Good morning, everyone. We have quorum.
Welcome to meeting number 12 of the Legislative Committee on Bill .
We have three witnesses today. Mr. Michael Cleland, president and chief executive officer of the Canadian Gas Association, will lead off. He will be followed by Mr. Matthew Bramley, director for climate change, for the Pembina Institute. Finally, we have Gordon Lambert, vice-president for sustainable development of Suncor Energy Inc.
I would point out to committee members that we have the procedure and House affairs committee meeting right after us at 11. We want to move along fairly quickly, since they are the whips and House leaders. We don't want to make our bosses angry.
So we'll move along fairly quickly. As a reminder for the witnesses, we'll be giving you each about 10 minutes—preferably 10 or less—to make some opening remarks and then we'll be putting it around to the members of the committee to ask questions.
I would give a reminder to all that this is about Bill . We know people have a lot of things to say, but we'll try to keep it focused as much as we can on Bill C-30 and ways that we can make it better.
Without further ado, I would ask Mr. Michael Cleland, president and chief executive officer of the Canadian Gas Association, to make some opening remarks.
Mr. Cleland, the floor is yours.
Thank you, Mr. Chairman. I will endeavour to respect your time limitations.
Thank you and the committee for the opportunity to appear here with some comments on Bill .
Just very briefly, the Canadian Gas Association is the association that speaks on behalf of the downstream end of Canada's natural gas system, the delivery end. In essence, we deliver natural gas to almost six million Canadian customers, businesses and residents alike, from coast to coast in Canada.
Today I will indeed focus mainly on Bill C-30, but I wanted to start by saying a couple of things about how natural gas fits into the system, about our record on GHG management, and then about Bill C-30. Then I will give a couple of other perspectives on the other part of the debate, which really doesn't come up very much when we talk about industrial emissions.
Just on natural gas, the numbers are in the documents we've left you. I won't go through those, except to say that natural gas accounts for a little over one quarter of the energy used by Canadians, and it's growing. It's growing particularly in power generation—particularly in distributed generation applications—and it has potential for growth in transportation, albeit from a very small base.
The reason for that is pretty straightforward. Natural gas, for a variety of reasons, is a very preferred form of energy. It's flexible; it's clean; it's reliable; it's in abundant supply; and it can make important contributions to both our air quality objectives and our climate change objectives. Natural gas should be an important part of Canada's strategy for dealing with climate change.
In terms of my industry's record on greenhouse gases, we're a relatively small contributor in a direct sense—from the industry. But we are part of the process; we would be part of any regulatory process or system that is put in place. We have in fact made some progress in the reduction of our GHGs: from 2000, about 6%, and actually a little bit less than that from 1990.
Let me turn to Bill C-30. First of all, on target setting in general, CGA strongly supports the idea of a framework that has short-, medium-, and long-term objectives for targets. We think that sets the kind of long view that's essential, as well as the short view needed to get us moving. But should it go further? Should it include actual detailed targets in the legislation? I would argue that there are some important reasons for not doing that.
With respect to Kyoto per se, we've said before parliamentary committees, and I'll say again, that there is no physical way of achieving Kyoto, and we would argue that building Kyoto targets into Bill C-30 is indeed to set it up for failure when Canadians are asking us to focus on possibilities for success.
I would argue as well that in any event legislation is not the place for this type of detail. Legislation should set the framework, and the authorities to regulate and the detail should be incorporated in regulations. More detail at this stage means a less stable framework as we look forward.
Moving on to the natural gas distribution sector and the targets we might set, I won't go into the details except to say that we have done a lot of work with Environment Canada. We have the data in hand. We are in fact well on the way to understanding how we could comply with any reasonable regulatory framework, and we therefore urge you to get on with passing Bill C-30 and the government to get on with getting that framework in place.
I want to comment on the issue of intensity-based reductions. I know it's controversial. Our point is simply that an intensity-based system allows you to focus on what you can control, not what you can't control, and is simply a management system. An intensity-based system, depending on how big the numerator and the denominator are, can ultimately produce absolute reductions. We should try I think to get past that debate and focus on putting a practical management framework in place.
With respect to air contaminants—I know this hasn't been the main focus, but it is part of Bill C-30 and it's important—we think we need to be moving there as well. But we're not in a position, and I don't think most industries are in a position, to move as quickly, because we haven't done the homework. We've been doing a lot of homework on greenhouse gases; we need to do a lot more on air emissions.
In any event, air contaminants and local air pollution are more complex issues in some respects. Therefore, we would argue that it is entirely appropriate to include both air contaminants and GHGs in the same legislative framework, but they probably need to move on somewhat different tracks in a regulatory sense.
In the meantime, we are getting on with it. We have hired a third party to do an inventory of air contaminants from our industry, and we expect to be in a position to move on that front reasonably quickly.
There are two points on compliance options that I want to emphasize. I know they are being debated at this table. We would argue that there should be a menu of compliance options, and two in particular that we think are important.
First, within a domestic offset system, we should allow for offsets related to utility demand-side management programs—something that we and the electrical industry both do. Since 2000, gas utility efforts have reduced natural gas use by something over 700 million cubic feet. That's the equivalent of about 250,000 households' heat and hot water. We can do more on that with the right incentives. We think one of the incentives that would help us do more would be to allow demand-side management offsets as one of the suite of compliance options.
Another part of the compliance options that we would argue in favour of is a technology investment fund. This is something that can allow us to invest in the future. It can be structured in a way to give some upside cost protection to industry. I would only add that it's important that such a fund be able to invest in a variety of technologies, including, we would argue, downstream-related technologies.
I won't spend a lot of time talking about compliance assessment, monitoring, and reporting, except to say that as you think about , think about ways of making that more efficient, as well as effective and transparent. There are a number of measures, in our submission, that would allow you to do that.
Finally, on equivalency agreements, CGA supports that as a mechanism that allows you to avoid overlap and duplication if the provinces want to step up.
One last thing is that there is a specific issue in , as structured, that in effect would require reporting every time somebody turns on their furnace. The release of a greenhouse gas, including CO2, would need to be reported under the way it's worded at present. I don't think that's the intent. It's a minor thing, but it's probably something about which something should be done.
Mr. Chairman, wrapping up, let me just say that the other side of the equation, the non-industrial side, is that about half the energy we use in Canada is used in our communities. We have to come at that differently. It doesn't work in a regulatory framework. There are other things we can do and do more of. One of them is to significantly accelerate our energy efficiency and conservation efforts to take a more systematic approach, building on the good work that has been done over the past decade. We need to do more, though.
Building on that, we should include fuel switching as part of energy efficiency and conservation efforts. To put that in perspective, by using natural gas in a direct-burn application, as opposed to using electricity, you can get about a 50% increase in efficiency over the most efficient stand-alone electrical generation option. Notwithstanding the size of that prize and the opportunities it affords, a lot of energy efficiency programs across Canada, including in the federal government, don't treat fuel switching as a legitimate mechanism. We think it should be treated as such.
Finally, there's technology development. We strongly urge that we make sure we have the programs in place to support new technologies downstream as well as upstream. Downstream includes small-scale fuel cells, on-site renewables, combined heat and power, and making best use of the gas and electricity grids as they exist in our communities today. We can make a lot of progress in the next five years by doing a demonstration of those sorts of technologies.
Mr. Chairman, I'm over time, so I'm going to leave it at that and pass it back over to you.
Thank you very much for your invitation to appear before you today.
Today I'm representing both the Pembina Institute and the Climate Action Network of Canada. I'd like to elaborate today on one of the recommendations contained in the package of proposed amendments to that was submitted by some 23 Canadian environmental organizations.
The recommendation is that the bill require that regulations provide for, one, a fixed cap on absolute emissions that extends the Kyoto-level target to heavy industry for the 2008-2012 period; and two, an allowance trading system to facilitate efficient allocation of emissions reductions. This is an extremely important recommendation for us because heavy industry accounts for almost half of Canada's greenhouse gas emissions and because those emissions have been increasing more rapidly than the national total.
I prepared a seven-page technical document that describes how this recommendation could be implemented. It's entitled “Fair Share, Green Share: A proposal for regulating greenhouse gases from Canadian industry”. Unfortunately, we were not able to prepare a French version in time for this morning, but we'll make one available in the next day or two. Meanwhile, the English version is available now on the Pembina Institute website and on request.
There's a strong consensus in Canada that greenhouse gas emissions from industrial facilities must be regulated, but a critical question remains. That question is how stringent regulated targets should be, and how quickly they should be applied. The government has indicated that targets should not actually reduce emissions below current levels until the 2020-2025 period, and that targets should not apply until the end of 2010. We believe this falls very far short of what is needed.
I'd like to emphasize four key points of context for answering this question of how stringent targets should be and how quickly they should be applied. First, not only does heavy industry account for almost half of Canada's emissions, but the two biggest contributors—electricity generation and upstream oil and gas—have increased their emissions by 35% and 58% respectively between 1990 and 2004, significantly more than the increase in emissions from individual Canadians. Clearly the situation is not acceptable.
Secondly, meeting Canada's Kyoto target is a legal obligation. This obligation has been a part of international law for two years, and we believe the time when we could have a debate about the target as a take it or leave it option has long since passed. The government must focus on meeting our legal obligations, not call them into question. Canadians want their country to be law-abiding.
Third, the overwhelming consensus of climate scientists is that cutting greenhouse gas emissions is not just essential but urgent. To play an adequate role in preventing dangerous climate change, Canada needs to reduce its emissions to 80% below the 1990 level by 2050, as other jurisdictions are now committing to do. To meet this target, Canada's emissions must fall to around 25% below the 1990 level by 2020.
Fourth, the Kyoto Protocol provides mechanisms for taking immediate responsibility for our emissions by investing in emission reductions in poorer countries while we begin the work of implementing deep emissions cuts at home. I'd like to make it as clear as I possibly can that this has absolutely nothing to do with so-called hot air credits from Russia. Instead, I'm talking about the Kyoto Protocol's clean development mechanism, under which billions of dollars in investments are being made right now in specific emission reduction projects that have to go through a rigorous transparent process to show that the reductions are genuine.
Because greenhouse gas is spread all around the world, emission reductions are equally valuable in preventing dangerous climate change in Canada wherever in the world those reductions take place. Our proposal, then, is to set, for the 2008-2012 Kyoto compliance period, Kyoto-level absolute emission targets at 6% below the 1990 emissions level for each of the electricity generation, upstream oil and gas, and energy-consuming sectors. These targets could be met by combining on-site emission reductions with domestic or international Kyoto-compliant emission reduction credits generated from projects that generate demonstrable reductions beyond business as usual.
We also propose a compliance option of payments at $30 a tonne of carbon dioxide equivalent, to an independently administered greenhouse gas reduction trust that would be mandated to reinvest all revenues in domestic offset credits from projects located such that revenues stay in their province of origin.
For the post-2012 period we'd like to see an announcement by government of an intention to gradually tighten targets to reach the vicinity of 25% below the 1990 emissions level by 2020; to limit purchases of international credits as needed such that the market price for domestic credits is at least $30 a tonne of CO2 equivalent, rising to at least $50 a tonne by 2020; and to auction a steadily increasing proportion of allowances.
This proposal has been designed to meet six key objectives. The most important of these is environmental fairness. The proposal meets this objective by requiring heavy industry as a whole to contribute to achieving Canada's Kyoto obligations in proportion to its share of emissions. Heavy industry accounts for close to half of Canada's emissions and would contribute close to half the reductions needed to meet the target.
The proposal ensures environmental fairness by requiring the most emission reductions relative to business-as-usual levels from the sectors contributing most to emissions growth post-1990, which is the internationally accepted base year for emission reduction commitments.
The proposal also meets the critical objective of economic feasibility, because it distinguishes sectors according to their ability to pay. I'd like to take a moment to justify that statement.
The proposed targets represent reductions in emissions relative to a business-as-usual projection of approximately 11% for the energy-consuming sectors, 36% for electricity generation, and 46% for upstream oil and gas. I'll discuss each of these in turn.
The target for the energy-consuming industries is obviously modest. The proposed emission reduction of 11% relative to business as usual is close to the 12% reduction proposed by the previous government that was broadly accepted by industry. These industries could face difficulty in taking on a more stringent target as they are relatively mobile and exposed to international competition.
The electricity generation sector can manage a more stringent target because the need to generate electricity relatively close to the consumer means the sector has little vulnerability to international competition, and in addition, electricity prices in Canada are often regulated. Costs should be reduced by widespread government support for electricity conservation, low-impact renewable energy, and cogeneration, helping reduce the quantity of emission reductions that electricity producers would have to pay for themselves.
Assuming that such government support existed and that coal phase-out in Ontario proceeded rapidly, the cost to the remaining coal-fired generators would be between about 0.6¢ and 1.3¢ per kilowatt hour. This could be compared to an average residential price of electricity in Canada of nearly 9¢ per kilowatt hour in 2004.
The upstream oil and gas sector also has relatively little vulnerability to international competition because its profit margins are large and because resources such as oil sands cannot be moved to a different country. Even though the proposed emission reduction of 46% relative to business as usual may seem large, it is similar to the 50% reduction that Shell Canada has voluntarily committed to achieve by 2010 for its first oil sands operation.
We calculate the cost to an oil sands producer would be only between about 58¢ and $1.16 per barrel in U.S. dollars. This is a small amount compared to recent variations in crude oil prices.
The calculations of the costs I've just outlined are very straightforward, and I'd be happy to explain them during questions.
I'd like to add that our proposal also meets four other important objectives. It provides environmental integrity by setting targets in terms of actual emissions, not emissions intensity, and ensuring that all options for compliance represent real, near-term emission reductions.
It provides for urgent domestic action by signalling an emissions price of $30 a tonne, designed to stimulate large-scale development of low-emission technologies such as carbon capture and sequestration.
The proposal provides for geographic balance via the guaranteed $30-a-tonne domestic compliance option that would provide an alternative to investing in international projects.
Last but not least, it provides for certainty: price certainty for industry, by initially limiting the cost of emission reductions to $30 a tonne; quantity certainty in the form of a clear outcome for actual emissions levels; and broader regulatory certainty by including indicative information about targets and prices out to 2020 and by adopting a design that will be robust for the long term.
I'd also like to note that although the proposal is applied on a sectoral basis, it would not be very different if it were applied on a territorial basis because of the way the three key sectors are distributed regionally.
In conclusion, requiring that industry assume a fair share of responsibility for cutting greenhouse gas pollution will not only get us nearly halfway to Canada's Kyoto target, it will also put Canada on track to have the world's cleanest oil and gas production, a 21st century electricity system, and eco-efficient manufacturing. We believe this is the vision we need to be aiming for.
Thank you, Mr. Chair, and thank you, members of the committee, for this opportunity to present some perspectives of Suncor Energy on the issues of climate change, clean air, and our energy future.
I would like to begin by suggesting that we have a need to reframe the dialogue on the issue of climate change. I think over the last decade one of the key reasons that we've not been able to make the progress that's required on this difficult issue is that it's been a discussion centred on equitable allocation of pain. That's pain between provinces, between sectors of industry, and within Canadian society. Of course, we all know equity is in the eyes of the beholder, and that's a negotiation that we feel is doomed to fail.
We think the more powerful platform to discuss these issues from is to focus on opportunities. Those are opportunities to develop new forms of renewable energy, biofuels, new technologies like CO2 capture and sequestration, and energy efficiency improvements in how we use energy across our economy. We also believe an opportunity mindset relates to the setting of mid-term and long-term emission goals and also goals related to technology advancement and development as a key enabler towards energy and environmental sustainability.
I would highlight in this regard the recent work by the National Round Table on the Environment and the Economy that looked at what Canada's energy future might look like by 2050. We believe this is a compelling piece of work that needs to be carefully studied as a platform for climate change policy looking forward. However, to create that energy future that's more climate friendly and also contributes to clean air is going to require engagement of capital markets. Private sector capital is the only vehicle that's going to allow for the significant transformational change that's going to be required.
We also believe that sustainable development is the right context for approaching these difficult issues. The notion that a strong economy, a healthy environment, and social well-being are interdependent, we believe, still sets the platform for creative solutions as we look at difficult issues. These aspirations are interdependent and they compel us to think more broadly and creatively about the solutions as we look ahead.
In addition, I'd like to focus on some foundational assumptions for sustainable solutions. First and foremost in Canada is that we have had a legacy of abundant and cheap energy that has shaped Canada in a fundamental way. This is the reason Canada is not like Europe in terms of our vehicle fleet, our urban density, the size of our homes, and mass transit. We accept that as Canadians and as a global community we cannot continue to produce and use energy in the same way we have done in the past. This is at the heart of our urban air quality issues, climate change, and even quality of life concerns as we continue to expand our urban footprints.
In saying that, we also need to recognize that we are all part of the problem and we all need to be part of the solution. When we look at the issues of climate change and urban air quality, it's not just bad guys and good guys. It's not simply a case of industry being the problem and consumers being viewed as separate from it. You can't separate the supply of energy from the demand for energy by each of us as consumers. Industry, including the oil and gas industry, should be viewed as an essential part of the solution. Where else in society do you find the depth of technical, business, and commercial expertise, and, most importantly, the access to investors than in industry? We're prepared to be a positive part of that solution.
In order to make the progress we need to make, we have to engage capital markets and private sector investment. There is no amount of government money that's ever going to fund the transformational change that's required towards real sustainable solutions over the long term. As we reflect on the target-setting discussions that this committee is deliberating on, I think the real concern we have is targets that would erode investor confidence and that would be unintended consequences. That would be unacceptable I think for all of us.
Now I would like to cite a positive example of what engaging capital markets can look like. I would use wind power as the example.
In the year 2000, Canada was the lowest of any of the OECD countries in installed wind power capacity. Governments, collectively, declared the intent that wind power should be part of Canada's energy mix. There was an in-depth analysis by environment NGOs, industry, and government together to analyze why capital was not flowing to wind development in comparison to other countries. The wind power production incentive program and the recently announced eco-energy renewable incentives program were established, and they have contributed to substantial growth in this sector. Rather than provinces avoiding an equitable allocation of paying, they're actually competing for investment of wind power.
Suncor, with its partners, has now invested $306 million in 147 megawatts of new capacity. This was not done to comply with an obligation; it was done because the signals were put in place that attracted capital to this segment of the energy sector.
An additional example of positive engagement is the recent dialogue on biofuels. Ethanol development was declared as a common objective of provincial and federal governments. Investors have been consulted on required policies and measures. There was a combination of carrots and sticks put in place, including financial incentives, excise tax treatment, and renewable fuel standards.
In response to this direction, Suncor has now invested $120 million in a world-scale ethanol plant in Sarnia, Ontario. We're looking to double the capacity of that plant in the near future. We're also testing biodiesel with the Toronto Transit Commission in 1,400 buses.
We have more capital expenditures and projects planned across Canada. I would suggest other segments of industry are looking at biofuels in a similar way, as a growth opportunity, and an exciting one at that.
As we pursue change through development of this act, I think it's also important to keep the end in mind. In that regard, we think the National Round Table on the Economy and Environment's greenhouse gas reduction study shows where some of these key opportunity areas are. They include: carbon capture, energy intensity improvement of industry, biofuels and alternate fuels, renewable electricity, and many forms of energy conservation.
We believe that in order to move that vision forward, we need to engage expertise that would focus on each of those individual wedges to carefully assess what policies and measures could be put in place that would attract the capital to make that happen.
In addition, we believe target setting should take the form of outcomes for each of the wedges that have been put forward. As with wind power, where we talk about megawatts of installed capacity by certain points in time, we believe that same approach to target setting could be taken in other areas. The CO2 benefits of that would then be calculated as part of our progress towards Kyoto compliance.
Where do we go from here? In summary, we think we should use the Clean Air Act as an instrument to regulate very defined and targeted industrial energy efficiency and performance outcomes. Our industry sees the requirement for regulated internal energy efficiency targets, but those should be focused on bending the curve initially, as opposed to a hard cap. We believe we should initiate focused expert panels on the other key opportunity wedges as outlined by the national round table study. These could include areas such as CO2 capture and sequestration and mobilizing investor capital to make those opportunities happen.
Explore the full range of policy approaches: incentives, fiscal, regulatory.
Let's work to formalize a vision for Canada's energy future that ensures future generations have a healthy environment, a strong economy, and quality of life.
Thank you to the witnesses for being here today.
I appreciate the testimony that has already been provided. What we've done with is broken it up into topics, and the topic today is the focus on large industry, oil and gas. That's what I want to focus my questioning on.
I find it interesting that we're focusing on the 50% of large industry—oil and gas—and there have been comments made on the other 50%, which is us as consumers. As consumers in Canada, in the world, we are fueling this hunger, this thirst for this energy. That's what's fueling the expansion. China has a huge hunger for all this energy.
We're a good country to put an investment in. We have a peaceful country. It's a good place to invest. I think that's why we see the investment coming to Canada, why the United States is looking at Canada, why the world is looking at Canada. I believe we are number two in the world, second to Saudi Arabia, in terms of natural resources for that good, clean energy.
But they are connected. And I think, Mr. Lambert, you alluded to that. You said we all need to do our part. So as a consumer I am trying to reduce the amount of energy I use. Each of us, I'm sure, has that responsibility to try to reduce.
But we're focusing today on how large industry, oil and gas, can actually reduce. I think what Mr. Bramley is saying is make large industry reduce the amount now. Don't let it gradually go in that direction; make them do it now. I don't want to put words in his mouth. He can clarify that in a moment.
There is an urgency. We've heard that. Climate change is happening, so we have to change. We've seen the charts. We've seen the graphs where emissions have gone up, climate change is happening, and we need to meet this target down here.
Capture, sequestration, I think, is where we're hoping your industry will go. You've made comments about that, that you want an incentive. You want a carrot and a stick. In the past we've used voluntary; we've used MOUs; we've said all sectors of industry will be part of reducing greenhouse gas emissions. But you've put a warning out there that we have to be careful that it's not just a stick, that it is a carrot.
You've also said that it will take time to build the infrastructure. You've studied. I've gone up to Fort McMurray. I saw the oil sands. I've read the material from Pembina. They've been very involved with this.
Our plan is to present regulations. We have notice of intent to regulate. The short term will be intensity-based and the mid term and long term will be real caps. That's the plan. Those short-term targets will be announced shortly. Are you concerned that that is too big a stick? I hope not.
Mr. Bramley, maybe you can comment too. Are we on the right track with , or do you feel it's too regulatory?
Thank you, Mr. Chair, and thank you very much to the witnesses.
I'd like to go right to the question that I think is probably on the minds mostly of the oil and gas and energy sectors in this country: how much is it going to cost to comply?
I'd like to go back to two questions I put to our Minister of the Environment in this committee maybe 10 days ago. I asked the minister directly whether he had any idea of what the size of the international carbon market would be, and he could not answer or would not answer. Then I asked him directly whether we'd be participating in an international carbon market. His answer was that we're not looking at participating in an international market. I asked him to repeat that for the record, and he said we're not interested in participating in carbon markets overseas.
Today we learned that on December 21, the president of the Toronto Stock Exchange sent a letter to the minister and the Prime Minister advising both that the cost of compliance for Canadian companies would be excessively high if we were to have a mere domestic market. The document goes on to say that Canadian companies would be disadvantaged with a domestic market only, because the cost for each tonne of greenhouse gas would be excessively high, especially because of the small size of the Canadian market.
Similar remarks have been made by Clive Mather, the president and CEO of Shell Canada, who is asking Canada to remain a signatory and a full participant in Kyoto and to participate in the international carbon market it's creating.
Now can we hear from all three witnesses about the effect if Canadian oil and gas companies, energy companies, cannot participate in the burgeoning European market and the start-up markets in roughly 18 or 20 American states? And do you believe that it is intelligent for this country to shut down our eventual and potential participation in international carbon markets when we know that the cost of compliance for the energy sector in this country is going to be higher, whereas in countries that are signed on and are participating—including, potentially, the United States—their companies are going to benefit from lower costs in terms of compliance? Is that an intelligent thing for us to do at this stage, given what we know about the burgeoning international carbon markets?