expect that to change.

So wind energy is doing great in the world. Why is it not doing so great in Canada? Well, we were talking about hemp; let's go to cocaine. Selling clean, sustainable wind energy into the electricity grid is just as prohibitive as selling cocaine on the street corner, except in Alberta. This is not a comment on Alberta drug laws; this is a comment on how difficult it is for people to sell renewable energy.

If I produce renewable energy here, and you want to buy it in Carleton Place, you can't. You can't get it from me.

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We move on to the second points. The lack of vision by provincial governments, lack of vision by utilities, that's all mixed up with that. There just isn't interest. There isn't vision. They don't see how we can get from here to there.

The fourth reason, the tenure of the nuclear and fossil fuel interest—that's just momentum. Let's hope that changes. There's lack of action by the federal government. I don't think the federal government lacks vision. However, I don't think they're doing much, for example, in terms of technological and market support.

The wind energy budget: the proposed federal budget for wind energy in the United States is $61 million Canadian for this coming year. For Canada, unless it's changed, it's about $0.6 million Canadian, effectively 100th. Because of all of this, there's quite a loss of wind energy expertise in Canada. It's disappearing out of the country, and Jeff Passmore is one example. We could discuss that later if he wants to, but he doesn't work in wind energy.

Mr. Jeff Passmore: I still live here.

Mr. Jim Salmon: There are some hopeful signs. There are some reasons why wind energy might succeed in Canada, and one of them is Canada's agreement to the Kyoto protocol. I said I thought the federal government had vision. By signing that protocol, I think it has shown that.

Utility deregulation seems to be occurring. It's definitely occurring—well, it has occurred to some extent in Alberta—and it is going to occur in Ontario and may occur in other provinces if the trend continues.

Independent green energy sales: this is only possible in Alberta, but it's going on. There is a company in Alberta that is selling premium green energy. It's also selling them along with emissions trading credits. Emissions credits don't have any value at the moment. These are credits that polluters may be able to buy in the future to offset their pollution. There is little doubt that such a market will be created in the world, but presently it doesn't exist. However, there are some people who think it is going to be so important to have these credits that they're buying them now, even though there's no guarantee that they're worth anything.

The federal government has a green power procurement plan in Alberta, and in Alberta they are buying green energy to supply Environment Canada and Natural Resources Canada. And they're trying to do this in Ontario. In Quebec there is very likely to be a wind energy set-aside. There are public consultations being held as we speak. In the Gaspé region of Quebec they've signed a licence agreement with a Dutch wind hardware turbine manufacturer. If the Quebec wind energy set-aside gets rolling, there's a good chance they will produce wind turbines in the Gaspé.

At Toronto, the North Toronto green community has been trying very hard to have a 600-kilowatt turbine installed in Toronto to sell the electricity to its members on a cooperative basis. This has been nothing but a nightmare of regulation and dealing with Toronto Hydro, Ontario Hydro and other people.

According to most polls, the public supports wind energy and renewable energy, and I think with some more climate change education that will become even stronger.

I have a slide here that describes why I think wind energy is a knowledge-based industry. I won't go over it because presumably we wouldn't be here if the committee didn't think so as well. I might just give a comment of one person in the wind energy field. He said he thinks the Canadian wind energy industry is a knowledge-based industry using offshore hardware. I think this is true. The few projects that have occurred have all bought hardware from Danish or American manufacturers but they have used their local knowledge to create the projects.

What does wind energy do for job creation? Wind energy creates more good-quality jobs per kilowatt-hour of electricity produced than any other energy source. If we continue with business as usual, in other words, no support for wind energy, no Canadian jobs will be produced. We'll also use what expertise we do have in the country.

In terms of exports, there are a couple of examples of exports that are occurring in Canada. Huron Windpower of Huron Park near London, Ontario, fabricates wind turbine blades, originally for a company called Tacke but they've gone bankrupt and have been bought out. They are still manufacturing the blades and sending them back to Germany. All of the blades are exported. Obviously there are no wind turbines being installed in Canada.

A small company in Burlington—it's a retail agent for the Atmospheric Environment Service of Environment Canada—sells software for wind flow in complex terrain. It's used as a basis for other wind resource assessment packages, as well as by people who are interested in putting their wind turbines in hilly or difficult terrain.

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If business continues as usual, in other words, if there is no support for wind energy in Canada, all of the exports will be into Canada. There will be no exports out of Canada.

Technology transfer: There isn't a lot of this happening in Canada. Probably the world's leading wind/diesel expertise, which is where you take....

Let me give you an example as the best way to explain it. Consider a remote community that now gets all its electricity from a diesel generator. It can cost them 85¢, $1, or $1.25 to buy and import the diesel fuel. If you attach a wind turbine to that, you can reduce those costs by one-quarter to one-half, depending on your wind regime.

Natural Resources Canada, the Atlantic wind test site, Hydro-Québec, and a company that makes wind turbines are all experts in this field.

If we again continue with business as usual, there really won't be that much technology to transfer. It's hard to say what this particular field could grow to. If you limit it to Canada, it's not much, because there aren't that many remote sites.

The market is small. If you can export this to the world, there's a chance for a significant technology transfer and a market.

Here are a couple of case studies. These are what you would consider commercial wind plants or wind production facilities in Canada.

One is at Cowley Ridge. It's 19 megawatts. It was installed under an initiative by Alberta, but Alberta is no longer doing that sort of thing. It sells energy to the grid on a contractual basis, which is why it was able to do this. It could get a long-term contract that allowed it to get financing.

This would not occur today anywhere in Canada. There are no places where it could happen.

Vision Quest went electric just recently, last December. They installed two 600-kilowatt wind turbines in southern Alberta. I think they're very brave to do this. Alberta's the only grid where you have the right to sell electricity into the grid. You only have to meet the regulatory hurdles of safety, good interconnections, and so forth. Because they have the right, they went out with a trailer to individuals and companies. They asked them whether they would buy green electricity from them at a premium.

They're also selling CO₂ emissions reduction credits under their business plan. These go to Enmax, which is the Calgary utility of Suncor. This is the only place where this sort of thing can occur.

What do I think the federal government's role is? CanWEA thinks the federal government could help wind energy in Canada. I think it could help provincial governments to acquire some vision. I will leave it up to the federal government to decide how to do that.

It could level the tax playing field. This has started, but it could be continued to completion so that the field is completely level with the fossil fuel industry, for example.

It could create a consumer tax incentive. In other words, if I can buy green energy, I can send in my hydro bills to show I'm buying green energy with my tax return. Then I'll get a credit for this energy I've bought.

It could fast-track the establishment of an emissions credit reduction market, the CO₂ emissions credits. I think that would help a lot.

There's one thing that I think is very important in terms of the knowledge industry. I think it should establish a centre of excellence for wind energy. This could be in consultation or along with provincial governments. It's where industry, universities and governments can work together.

I've suggested here that the eastern shore of Lake Huron might be a good place for it. It's got a good wind regime to do this. It has access to local universities. It's a place that Ontario Hydro is about to make into a destitute area fairly soon by shutting down its nuclear reactors. It has good access to the grid, because all those nuclear reactors aren't going to be putting electricity on the grid.

This is just an example. I can compare it to Risø in Denmark, which is the centre for meteorology and wind energy. The government decided that it was going to set up a centre of wind energy. It did that. It's a world centre of expertise.

The government could support university programs that include wind energy studies. It could create programs that teach Canadians about energy sources. It could support the Canadian Wind Energy Association. I should say that it already does. It could review the NRCan wind energy budget.

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Let me tell you quickly about Spain, which I think is really a success story. Three or four years ago, when you talked about wind energy you never talked about Spain in the same breath. It just didn't exist on the wind energy map. There was nothing in Spain. In three to four years it's gone from that. It currently has 556 megawatts of installed capacity, or enough to power 122,000 Canadian residences.

In the last year, 1997, it installed 307 megawatts of wind power, of which 90% consisted of domestically produced wind turbines. This is fantastic. This is a country that has gone from nothing to manufacturing capability and installation capability of 90%.

How does it do this? It provides premium payments of about 11¢ per kilowatt-hour for wind energy. That's the way it does it now, but it's thinking of something called a “REFIT” tariff, which is a renewable energy feed-in tariff. It pays on the basis of a fixed fraction of the retail cost of electricity, or 80% to 90% of the retail amount.

There's tremendous support at both the federal and regional level, which are the two levels of governments in Spain. There's also good support from the utilities, which does not exist in Canada. The reason for this is that the utilities have got right into this. They are now involved in the manufacture of wind turbines. It's some of their turbines that are going in to make up this 90% of the wind turbines.

Canada can do this. There is no technological reason or resource limitation.... Canada has a huge resource. Out of that list I showed you before, it could well be that Canada's resource is the largest of anywhere. This is a huge opportunity. Let's do it. Let's go ahead.

Thank you.

The Chairman: Thank you, Mr. Salmon. That's certainly food for thought. There'll be questions about how Canada's wind compares with the wind in other parts of the world.

Let's conclude the opening round with the Solar Energy Society of Canada.

Tim, do you need the projector?

Mr. Tim Egan (Member, Board of Directors, Solar Energy Society of Canada Inc.): Thank you very much, Mr. Chairman.

You'll see that a lot of the information we're going to bring before you in fact overlaps with much of what Jim was just talking about. We'll go through it quite quickly.

I have with me today a number of people from the solar industry in Canada. I will introduce them to you afterwards, if I may, so that they can take questions.

The Solar Energy Society of Canada is a research body. It is not the industry association. There is a Canadian Solar Industries Association comparable to the wind association.

The Solar Energy Society of Canada is a research body that looks at a variety of renewable energy sources, including active solar, passive solar, photovoltaic, wind, biomass, geothermal, and microhydro. Our society's been in operation for about 24 years and conducts education work, policy research, and some R and D work, particularly through its annual conference.

If I could, then, I'll show you a few slides that show some of the technologies out there. This is one that many of you may be familiar with. This is the solar wall technology, and this is, I believe, the Bombardier facility. It's an active solar technology. There is a cladding on the outside of the building. Air passes under the cladding, is heated through the solar energy coming onto the cladding, and that transfers heat into the building. They're also apparently looking at applications for cooling as well as heating.

This is a domestic hot water application. It's on the roof of the building. It can be used for heating for swimming pools or for domestic hot water use for your hot water tank.

Those are just a couple of examples of some of the technologies that are out there.

What is the solar resource? Obviously, it's the primary source of energy, the source for all of the other types of energy, the ones I listed for you. It's ubiquitous. Despite our northern climate, it's still a major opportunity in Canada.

As much as a kilowatt of solar energy falls per square metre. In Canada, on average, it's probably around 400 watts that would fall per square metre.

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Just to give you a statistic that might make some sense, a community the size of Gatineau has enough solar energy falling on the roofs of the buildings in that community to meet the energy needs of Gatineau.

Why is the technology important today? For a variety of reasons. It's a knowledge-intensive industry. The industry is largely populated by professionals; there's a large contingent of engineers, business professionals and others. There are strong job creation opportunities. Jim alluded to the job creation opportunities in renewable energy. It applies equally to solar and to wind.

There are significant and growing international business opportunities. The real market for many of the technologies is beyond Canada's borders. It really is in many ways an export technology. The photovoltaic industry in the world has been growing at an average rate of 15% per year for the last 10 years, and the solar-thermal market is growing at approximately the same rate. The opportunities in the emerging world are huge.

Conventional energy generation technologies are being used all over the developing world, but the market is just so enormous that the opportunities for these kinds of technologies are equally great. In fact they're much greater than they are in Canada in many instances, because in many of the developing countries, you don't have the grid in place that we have in Canada, and a lot of the technologies, such as the ones we're talking about today, have particular niche applications for off-grid uses.

The timing is excellent because of the environmental benefits. Both Jeff and Jim have alluded to this. In light of the variety of environmental debates going on in the world today, it's just a good time to be advancing this kind of technology.

The technology is readily available. We're somewhat cautious about this statistic, because the expertise exists in Canada, but what often doesn't exist is the ability to apply some of the technologies. I'm going to talk about that a little more.

What is the industry in Canada? In terms of size, we're talking about hundreds of small operations. It's still a cottage industry. Many of the operations are one- or two-person outfits.

As for the profile, as I mentioned before, there is a high level of engineering expertise, a high concentration of dealers, and a very low concentration of manufacturers. Again, a number of applications that could be manufactured are not currently being manufactured in Canada.

There are diverse applications. I showed you a couple, which are really Canadian success stories right now. There are many others in photovoltaics and some new applications—as I mention here, photovoltaics, solar-thermal, and passive solar. One new application, for instance, is crop drying, which is quite a creative technology being pursued quite aggressively in Canada.

This is the slide I really want to focus on today. Again, it picks up on some of Jim's points. What are the barriers to the advance of the technology? We think the principal barrier is the lack of availability of adequate financing mechanisms. This is not necessarily something the government can address directly. We're not looking at subsidy programs here. What we're looking at is a means to encourage the private sector to invest in the technologies.

Are there ways to go about doing that? We think there are a variety of them. We think we can look at things such as providing guarantees for financing. Those kinds of financing support mechanisms could be developed. It really can become a public-private cooperative venture to do that. Again, utilities could be involved. There are a number of major players who could be involved in assisting to do that.

On the topic of low public awareness, the general public in many ways still consider some of the solar technology applications risky. There is a real need to educate the public about how the applications are valid.

I was at the GLOBE '98 conference the week before last and saw some presentations. There was a presentation by a solar-thermal company, and a number of people in the audience—and these are people who are very aware of a variety of renewable technologies—simply had no knowledge of this particular solar-thermal application. Their question was, is it going to work? The guy had just spent 15 minutes talking about the technology, the number of systems he has in place, and so on. People are still cautious about it. There's a need to increase public understanding of the technology.

There's also a need to increase the ability of the industry to actually apply the technology. There's great engineering expertise out there. Many of the applications are sitting there on the shelf and need to be taken out and tested.

There is a lack of a level playing field—and again, Jim alluded to this one—in terms of assistance provided for the industry as compared to the fossil fuel industry. The benefits simply are not provided for renewable technology sectors. We're not talking about favouritism here; we're just talking about levelling the field in order for a technology that is fairly widespread in Canada and that offers all kinds of benefits to be given an equal footing.

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Then there is the nature of the energy industry. The tradition of the energy industry in Canada is such that, very often, large public entities evolved to meet public needs. The large public utilities that exist in almost every province—many of them have privatized and others are undergoing privatization and deregulation right now—served a public need for a time.

The fact of the matter is that in many ways the current structure of the energy industry acts as an obstacle to the development of new technologies. And deregulation is in fact, we think, going to help renewable technologies like solar a great deal. But all we can say is this: encourage deregulation and raise the profile of the renewables and show how their applications can be used.

What can the federal government do? There are three things. And we're really here to say that as the Solar Energy Society we would like to work with you on these things.

First, the government can help to educate both the public and businesses about the technology and applications.

Second, the government can develop support for private sector financing. That picks up on the idea of extending mechanisms that will encourage private sector investors to assume risks that they wouldn't otherwise assume because it is new technology.

Last, the government can develop a more level playing field, which obviously is within the federal government's sphere of activity because of its taxation powers.

That essentially wraps things up. I wanted to make it as quick as possible, as I said, because many of the points were addressed.

But I wanted to introduce some of the people I have with me today: Dr. Steve Harrison, from Queen's University, who is a professor of mechanical engineering; Mike Noble, who is president of a London-based energy company; Ian Carter, vice-president of Newsun Technologies, a photovoltaics company based here in the Ottawa area; Sheila McKirdy, managing director of the Solar Energy Society; and Alexandra McKirdy, who is our projects director at the Solar Energy Society and is currently working on a second edition of a renewable energy guide, which is a comprehensive consumers' guide we've produced. We're going to leave a copy of that guide with you, Mr. Chairman.

Thank you very much.

The Chairman: Thank you very much for that, Mr. Egan. There is certainly a lot of food for thought.

We'll start with questions, with Mr. Chatters, please, and Roy is next.

Mr. David Chatters (Athabasca, Ref.): Thank you, Mr. Chairman.

There are a couple of areas that I have questions about. It seems to me that generally speaking there are two obstacles to the development of alternative or renewable energies. The first is the slowness of the deregulation of the energy industry in Canada, and I certainly think that there Alberta has something to offer for the rest of Canada to watch. The Alberta energy minister, just a couple of days ago, I think, introduced a bill to totally deregulate the energy industry in Alberta and provide the opportunity for wind power, solar power and the other alternative energies to get involved and to benefit from that.

Of course, the other obstacle is the cost of alternative energy in an open, competitive situation with fossil fuel energy. I noticed that none of the presenters said anything about the cost of their energy. I'd be interested, for example, to know...the example that you used was the ability of Gatineau to produce enough solar energy to meet its energy requirements. I'd be interested in knowing what that cost is.

I have met a couple of times with the wind power people, and they're getting close to being competitive with fossil fuel energy, and I know they have some figures on an analysis of what the real cost of fossil fuel energy is. I'd be interested in knowing about their costs and about the availability of some of those figures on the analysis of the real cost of fossil fuel energy.

I think maybe I'll just leave it at that for now, if I could get some responses to those questions.

The Chairman: Thank you, Dave.

Several of you can participate in that response if you want, starting with Tim.

• 1150

Mr. Tim Egan: In terms of the Gatineau example, we're talking about the absolute fall of energy and costing out the application of that energy. I don't think we've actually conducted any studies that would show that. But the real applications that make sense right now are niche applications, where conventional energy sources simply don't prove economical. They include remote communities, offshore applications, applications in emerging markets where goods don't exist, and so on.

Mr. David Chatters: So regulated or deregulated, solar energy isn't a real player in mainstream energy.

Mr. Tim Egan: Right now, no, in terms of the size of the market. The contribution of renewables to the energy supply market, I think, is under 6%, approximately, and solar is a very small portion of that right now. But the inroads that you see being developed are in areas like solar walls technology—you know, specific commercial applications that could have widespread applications, where you do a cost-benefit analysis of the energy consumption at the particular site.

Solar-thermal applications, like domestic hot water or swimming pool heating systems: Where you look at the cost of propane that's going in, on a pool-by-pool basis solar-thermal can almost always undercut propane.

Mr. David Chatters: Is that so, even with capital costs?

Mr. Tim Egan: Did you want to address the capital costs question?

A voice: With solar-thermal, there really are nothing but capital costs, and the operative parts are all available.

Mr. David Chatters: Over how long a period do you need to become competitive?

Mr. Tim Egan: On solar-thermal, we can talk under a three-year payback for the capital costs of a swimming pool system, after which time you're saving the outlay that you would have otherwise made for propane expenditures. Three years is pretty good for a consumer loan, but it's still a tough job convincing people of that.

Ian, do you want to talk about other capital cost concerns?

Mr. Ian Carter (Solar Energy Society of Canada Inc.): The point is that solar-thermal.... Something is not functioning properly when as many opportunities with reasonable payback periods are not being found in the market for solar-thermal.

I'm from PV, and I hate to say this, because I'm in the photovoltaic side of the business. It's not going to be a significant part of Canada's energy generation portfolio in the next little while, but keep in mind that Canada, on average, has the lowest price per kilowatt-hour of any country in the world, the only exception being South Africa, where the percentage of the population serviced by the grid is relatively small. There is a climate issue as well.

This is not going to be the most competitive area for the consumer application. That being said, technologically Canada can be extremely competitive. In fact, in this area there is a strong synergy with the information technology industry, simply because the core of the photovoltaic technology is silicon.

The same problem you will hear companies like Mosaid talking about, the lack of Canada's entry into the world silicon market, is hampering the growth of the Canadian photovoltaic industry. We're certainly not going to be able to solve that problem effectively if Canada's high-technology communications industry isn't able to get into it. We're talking about a huge gulf in size of industry.

Mr. David Chatters: It's interesting.

Mr. Mike Noble (Solar Energy Society of Canada Inc.): I can add something to that conversation, just based on solar thermal.

One of the activities our company in London is engaged in is developing a commercially viable solar water heating system that is price competitive. We started with some marketing research. We identified the current price positioning. We worked backwards, and our goal was to bring a product to market that could produce solar energy at about 6¢ per kilowatt-hour.

Mr. David Chatters: The problem always with an alternate technology and a solar water heating system is that you can't seem to choose the solar water heating system or the fossil fuel water heating system because if the sun doesn't shine you don't shower. You have to have the fossil fuel, the gas hot water heater, to back it up. So you're looking at a greatly added cost on top of your conventional technology.

• 1155

Mr. Mike Noble: We just delivered a prototype a little while ago to a utility. The package we worked with was an integrated package, and it requires some support from the utility to be part of that overall solution.

While you have the technology, you also have a financing package that goes with it. It's a capital cost system. You have to find a way to finance that.

We've demonstrated that the technology is there. We can do this at a competitive price. There are still barriers to getting into the marketplace, but we're not giving up.

Mr. Ian Carter: Keep in mind that you can make the same argument if it were hydroelectric. No utility using hydroelectric builds to their maximum capacity. Fossil fuels are used as a back-up for almost every single grid, even where they've calculated the hydroelectric as the most efficient. A balanced portfolio of energy generation makes sense.

The difficulty here is that we're trying to move that balancing much closer to the consumer than they're accustomed to and, at the same time, resolve another problem. If I offered to sell you five years of electricity at the price of three, that's going to sound like a pretty attractive offer, but the problem we're faced with is we want payment up front.

The numbers aren't necessarily quite as good as three and five, but a lot of consumers will look at that choice and they have a ready-to-hand financing mechanism in the utility that will provide a solution so they can get access to thermonuclear or hydroelectric. Meanwhile, we're literally three generations behind in developing a social infrastructure to solve that problem.

Mr. David Chatters: There seems to be a real resistance with the existing utilities to partner with the alternative energy people, simply because they have the market. In order for you to come into the market they have to backstop your energy, and there doesn't seem to be a great willingness for them to do that.

Mr. Mike Noble: Deregulation has to take place. It's a real barrier, because you have monopolies in there that want to hold their market share.

Ontario Hydro is a prime example. They are out there preserving their market share right now.

Mr. David Chatters: Yes, that's right.

Mr. Jeff Passmore: Mr. Stinson, I have an overhead here that I.... As I say, these overheads were all sent over on Friday. I don't know what happened to them.

What I want to say is that there are cost-risk trade-offs. If you could draw yourself an XY axis like that with cost and risk, basically cost is only one component that one should contemplate when deciding what technologies to choose. However, we tend to focus all the time on cost. But if you focus on cost only and then your costs of that option.....

I'll use the Ontario Hydro example of nuclear power. They decided years ago that nuclear was the least-cost option, so they foreclosed on all other options. The cost of nuclear went up and the cost of building Darlington went from $3.8 billion to something over $13 billion. When costs go up, you're supposed to get a reduction in risk, but all they did was foreclose on those options, so in fact, cost went up and they got increased costs and no reduction in risk.

Mr. David Chatters: Yes, but that's not the end of it there. If Ontario Hydro or, for that matter, TransAlta Utilities in Alberta had used the real cost of their energy source, if Ontario Hydro had determined the real cost of nuclear energy, including the decommissioning of the plants, the disposal of the waste, and all the rest of it, that would have painted an entirely different picture compared to what's there. That's where that whole process is skewed.

Mr. Jeff Passmore: What you're saying is that there is a value to the environment. I haven't even got into that. That adds strength to this argument. This is just a straight economic argument on cost-risk trade-offs. As costs increase, you should plan for a diverse portfolio, and as you introduce options, which may cost more, the benefit is a reduction in risk because you've diversified your portfolio and you've spread your risk over many technologies.

• 1200

What you're now bringing up is an additional point that is a very valid one, which is that there's a value to the environment. The cost to the environment is not zero, and therefore one should add those costs to polluting technologies or give a benefit to clean technologies.

Mr. David Chatters: I'm hesitant about this whole concept of emissions trading, buying the right to pollute from non-polluting companies. I don't see where you end up with a net benefit, where you reduce actual pollution by simply transferring wealth from one side to the other. But I'd better let someone else have a chance.

The Chairman: Thank you, Mr. Chatters. Yes, Mr. Egan.

Mr. Tim Egan: If I could make one more point on that one, it's interesting, Mr. Chatters, because to put all my cards on the table, I do a lot of work for the Canadian Electrical Association, which is the lobby group for the major electrical utilities across the country, and many of them are extremely interested in the offset opportunity. And the offset opportunity is encouraging many of them to look at renewable technologies that they might not otherwise have looked at. So in fact this is one way this system may serve as an informal route to assist industry sectors that they might not otherwise assist. And a company in your province, TransAlta, is a big player in this game.

Mr. David Chatters: If they can demonstrate where there's an overall global reduction by doing that, then I think it's a good idea. But it's a little fuzzy as to how that's going to work at this point.

Mr. Tim Egan: We could talk about that one for a long time.

Mr. David Chatters: Yes, we're having you back in the fall to talk about that.

Mr. Tim Egan: Yes.

The Chairman: We're going to be focusing on climate change in due course—I don't think in the very distant future.

Let's move on. Mr. Salmon, do you have a final comment before I go to Mr. Cullen?

Mr. Jim Salmon: I want to add one more comment about costs. I showed this slide, which I will show again. For wind energy the cost just goes down, and that's true of all the renewable energies. And for the traditional energies the cost goes up. They're going to meet somewhere. Some day the decision isn't going to be based on cost, it will be based on other factors.

I would also like to add that cost is only one factor in a buying decision, and people, utilities, have lost sight of the fact that there are other factors in buying decisions and the lowest cost option is not necessarily the best option.

Mr. David Chatters: If it's going to work, the costs of the two have to meet in a deregulated marketplace.

Mr. Jim Salmon: Yes, that's right, but it has to be a marketplace that has good controls on environmental quality, for example.

Mr. David Chatters: A deregulated marketplace will still have regulators, and they'll have to make decisions about things like what's the value of the environment.

The Chairman: Thank you. Mr. Cullen, please.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman. Thank you, gentlemen, for your presentation.

I certainly agree that these public utility monopolies have to be broken up if we're going to have any hope for renewable types of energy. I know my favourite peeve is co-generation. Why would a corporation like Ontario Hydro buy from outside suppliers when they have an excess supply themselves? So when the nuclear capacity...there were problems with that in Pickering. I've been quite public in stating this is the time when we should look at lower-cost energy solutions at the margin, because the big problem with the big nuclear plants is—forgetting the environmental concerns—there is a huge cost in plant, whereas with co-gen, with alternative energies selling into the grid, you have much lower marginal cost and it's a cost avoidance for these big, huge, mega-capital projects. So ultimately part of the solution is deregulating these big monopolies, and Ontario Hydro is a classic.

Mr. Passmore, the technology you were talking about relating to enzymes in cellulose sounded very familiar to the all-cell technology that Repap has developed. Have you ever heard of it?

Mr. Jeff Passmore: I'm not familiar with it, not in any detail, no.

Mr. Roy Cullen: You haven't even heard of it?

Mr. Jeff Passmore: No.

Mr. Roy Cullen: At Repap, which actually has its share of problems right now, George Petty was the chairman and he developed this all-cell technology in Chatham, New Brunswick. He has a pilot plant there, where he breaks down lignin and—

Mr. Jeff Passmore: Are you talking about the Chatham ethanol plant?

Mr. Roy Cullen: Yes.

Mr. Jeff Passmore: Yes, I'm familiar with that. That's a corn-based ethanol plant?

• 1205

Mr. Roy Cullen: No, it's wood. It's residues. It's adjacent to a big pulp and paper operation.

Mr. Jeff Passmore: Okay, it's not the same plant that I'm talking about. There's a large commercial ethanol production plant in Chatham, Ontario, but it's not the same one—

Mr. Roy Cullen: No, Chatham, New Brunswick.

Mr. Jeff Passmore: Okay.

Mr. Roy Cullen: In fact, Repap has just been in financial problems. I think George ended up taking it on his own and hiving off the rest, but it's a pet project of his.

This is part of the challenge. There's technology transfer and the sharing of information. Just reading what you're doing sounds so similar to what they're doing in Chatham, New Brunswick. It might be useful to put you in touch with them or for you to get in touch with them.

Mr. Jeff Passmore: Sure.

Mr. Roy Cullen: Let's move to wind and solar energy for a moment. There are some skeptics who say that even if we had the most favourable public policy environment in Canada with the right amount of capital moving into non-renewable energy and the right public policies, there are definitely limits. As for renewable energy sources, the potential is really limited.

If you look at the all energy consumption in Canada, what are the limits you see? If we pushed this to the limit, how much renewable energy can we get into Canada and how much non-renewable energy can it displace domestically?

Mr. Jim Salmon: Can I start with that? Let me start with the example of Denmark. Denmark's wind energy target for 2050 is 50%. So 50% of their wind energy generation will come from wind energy.

I'm not familiar with the details of how they propose to do this, because that's a large penetration of an intermittent resource into their grid. I suspect they're going to trade energy with the Scandinavian countries back and forth.

Quebec has done a number of studies on the synergy between wind energy and hydroelectric energy. It turns out that it works very well. If you have this much wind energy, it's worth this much value and this much hydro energy. If you add them together, it's worth more than the sum because they work together well. They offset each other well in terms of the season in which each peaks. For example, hydroelectric peaks more in the summer, while wind peaks in the winter, so they balance each other in that way.

Hydro is a storage technology. That works very well because, as long as the wind is blowing, you just don't release the water from your reservoir. When the wind isn't blowing, you release that water that you've saved up, and the whole system functions as a whole.

As a matter of fact, it's not just as reliable as hydro, it's more reliable according to Hydro-Québec's calculation using their traditional models that weren't designed for wind energy, or renewable energy.

Mr. Roy Cullen: Looking at it in Canada as a whole and gazing at a crystal ball a bit, we have some unique demographics, unique geography, etc. What kind of displacement could renewable energy make, and how much non-renewable energy could it displace in Canada if it reached its full potential?

Mr. Jim Salmon: For wind energy, the numbers that come up most often are 10% to 15%.

Mr. Roy Cullen: Of the total?

Mr. Jim Salmon: Of the total.

Mr. Roy Cullen: And solar?

Mr. Mike Noble: I can talk about the Ontario market. Just to give you an idea, there are 1.6 million water heaters in Ontario. Each water heater uses about 4,000 kilowatt-hours a year. We say that 40% are technically viable, so your maximum market share would be 40% of that, or 640,000, which works out to be about 1.28 billion kilowatt-hours a year.

Mr. Roy Cullen: So 40% of the Ontario market share is viable.

Mr. Mike Noble: Yes, it's technically viable. So take the best case. Let's say you got a 100% market share of the technically viable portion; you could displace 1.28 billion kilowatt-hours per year.

Mr. Roy Cullen: When you say “technically viable”, do you mean that is also economically viable given a certain policy setting or framework, or what?

Mr. Mike Noble: We've done a lot of market research there. We have numbers that bring it down to.... The 40% assumes that everything is in a perfect world. By technically viable, we mean it's a feasible installation technically; you know, the house looks right, and so on. You have a lot of other factors that you can put into the market research that would change that number. I'd be happy to give you some figures after this that would be—

Mr. Roy Cullen: It might be useful, Mr. Chairman, for the committee.

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Mr. Jeff Passmore: Mr. Cullen, if I could just add something to the previous two comments, we can divide the problem into electricity and transportation, two separate issues.

On electricity, just think in terms of a diverse portfolio. People say that the wind doesn't blow all the time. Of course it doesn't blow all the time, and the sun doesn't shine all the time, but you have wind, you have solar, you have small hydro, you have biomass, and as you say, you have co-generation. In Ontario alone there are 10,000 megawatts of co-generation potential; that's a third of the existing electric grid.

So with a diverse portfolio, it's not a matter of what percentage renewables can provide; it's that we don't have a choice. You're going to have to take renewables and combine them with energy efficiency and meet 100% of the demand by some point in time, because fossil fuels are either going to expire or we're going to have to save what little that's left for more elegant uses than just heating our homes. Go with the diverse portfolio approach and think about it as meeting a majority of the need in the long term with a reduced demand through energy efficiency.

With respect to transportation fuels, that's a lot harder nut to crack, but as I mentioned when I was showing the overheads, Chrysler and Ford this year are producing 250,000 vehicles that are going to run on 85% ethanol. You're looking at 85% market penetration. Obviously this is on new vehicles and there's all the existing stock out there, but over time you could convert to 85%.

The Chairman: Okay. Can we move on now or...Mr. Egan?

Mr. Tim Egan: Sorry, Mr. Chairman.

Mr. Cullen, I have just one last point on the technically feasible point about domestic water heaters. Should you change the parameters somewhat and start building the placement of roofs in particular directions into design criteria for new communities and so on, the numbers would change very dramatically. Many of our communities are organized now around centralized grids, centralized grid access and so on. The limit of what is deemed technically feasible right now changes as the applications of the technology change and become more economic.

Mr. Jim Salmon: Mr. Chairman, could I just add that Ontario Hydro nuclear generation is also an intermittent power source?

Voices: Oh, oh!

Mr. Roy Cullen: With brownouts and blackouts, you mean? Yes.

Dr. Salmon, I have a question for you. In your chart, “Installed Worldwide Wind Energy”, the numbers for Sweden drop off in 1997, as do the numbers for Greece and Costa Rica. Is that just because you don't have the data or did they give up on them or what?

Mr. Jim Salmon: No, I don't have the data. Sorry.

Mr. Roy Cullen: Okay. Thank you.

In terms of turbine manufacturing, we've obviously been slow off the mark, and I guess this really relates to solar technologies as well. Can we get back in the game?

Mr. Jim Salmon: Spain did in four years.

Mr. Mike Noble: I think Steve can comment on this too. Canada is a current leader in solar technology. A lot of the ideas that we see integrated into Europe...and Europe has phenomenal growth right now, if you look at Germany, Sweden, Holland and so on. We're seeing 20% growth per year in the technology. A lot of those ideas came from Canada. There's still some very good research going on now that we are in the midst of commercializing—and that is with your support.

Mr. Roy Cullen: Would you say we're world leaders in solar technology?

Dr. Steven Harrison (Member, Board of Directors, Solar Energy Society of Canada Inc.): I've been in this field since the seventies and have watched the market go up and down, and I would say that in the seventies and eighties Canada developed some real leading technology worldwide.

Due to the inexpensive nature of conventional fuels and what I really consider a lack of government will, we really let a lot of the infrastructure that supported the development of these technologies slip. We had standards in place to approve products. We had facilities that could evaluate products, that could get them to the consumers. A lot of those things have slipped somewhat. They're not completely out of our hands, but they're very close to being out of our hands.

The solar domestic hot water technology that's been developed in Canada is world famous. Microflow technology is one of the world leaders. Europe has been very quick to grab hold of this. And for the solar wall technology, everybody in the world wishes they had patents on that. It's now moving into Japan in a large way.

There are some real Canadian success stories and they're going to move out of Canada largely because of the problems with trying to market in Canada, because of the cost of conventional energy and the costing of “externalities”, as they're called, which are these other additional costs. All of this causes a lot of problems. But we have some real groundbreaking technologies in Canada.

• 1215

Mr. Ian Carter: Could I just toot my own horn on that particular issue? The company I represent, Newsun Technologies, manufactures production equipment for the photovoltaic industry. Our primary competitor receives almost 40% of its revenues in U.S. government support, about $11 million a year, which exceeds Canada's entire budget, and that's just one American firm.

At the same time, one of our customers, Shell Solar, is one of the emerging world producers of photovoltaics. The Netherlands is a country that has added photovoltaics to its energy generation in a very, very significant way. They came to us for their production technology.

We're still capable of competing technologically. It will be a while before we can perhaps produce at the consumer products level, but there is a potential for a knowledge-based industry here, until the price curve, if you will, gets closer to the point where it can compete with the already very, very low cost of energy in Canada.

Mr. Roy Cullen: Okay. May I carry on just for a moment?

The Chairman: Yes, another moment.

Mr. Roy Cullen: I'm very interested in both the solar and wind on this—the concept of levelling the playing field. There was some work done a couple of years ago—with Environment and Finance, was it?—on economic instruments. Were you part of that process? Anyway, there were some steps taken with respect to the taxation issues. There's a feeling, or it has been alleged, that we should try to better balance the tax policies as they relate to renewables and non-renewables. I'm wondering if you have some specifics on that.

I think this committee should have those specifics, because there are different ways to go. There are elements like flow-through shares, there's accelerated capital cost allowance, there are R and D credits or whatever. Maybe you could just tell us the state of play now, and what is needed to keep this process moving. Or, if you don't have that, I think the committee should have that at some point—the specifics.

Mr. Jeff Passmore: With respect to the initiatives that were taken in the 1996 budget, I believe it was, there was a group formed that is called the Independent Power Stakeholder Task Force, which involves the independent power associations of B.C., Alberta and Ontario, combined with the Canadian Wind Energy Association. What we presented to Finance was our desire to see the competing energy options getting similar tax treatment. For example, in the oil and gas sector, they get Canadian exploration expenses and Canadian development expenses—flow-through shares.

In the 1996 budget we were given the equivalent of Canadian exploration expenses, through something called CRCE, the Canadian renewable conservation expenses. That's what Jim was referring to when he said that process has been started in terms of levelling the playing field.

What we do not have is the Canadian development expenses equivalent, and we've been back twice in the 1997 and 1998 submissions to Finance and asked for the job to be completed. Finance has chosen to pursue other priorities. They've been receptive; they think it's something they should do at some time, but the bureaucratic will and the political will are not always in alignment on that.

Mr. Roy Cullen: Could we get a copy of those briefs?

Mr. Jeff Passmore: Yes, I think we can probably provide them. That shouldn't be a problem.

There are some other issues with respect to the tax policy and some moneys that were given in the 1997 budget, I think it was, to solar—and you guys can talk about that.

Mr. Mike Noble: Are you talking about the CCA classification?

Mr. Jeff Passmore: Well, I'm talking about the $60 million for—

Mr. Mike Noble: The REDI?

Mr. Jeff Passmore: Is that what it's called?

Mr. Mike Noble: Yes. That's still up for debate—I mean, where that's going to be applied.

There are two points I can address.

Mr. Roy Cullen: I'm sorry—what's the $60 million?

Dr. Steven Harrison: The renewable energy development initiative of NRCan.

Mr. Jeff Passmore: In the 1997 budget, I believe it was, Finance announced $60 million for solar and other technologies under this renewable energy development initiative.

Mr. Mike Noble: Yes, and I think there is still a concern that this money be directed to a way that facilitates market growth as opposed to short-term profit-taking.

• 1220

There was a period in the early 1980s—

Dr. Steven Harrison: 1970s.

Mr. Mike Noble: —when a lot of subsidies went out. Canada developed, overnight almost, a solar industry, which collapsed as soon as the subsidies were removed. You are seeing a trend like that in Europe as well now. What I would like to see develop is a sustainable industry that can grow, continue to support R and D, and compete on an international level.

As for what Jeff was mentioning, that $60 million, there is a possibility that a lot of that money could be directed to short-term projects that won't have an impact on the market. There has to be some careful thought on how that money is funnelled through. It does develop a growing business so you get tax revenue, create jobs, and all those sorts of things.

The other thing with solar-thermal is that currently the CCA classification prohibits some opportunities. I think there was some work in the past to attempt to change the CCA classification. That would help the business as well.

The Chairman: Okay, Roy. I'm going to come back to you.

Pierre de Savoye, please.

[Translation]

Mr. Pierre de Savoye (Portneuf, BQ): Before I start, I would like to know if it would be possible, for our meeting tomorrow, to put on the agenda the issue of the translation of the documents submitted by our witnesses, translation that should be done by the House services.

[English]

The Chairman: In a closed meeting, yes.

[Translation]

Mr. Pierre de Savoye: I noted that today half of the members are French-speaking. In fact, more than a quarter of the members are Francophones. So I think that the House should do a better job. Thank you.

Thank your for your excellent presentation which I would call particularly interesting and stimulating.

I have a question for Mr. Passmore. You said that there was a difference between biomass-based ethanol, cellulose and biomass, and corn-based ethanol. I will tell you what concerns me and you will probably be able to clarify things for me.

Ethanol is of course a fuel that produces little greenhouse gas. But to get ethanol, you have to produce crops. In the process, the transformation gives way to residues, to by-products that are going to generate greenhouse gas.

According to some people, if you make a compilation of the total gas generated, ethanol is not that clean a fuel. But you probably have answers that will clarify things for us. I am all ears.

Mr. Jeff Passmore: Mr. de Savoye, if you allow me, I will answer in English.

Mr. Pierre de Savoye: Please.

Mr. Jeff Passmore: It's a difficult issue to deal with, even in English.

[English]

The easy answer to your question is that the U.S. Department of Energy has commissioned five laboratories to compare the greenhouse gas emissions of gasoline with corn-based ethanol and cellulose-based ethanol. That study, done at the Lawrence Berkeley Laboratory, the Argonne National Laboratory, the National Renewable Energy Lab, and so on, concluded that on a full fuel cycle basis—in other words, we're talking about the growing of the crop, the transportation of the crop, what comes out the tailpipe, and then the re-planting of the crop—cellulose-based ethanol reduces greenhouse gas emissions, compared to gasoline, by 90%. Corn-based ethanol or grain-based ethanol reduces greenhouse gas emissions by between 10% and 40%.

Why is there a difference between the two? First of all, what's the 10% to 40% for grain? There it depends on what you're using to power your boilers to do your fermentation and distillation and so on, the electricity that's consumed at the plant. The 10% figure is assuming coal is being used to generate the ethanol, so it's not much of a saving. The 40%, which would be the Canadian situation for current ethanol produced in Canada, is assuming natural gas is providing the electricity.

With cellulose-based ethanol, the fuel that's used is the biomass itself, because what's in wood is lignin, cellulose, and hemicellulose. The lignin, which I talked about earlier, is the same as the pulping liquor in the pulp and paper industry. You use that to generate electricity on site to fire your own boilers, and you take the cellulose and turn it into sugar to produce ethanol.

• 1225

In fact, what's interesting is that on a calorific basis, the kilowatt-hours of electricity you can actually get out of a tree exceeds the amount of electricity you actually need to power the boiler. So you can actually use the electricity on site and also export the electricity to the grid, for example—if it wasn't equivalent to trying to sell cocaine on the street, as Mr. Salmon pointed out earlier.

I would like to give you the results of those studies for the committee. They were included in the overheads.

Is that a good start to the answer to your question?

[Translation]

Mr. Pierre de Savoye: I think that brings a lot of light to the issue, for ethanol opponents questioned the process because they said that the gains were minor and even alleged that there were none on the complete cycle.

But you just explained that when we make ethanol from grain, we have to have a distillation, you need power and the gains will be more or less important according to the source of power you use, but there will always be some gains, even if minimal. On the other hand, when we deal with cellulose, the biomass itself will enable the fermentation and distillation, which explains why at the other end we have a much higher gain.

That's what I understood from your explanations. I think it is interesting for the committee to be able to understand that that difference is important.

Mr. Jeff Passmore: Precisely, sir.

Mr. Pierre de Savoye: I would like to know what we need here, in Canada, to be able to produce enough ethanol to meet our needs when we want to replace gasoline. How many crops do we need? What kind of facilities and investment do we need?

[English]

Mr. Jeff Passmore: What we're contemplating initially is 10% market penetration, because those, of course, are the vehicles on the road. You can pull up to your Mohawk filling station in Saskatchewan or your Sunoco or MacEwen station here in Ontario, buy E10 with your existing vehicle, and you don't need any on-board computer analysis to tell your internal combustion engine what fuel it's burning. So at that level, at 10%, an octane enhancer is all it is.

Environment Canada is currently conducting tests to see if you can go to 20% to 25% without any adjustments to fuel injection engines.

I mentioned the E85 vehicles, of which there will be several million on the road starting in the early part of the next century. Then, of course, we're talking a much greater requirement for feedstock.

It's been estimated that with 8% of Canada's current agricultural land, you could meet all of the gasoline requirements in Canada, which is 33 billion litres. That's how much we consume annually. But what we're talking about initially is 3.3 billion litres, which, frankly, is an enormous market. If we could begin to serve that market, then I think the industry would be thrilled.

[Translation]

Mr. Pierre de Savoye: If we want to go from the present situation to a minimal penetration of the market and eventually to a more important penetration, what kind of investment should we envisage? What should governments put into place to enable that change or to facilitate it?

[English]

Mr. Jeff Passmore: To meet the projected growth in current forecast gasoline between now and the year 2010—in other words, so that we just remain stable with current consumption as opposed to any increase—the figure is an investment of $6 billion between now and 2010. That would be private sector investment, once the technology was there and proven.

It's not investment we would be looking for, other than continuing research development and demonstration. But once the first commercial plant is built, we'd be looking at about $6 billion of investment to meet the projected growth. If you wanted then to get to 5 billion or 10 billion litres, well, you're probably talking about $30 billion.

[Translation]

Mr. Pierre de Savoye: I have a last question. The major oil companies are not going to find that funny.

Mr. Jeff Passmore: It depends.

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Mr. Pierre de Savoye: Do you have an idea, an opinion or some information that could show the committee what to do so that the major oil companies do not set up hurdles on the path to ethanol?

[English]

Mr. Passmore: Mr. Chairman, I have actually brought copies of the Canadian Fuel and Ethanol Report with me, and I'll hand them out to the committee. The report contains a story about a joint venture between Petro-Canada and our firm, Iogen. Our companies have in fact decided that they will invest in this particular technology, given certain benchmarks that we have to accomplish technologically speaking. But it's not just Petro-Canada and ethanol. Other oil companies are taking a leadership position, like Shell International and British Petroleum.

It's true that a lot of the Canadian companies are the ones who are basically pooh-poohing the science on climate change and are saying this is just all nonsense. In particular, the biggest dinosaur appears to be Imperial Oil. Others, such as Petro-Canada, have decided that it would be better to take out an insurance policy, and they have gone from being....

Just as a point of interest for the committee, when we entered into negotiations with them at this time last year, they insisted that they were an oil and gas company, that that's what they did and what they were going to give a return to shareholders on. By the fall, when we concluded our agreement, president Jim Stanford stood up at the press conference and said Petro-Canada is an energy company. That's a huge evolution over the course of six months. They recognized that if they're going to provide a return to their shareholders in 2010 and beyond, they have to be an energy company. They can't rely solely on oil and gas.

So oil and gas companies like British Petroleum are investing hugely in solar energy—and I'm sure these gentlemen can talk about their investments in solar electricity or other investments in wind. It's Suncor that has invested recently in wind, is it not?

[Translation]

Mr. Pierre de Savoye: Thank you, Mr. Passmore. What you're telling us is very encouraging.

The Chairman: Thank you, Pierre.

[English]

Those were good questions.

Roy had a brief concluding question, and since I see no other members asking questions, we'll finish up with Roy.

Mr. Roy Cullen: Thank you, Mr. Chairman.

Mr. Ovid L. Jackson (Bruce—Grey, Lib.): I was going to a quick one, Mr. Chairman.

Mr. Roy Cullen: Go ahead.

Mr. Ovid Jackson: From a practical perspective, I was heavily into this thing as a homeowner. You know, you get into a heat sink in the walls and a solar blanket for your home. I actually got myself a heat pump during the time when they weren't giving any subsidies, and there's a lot of front-end loading there.

I know we talked in the discussion about the fact that when it comes to hydro and the nuclear option, we, the Government of Canada and the people of Canada, invested a lot of money. We didn't think about the ramifications in terms of how we shut them down, the moneys involved in doing that, the environmental damage.

These energy sources are available. Some of them are to be perfected. With the advent of technology, we're getting better. For instance, we can turn the wind generators into the wind and so on.

The problem that I see comes down to public education. We have great discussions in these rooms when we get you guys here. You come up and make very good cases, and we look towards tax breaks and so on that sometimes are abused. But I think a big function of what we have to do is public education. I don't know whether the government is not doing enough of that. I just wanted to make that point.

Mr. Jim Salmon: Can I start?

I think the government should do much more public education than it does, and I don't think it needs to take the form of propaganda. I believe it can just be simple education in terms of the facts, and I think the public is wise enough to make good decisions based on those facts.

I think education can take the form of underwriting the cost of preparing school units; of mass public education in the newspapers, brochures, pamphlets; of going through all of the normal channels, such as television programs. I think this is really important. If you simply present the facts to the people, they will support you in the decisions you make on improving our energy supply.

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Mr. Ovid Jackson: The major deterrent, for those of us who like it and get into it, is that we end up getting burned. We spend a pile of money on the front end and then, even if you were going to make some gains, you sell the house in the interim and away goes all this stuff that you did and maybe the new owner doesn't even appreciate it. I just want to make that point, that that's part of what's been happening.

Mr. Jim Salmon: I think you make a very good point in terms of making this investment in a house. I think perhaps contractors and municipal bodies should be educated as well, to let the public in general know that if you have a solar system on your house and you have a heat pump installed, that house is worth more and is going to get more and more valuable, not less and less valuable, as time goes on. If the cost of natural gas suddenly doubles as soon as they open the pipeline down into the United States, your electricity cost doesn't. I don't think most people realize that.

Mr. Mike Noble: Could I make one quick comment here?

Canada has a history of being a leader in energy production and energy technology, and it goes back right to traditional fuel sources like oil and gas. What is happening now around the world is deregulation and sometimes privatization, and you're going to see, as Jeff pointed out, that standard electricity companies are going to be energy companies. They recognize that they want to be in the business of providing a diversified portfolio, so you'll see some very interesting joint ventures forming, like Daimler-Benz with Ballard Power Systems with fuel cells. These are big investments.

So I think in Canada, while we have all the resources in oil and gas, there is going to be diversification. The question is, do you want to be part of that or not? I think education has a key role to play because it helps create that market for the technology.

Mr. Jeff Passmore: I'd like to address that point of Mr. Jackson's.

Mr. Chairman, we've addressed all of these things here today in our submission, but a lot of people ask what can the federal government do about this, because it is electricity policy or whatever and we don't have very many levers at our disposal. But there are four levers that you do have at your disposal.

One is education, which you have pointed out, Mr. Jackson. Two is tax policy, which would have a huge impact. The solar people talked about financing mechanisms. There's no lack of money in Canada. If the playing field is level, the money is going to go where the investment return is the greatest.

I don't want to get distracted with all the parenthetical remarks so I'll go back to my four levers: public education, tax policy, research and development—because technologies are at different stages in their evolution—and the green consumer. I think those are four huge levers that the federal government has at its disposal. I mean, you have lots of buildings in Canada. You have fleets of vehicles. You could be a green consumer.

So those are the four areas.

The Chairman: Thank you.

Mr. Tim Egan: Mr. Chairman, just a word on our publications. I mentioned our renewable energy guide, which I'll leave with the committee. It is is a consumers' education tool. The second edition is currently under development. We also have a number of copies of our newsletter. It is a monthly publication that is very informative on activities in renewable energy areas. We'll leave copies with you, and some information brochures on the various technologies that are out there.

Finally, our annual conference takes place this year in Montreal, May 4 to 6, Renewable Energy Technologies in Cold Climates. This is a heck of an opportunity to find about R and D and what's going on in the industry generally. We'll also leave that with you.

The Chairman: Yes, Professor.

Dr. Steven Harrison: Mr. Chairman, I caught the essence of Mr. Jackson's discussion and I wanted to say that in many respects this industry has been an emerging technology. There was a lot of implementation, there were a lot of government programs, a lot of initiative programs that happened in the 1970s and 1980s, and they resulted in a lot of backlash by consumers when products didn't live up to consumer expectations. A lot of those were the result of new products being rushed to market and the development of new techniques. So the message that has to be gotten out to the consumer at this point is that the technologies have changed.

There have been significant developments in the reliability and the quality of products, cost reductions, lots of features that now make these very viable products in the marketplace. The industry people will tell you, I think, that they're fighting an uphill battle both with professionals and with the public in trying to bring this message to them.

• 1240

So education, at both the professional and private level, is something that really has to be addressed.

The Chairman: Thank you.

Mr. Jackson, is that okay?

We'll conclude, then, with Mr. Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman.

With respect to R and D, in Canada we have some of the most generous tax incentives for R and D for the private sector, yet there's not as much take-up as we'd all like. I don't know what the constraint is there.

On the wind presentation, Dr. Salmon, you mentioned centres of excellence. The federal government has a network of centres of excellence program, the various provincial governments have centres of excellence. Have you ever applied?

Mr. Jim Salmon: Applied in what respect?

Mr. Roy Cullen: You can get, out of a federal government program or a provincial government program, support to establish a centre of excellence in a certain technology. I'm wondering if you or the solar people have ever even applied.

Mr. Jim Salmon: To my knowledge, the Canadian Wind Energy Association has never made an application to do that, but we certainly would be willing.

However, can I back up one step? You were saying that there's lots of research money available and there isn't much take-up, but—

Mr. Roy Cullen: Excuse me, but I said under the Income Tax Act, Canada has one of the most progressive R and D provisions of the industrialized world. That's a known fact. The take-up by the private sector is not as strong as we would all like it to be.

Mr. Jim Salmon: Again, in terms of wind energy, we can't sell our product in Canada, so no industry is going to develop when it can't sell its product. Until things change, until deregulation occurs, until all those barriers, all those essentially regulatory barriers, to saying nothing of economic and marketing and all the rest of it, disappear, we can't produce a product we can sell and then turn around and take the profits from to reinvest in research. That can't happen.

So there's a cycle there. That includes making some money to invest back into research. Until that cycle is completed, until it's allowed to complete itself, it can't happen.

Dr. Steven Harrison: Perhaps I could address that. I'm actually the chairman of the Natural Sciences and Engineering Research Council's strategic grants program on energy. We've just gone through a whole round of grant applications and awards in that area.

As it has been mentioned, I think, there's very much a chicken-and-egg scenario here. In the private sector, if the market doesn't appear there, and it isn't there because of the pricing of conventional energy, then the take-up is going to be slow. So on the private sector, that's going to hit quite hard.

On the government-sponsored research, through traditional channels like networks of centres of excellence, or the Natural Sciences and Engineering Research Council, there is some take-up. At least on my side, the academic community is involved, with some industry involvement. Recently there's been some interest in the utility sector.

The interesting thing I'm finding, which is quite terrifying for me, is that I feel the expertise that exists in the country right now is starting to become significantly diminished. This may be the result of a move to the south, to greener fields, but there really is a lack of expertise showing up. That worries me.

Mr. Roy Cullen: A brain drain?

Dr. Steven Harrison: Well, effectively. We had a very strong program in renewables in the 1970s and 1980s. Hundreds of millions of dollars a year were going into this. We were supporting leading-edge research and we were developing skills both at universities and in industry. Over the last decade, that has evaporated.

It's very interesting; on the research funding side, even though NRCan is allocating more money, they are very concerned about making a splash. Their REDI initiative, which is this $20-million-a-year initiative to seed funding of renewable programs, is going to result in a couple of hundred solar installations, which are very large government building installations. In reality, the question is, how big an impact is that going to have on the larger market?

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So there are concerns about programs like that. For active solar-thermal research at the federal level, it looks as if the budget this year is going to be slashed 50%. And I wonder how can the Canadian government go to Kyoto and say we're going to promote initiatives, and then at the same time slash a budget for R and D, which is supporting industry?

Mr. Roy Cullen: The point I was making is that there are already programs available through the provinces and federally. I'm sure we can provide you with the contacts in Industry Canada; you might as well be taking advantage of what's already there. There are very organized programs—centres of excellence—and it seems to me solar energy, wind energy and other renewable energy sources would be good candidates.

Mr. Jeff Passmore: If I could try to answer that, I think there's some resistance in the bureaucracy. There's a belief among not all but a number of bureaucrats, and Industry Canada is one area where they just don't believe in this technology. And secondly, at the risk of offending those of us who do R and D, we don't need a lot more R and D right now in Canada. We have an RD and D backlog. What we need to do is get currently proven technologies off the shelf. There's no point in doing R and D, R and D, R and D if there's no market pull. And what we need is market pull, which will then support not only public sector but private sector R and D to constantly upgrade the status of the competitiveness of your technology.

Mr. Ian Carter: On the other end of that process, I would like to make one point about the income tax credit regime, which I agree is very important—in fact, in particular in the province of Quebec. Quebec probably has the best regime currently to do R and D work, and part of the problem there is simply size. Having filed R and D tax credits, you claim some 40% of your invested costs, and it's a refundable tax credit. When you have a $5 million project, the probability of an audit, which is significant—Revenue Canada is committed to increasing it—the probability of an audit you can simply discount. Your incurred costs are only around $20,000 or $30,000 in going through the process. If the amount of your credit is only going to be about $60,000, but your probability of an audit is the same, you have a very different risk calculation.

In fact, Revenue Canada has admitted that they audit the smaller claims more frequently. So there is actually a deterrent point in there. And that's an administrative point.

Mr. Roy Cullen: It's worse in Ontario. I know some companies that live off these credits and do a lot of R and D.

Mr. Ian Carter: But with the direct grants we are currently doing several projects. We have two in progress on a commitment-to-repay basis from the proceeds. They're there, but CANMET's energy diversification research laboratory simply doesn't have the budget to pay for all of the agreements they would like to go into with us alone. And they can't dump their whole budget on our research agenda, by any means. So it's there, but it's not as big as you might be thinking.

The Chairman: Thank you, Mr. Cullen.

I'm going to allow myself a short question before we adjourn. One of the last expressions that Mr. Passmore used was market pull. Obviously, ultimately if it's going to be sustainable there has to be a market pull. I'll put it in simplistic terms.

There's a certain commonality, with a few exceptions, that electricity is the vehicle to convey. If it's wind energy, electricity is the vehicle to convey that energy; if it's photovoltaic, there's a grid you need to move that energy from one place to another. I'm no expert on deregulation, but assume for the moment that the electrical grid was equally accessible to all points of input, be they hydro plant or thermonuclear plant, or a wind turbine plant, etc., and the fees to access, say, a publicly owned or nationally administered grid were the same for everybody, would that be a start toward making all forms of energy have an equal chance of being sustainable? Is that where deregulation is going?

Steve, you're nodding your head there. Or Mike.

• 1250

Mr. Mike Noble: I can comment on that.

One of the questions going on right now with Ontario Hydro is access to the grid and so on. I think that will provide some incentive, but it's not going to be the only thing. All those technologies can feed into the grid, but the question is the sort of tariff in place. It depends on the tariff that you're paying. If you're paying a tariff on a per supplier basis, it really has to be based on the variable costs, on how many kilowatt-hours you're putting into the grid. The barrier to getting onto the grid couldn't be so high that you couldn't afford to hook up some solar panels and sell your access backwards through the system.

If you look at what's happening in California with deregulation, that's exactly where it's going. They are selling energy back into the grid, and that's not limited to technologies that produce electrons. There are projects under way to be able to sell energy like solar-thermal back into the grid through a credit. So there are things happening in other markets as well.

The Chairman: Maybe I misunderstood Jim when he mentioned that, except in Alberta, you just can't sell your wind energy. I assume that meant you couldn't put it back in the grid. Is that what you meant?

Mr. Jim Salmon: If I set up a wind plant in Kincardine, for example—and that would be a good place to do it—I have no mechanism by which to sell my electricity to what I think would be a large, premium green market in Toronto. I can't. I'm not allowed to by regulation. I can go to Ontario Hydro and I can ask if I can use its grid to sell electricity in Toronto, and I will be told that I can't. There has never been a precedent.

Mr. Mike Noble: They are moving that way.

Mr. Jim Salmon: They're being forced to move that way, but they will go kicking and screaming.

To answer your question, I think it will be a start, but I think it's only a start if it's combined with a package of education and other forms of market pull. A tax credit would be an excellent way to do it, but it may not be a necessary way to do it.

In Europe people buy green electricity because, in a sense, the cost isn't that different from buying brown electricity. If they have a choice, they buy green.

The Chairman: It's a better colour, too.

Mr. Jeff Passmore: If the federal government could put a line item on people's personal income tax return to give them a tax credit for consumption of green energy, that would be an incredible signal from the federal government. When they did their annual income tax return, every Canadian would say, “Oh, my God, there's a place here where I could have gotten a tax credit if only I'd used it. I didn't know that if I bought a solar water heater I could get a tax credit. I didn't know that if I bought green kilowatt-hours from a wind farm I could get a tax credit.”

Mr. Jim Salmon: I think it's not only the money saved—that's always an incentive, of course—it's the signal it sends as well, and that signal is a very strong one. It's a signal that says we believe in this to the extent that we're putting money behind it.

The Chairman: On behalf of the committee, thank you very much. It was important to get all of these points on the record. I know we'll be speaking to all of you as we continue this study and, maybe in a more specific way, the greenhouse gas study.

I'll adjourn the meeting until tomorrow at 3.30 p.m., when we're scheduled to have our business meeting. Thank you.