Thank you very much, Mr. Chair.
Thank you very much, everyone, for the invitation to appear.
My name is Lisa DeMarco.
I am the senior partner of DeMarco Allan. What I'd like to do today is cover four main things with you. First let me tell you a bit about where our perspective comes from, a little bit about DeMarco Allan. Secondly I'd like to contextualize our comments today, look at interties in the context of the indigenous, the trade, and the climate context, and within that context, highlight what in my view are the real problems that the Canadian energy strategy and the pan-Canadian framework are trying to solve.
Finally, I will put forward some thoughts for your consideration on a path forward, a path forward that leverages on co-operative federalism, indigenous partnerships, and strategic trade.
I'll note that in the future you will have a copy of the presentation that we're working from, which includes a map that we've taken some time to develop. It outlines all of the interties in the country, and it juxtaposes the emissions in each jurisdiction. It does so by giving relative sizes of dots. In that context, we have overarching NAFTA negotiations that are now ongoing, and we have a host of indigenous considerations and partnerships that are working their way out and leveraging on the Truth and Reconciliation Commission and the developments with indigenous peoples of Canada.
In general, as the world transitions to a lower-carbon economy, we want to see electricity move from areas of tiny dots, low-emissions jurisdictions, to jurisdictions of big dots, high-emitting jurisdictions. Canada has a wealth of tiny dots. It's my strong view that in particular we should capitalize on the wealth of clean energy resources that we have.
Where is that view developed? What is the perspective that we're bringing to bear?
DeMarco Allan LLP is Canada's first clean energy and climate boutique law firm. I made the decision to literally throw all my eggs in the confidence of this committee, this table, and leave a global leadership position in a global law firm practising energy and climate law to start up a boutique firm. We've grown from three partners to 10 in the course of the last three years. We provide services to oil and gas companies, environmental groups, first nations, electricity companies, governments domestically and around the world, and we've been actively involved in the United Nations negotiations for a period of almost 20 years.
Our perspective is intensely Canadian but internationally informed, so it's from that perspective that I'm of the strong view that we are sitting on a wealth of clean energy resources. In particular, we have the opportunity to be an extraordinary clean electricity exporter. We can do that not simply through exporting the commodities but also by exporting services: clean energy know-how; fantastic engineering services; world-leading expertise on carbon capture and storage, in the nuclear area, in renewables; and last but certainly not least, world-leading expertise in electricity storage, effectively the holy grail that we've all been trying for.
You'll see once you have the associated map in front of you that there is considerable opportunity for all of the low-emitting jurisdictions within Canada to export south, and particularly in the central Canada region, for exports between lower-emitting jurisdictions in B.C., Manitoba, Ontario, and Quebec inward to Alberta and Saskatchewan to facilitate a transition to a lower-carbon economy in an efficient manner that does not effectively strand economic assets. Many of my comments really look at what the key problems are. How do we get to that end goal through the Canadian energy strategy, through the pan-Canadian framework, and solve for what I believe are four key problems?
The first challenge that we're facing is facilitating an economic transition to a low-carbon economy via the electricity system. A 30% reduction by 2030 is not a simple goal. We will need to facilitate electrification and fuel optimization in transportation, which constitutes 24% of our emissions profile; in buildings, which constitute 12% of the country's emissions profile; and in oil and gas, which constitute 26% of our emissions profile. Specifically, much of the oil and gas sector is powered through higher-emitting electricity and has the opportunity to move to a lower-emission source.
The second problem or challenge that we're trying to solve is with regard to optimization and innovation in the Canadian energy system. It's my strong view that efficiency is lost in fuelism. Instead of solving for how much of what type of fuel should produce what type of electricity, we should be solving for carbon. Let the system, the system operators, and the companies bring to bear their wealth of knowledge to solve for a carbon target.
Third—this is a big one that's near and dear to my heart—we are blessed with extraordinary zero-emissions power in this country, so much so that we waste a massive amount of clean, green, cheap electrons. Out-of-date electricity market rules, a lack of energy storage, and trade dynamics resulted in 4.7 terawatt hours, not gigawatt hours, of spillage of the cleanest, greenest, hydro power and a total of 7.6 terawatt hours of zero-emissions power in Ontario alone in 2016. Just to put that in context, that's about equivalent to a 1,100-megawatt power plant operating at 80% efficiency being wasted. We have to solve this problem.
Last, but certainly not least, we have to solve the problem of indigenous energy poverty. Reliability in certain indigenous communities was 2,081% worse than for their southern neighbours, and 400% worse than similarly situated northern neighbours. This is a problem.
Where do we go? What's the path forward? We have six recommendations for you.
The first is that Canadian clean energy and energy services should be a dominant Canadian export. The second is that enhanced intertie capability in jurisdictions with large GHG intensity disparity and economically efficient export opportunities are part of the solution, but not the whole solution.
Innovation in the form of energy storage, carbon capture and storage, very small modular nuclear reactors, enhanced trade, indigenous partnerships, and measures to minimize electron waste are also integral. Consider whether it would be appropriate to have a provincially led, federally supported, industry staffed committee to work through in a co-operative federalist manner how to maximize clean energy exports.
Consider also how you can use article 6.2 of the Paris agreement on climate change to maximize opportunity, and finally, respect the constitutional division of powers in a way that enhances the benefits of regional diversity and does not emphasize the challenges in an east-west manner.
Those are my comments. Thank you.
Thank you very much for inviting me to be here today.
As the head of the largest energy and environment public affairs practice in Canada, I am proud to lead a team that has had a lengthy history of representing and advising energy stakeholders on the intricacies of electricity system planning, policy, regulation, and procurement. Having entered the consulting area during the period of electricity market opening and deregulation across North America in the late 1990s, I have seen a myriad of policies and imperatives that affect the shape and scope of electricity markets, particularly in my home province of Ontario.
From the initial thrust to encourage private sector investment in a system that had become overwhelmed by aging assets and questionable reliability, to the transition of coal-fired generation to natural gas and renewables starting in the 2000s, to the emergence of expanded conservation and demand management, embedded generation at the distribution level, new technologies, products, and services have been emerging at an incredible pace, challenging conventional notions of how we supply and we use electricity.
Many of the witnesses who have appeared before this committee on various facets have spoken on regional differences in our electricity markets. They've also noted the importance of carbon policies and how moving to cleaner and lower-emitting forms of power is of increasing importance on both sides of the border.
Notwithstanding the recent proposed repeal of the clean power plan by the Environmental Protection Agency in the United States, I believe that economic rationalism, securing the lowest marginal resources to maintain electricity reliability across markets and jurisdictions, and doing so through low and non-emitting resources, is completely possible, if not probable.
The topic for today is the strategic role that interties can play in that process. No doubt can be given on the various attributes of an integrated Canadian electricity market from east to west or, perhaps more appropriately, from Ontario east and from Manitoba west. Some have noted the importance of seeking new markets in the United States, and the historical and continued importance of resources in Quebec and Atlantic Canada serving the eastern seaboard.
I will focus my comments on the future of the Ontario electricity market and how system planning and policy value related to interties will increase in the future.
Two dynamics are arising that will support additional intertie usage and development in the future. First, there is a need for greater flexibility to maintain reliability while securing new capacity and regulation services that support added variable and embedded generation in the province. Second, there is a value in utilizing interties to help secure new, low-cost energy supply when needs arise in the coming decade.
As reinforced in the Ontario Independent Electricity System Operator's, May 2017, Ontario-Quebec interconnection capability technical review, on an hourly basis, Ontario's wholesale electricity market economically schedules energy transactions to and from Ontario via the interties, providing an important balancing function that helps address the peaks and valleys of electricity demand, and ultimately, lowers costs to consumers.
Electricity trade provides valuable operational flexibility that helps the IESO manage increased variability as more wind and solar resources are integrated into the system, as more generation is connected at the distribution level affecting demand for grid-supplied energy, and as consumption patterns become less predictable.
Ontario continues to witness significant growth in these types of resources. Reliability in the Ontario market today is strong due to a continued build-out of conventional, utility-scale, and distribution-enabled resources across the province. Regulatory and policy areas have adjusted to support the growth of these resources over time. However, as we add these types of resources into the Ontario supply mix, and as residential and consumer businesses are looking to self-generation through mechanisms such as net metering and cleaner forms of supply, enhanced resilience in the market will be required to support future needs.
Intertie transactions can be beneficial, as they can measurably improve the reliable, cost-effective operation of Ontario's power system. According to the IESO, interconnected electricity markets provide a significant opportunity to officially utilize the energy generated from a diverse range of resources over a much greater geographic area, thereby lowering the cost of producing and managing electricity for all parties. Interties with neighbouring jurisdictions expand the options available to meet system needs, and Ontario's interties have, according to the IESO, provided both reliability and economic benefits to the province for over a century.
The need for new resources in Ontario for the coming years is clear, and we expect that this will be outlined in the anticipated release of the long-term energy plan. As we can see from the IESO's 2016 Ontario planning outlook, under all scenarios the need for new supply resources will arise in the early 2020s, particularly to maintain reliability following the decommissioning of the Pickering nuclear generating station.
Interties can provide a beneficial option to system planners in securing new resources. This was underscored in the recent approval by the National Energy Board of the Lake Erie connector, a merchant HVDC intertie proposed to connect Ontario to the PJM market via an underwater cable.
As was stated by the NEB, “the NEB...determined that the project would provide benefits to Indigenous, local, regional, and provincial economies, allow greater flexibility for two large energy markets to meet changing energy needs, and increase market efficiency for Ontario and its rate payers.”
To conclude, as more and more jurisdictions set carbon policies and emission regulations that dictate the supply mix and emission profiles of the electricity sector, understanding and tracking the attributes of electricity generation is a developing and evolving need for electricity system operators and policy-makers.
Numerous jurisdictions have implemented some form of tracking system that collects and tracks generation attribute data. The key elements provided by these tracking systems vary across jurisdictions but generally include tracking emissions attributes for every megawatt hour generated, calculating average and residual emission rates, tagging emissions attributes from power source to sink, tracking interjurisdictional power transactions and inter-registry imports and exports, supporting carbon allowance adjustments for voluntary markets, and making public reports to provide transparency.
Ultimately the goal of these tracking systems is to avoid the double-counting of attributes or emissions savings tagged to specific imports and exports. Today, robust registry and tracking systems exist in PJM, NE Power Pool, and the New York ISO, while Michigan has a renewable energy certification system in place. We believe that Ontario will also develop such a protocol as a matter of course.
I hope this provides some additional usefulness to the committee in its deliberations, and I look forward to your questions.
As the youngest of nine children, I often say the power to convene—who holds the wooden spoon—is very, very powerful. To the extent that the federal government can facilitate the convening of provincial entities and provincial entities can facilitate the industry expertise being at the table, it will be extraordinarily powerful.
I understand that a number of those initiatives are already under way, but the one that's top of mind for me is in relation to the NAFTA negotiations, particularly in relation to NAFTA chapter 6, article 605, which is up for considerable debate. This appears to be a bit of a sleeper issue right now, but in my view, it has very extraordinary potential impacts. If we can leverage an existing process that relies on co-operative federalism to be successfully achieved, that's one way.
As well, just last week we started additional dialogue regarding the energy generation process and really getting people through each and every forum around the table to be talking constructively, and not destructively, about how the country can co-operate and really enhance the benefits of diversity. That's certainly one aspect.
The second point would be in relation to the Paris negotiations. We've been sleeping on the negotiating floor for the last 20 years, helping out with a number of governments as they have transitioned to trying to get what happened in Paris to happen. Certainly, as Canada has taken the lead on the markets provisions of the Paris agreement, specifically article 6.2, and given that the U.S. has withdrawn from Paris, there is opportunity. There is considerable opportunity for Canada to leverage the emission-reducing effect of its clean electricity exports to a soon-to-be non-Paris member, and we should be negotiating that accounting and those provisions into any agreements with the U.S.
Those would be two top-of-mind concerns.
That's an expansive question, and I thank you for that.
It goes back to some of my remarks about when the current provincial government came into office in 2003, I believe. I recall, at that time, the province was in a deficiency situation. There was talk about putting in diesel gensets in the Toronto harbour to deal with reliability issues to the grid.
We were in a very different place. Over the last many years we have transitioned, largely, the electricity system, both from a generation standpoint, from a wires standpoint, as well as at the load from a conservation standpoint to, in effect, modernize the system quite a bit. That's certainly come at a cost, and I know the province has addressed that, even as recently as within the last 12 months.
Those are trends that are being replicated in many other jurisdictions. To Lisa's point, in Canada, we have the benefit of having a very robust and relatively clean electricity system. In the United States, it's not so much the case. Quite often when the Ontario market is compared, we are compared to American markets and Canadian markets, but a lot of those markets still have aging infrastructure. They haven't modernized their generation fleet, and we're starting to see a bit of churn happening in some of those markets. They are going through many of the same types of undulations that we've seen in Ontario.
The one Canadian example that we're seeing of that today is in Alberta, of course, as it transitions away from its coal fleet to natural gas as well as renewables.
We continue to be in a system where we have good reliability. The lights are on in Ontario. That will change over time as older resources come off, particularly on the nuclear side. That will require greater—as I mentioned—resiliency in the market. A lot of the tools that have been put into the system, ranging from smart meters all the way through to cleaner forms of generation, and more generation at the source of demand—or “in the load” as we often refer to it—will help the market adapt to some of those changes over time and to maintain the reliability in the system.
Certainly, the perspective of the system operator is always a good one to solicit in terms of looking to see how these resources are being deployed in the market and at what marginal cost.
There's been a lot of learning in Ontario in terms of adapting to variable generation, generation that isn't on demand when you need it. For example, one of the things, the evolutions, that we've seen in the market is the manoeuvring of nuclear, particularly at the Bruce Power asset in Kincardine.
The system has adapted quite a bit, and there are new tools in place to better predict, not only when that variable generation will be able to supply into the market but also how the system operator is optimizing the use of those assets to lower costs. We're seeing that this is continuing. The technology is evolving quite a bit.
I'll pick up on a comment that Lisa made about storage and the opportunities for storage. Obviously, part of the challenge with any electrical system is that when you supply the electricity, it might not align perfectly with when you require it. Of course, the thing about electricity is that it's all about physics, in terms of the creation of the electrons and when they're actually consumed. The opportunity that lies in harnessing storage is quite vast in terms of helping to level the balance of the system between periods of high demand, or as we refer to it “on the peak”, and periods of low demand, or the “off peak”.
In the context of interties, which I know is the subject matter for this committee, they have always been used by the system operators as “virtual storage”, in their ability to transmit electricity across the tie lines to maintain reliability in the system. You move electricity out of your market when you don't need it, to a market that might require it and vice versa. We see that quite a bit between Ontario and Quebec, but we see it between Ontario and New York, and Ontario and Michigan as well. That's something that will increase, we predict, in the future as well.
Without a doubt, but there's an important point. I think they quite often view that these attributes of moving to lower forms of generation and markets is done purely for environmental reasons.
What we've seen is that one of the greatest attributes of low-emitting resources is that the variable cost of generation is almost nothing, the marginal costs. The fuel cost is zero compared to conventional resources. When we develop gas assets, for example, typically we look at the capital costs required, the O and M costs, but also the fuel costs. These three components go into the cost of the assets. For storage, as well as for renewable assets, that isn't the case.
The one thing I will note about the reference to Quebec is that historically Quebec made the decision to build far greater than its own needs its ability to produce power, specifically from an economic development standpoint, to export to the eastern seaboard, and it has been very successful in doing so. B.C. has done that as well.
Ontario is like many markets that historically built to Ontario's needs. We used to refer to it as the “fortressed Ontario” approach. Increasingly recognizing the modernization and the value attributes of a low-emitting system, we're now seeing a movement towards greater use of interties, with an ability to export those resources to markets like PJM, for example, that still have a big carbon footprint but represent the largest electrical market in the world.
From a trading standpoint, harnessing the value of what has been invested in for the last many years to access markets, similar to how Quebec has managed its electricity resources in the last many decades, is something many markets are now looking at.
Thanks to both of you for spending your time with us this afternoon.
I come from Alberta. I just mention that because I think sometimes that shapes the way we view the issues we discuss in this committee in particular and probably our world view on priorities.
I wanted to recognize—and my colleague T.J. and I often get along on this issue—your point about co-operative federalism, respect for our constitutional division of powers, and celebrating regional energy diversity. I personally think that Canada's diverse energy mix is one of our greatest strengths.
Before my political career, I spent several years in the Government of Alberta in the department of energy, in the international offices and trade division, in economic development on policy and communications, business rules, and legislative development on oil sands and heavy oil development in Alberta, which I believe benefits every Canadian in every community across the country. It's certainly a source of major revenue that's shared across the country so that Canadians can enjoy roughly similar programs and services in their respective provinces.
Lisa, in your slide about innovation, you mentioned small modular reactors. You probably know that previously in this committee we did a study on the nuclear file, and it also came up a couple of times maybe in our clean-tech study on oil and gas, the potential applicability of SMRs in oil sands and oil and gas recovery. At that time, I think there was a discussion about partnerships but not about any pilots or anything happening at that point.
Do either of you have an update for us, or do you know any details about that applicability and the timelines?
I was going to try to answer in French but my children tell me all the time, “Mom, when you speak French,
it hurts our ears.”
Certainly I will try to do a bit of both.
In particular, I think there are regulatory challenges in enhancing the maximal amount of export from Canada of the cleanest, greenest energy to the United States.
Between provinces, predominantly there are intertie constraints that are problematic, as well as differences in the intertie capabilities—AC versus DC—particularly between Ontario and Quebec. If you look at those dots on the map when you eventually get it, we want to go from small dot to big dot. Really, with the exception of Alberta and Saskatchewan, it looks like it's going north-south, and it should be going north-south.
What are some of the regulatory barriers?
In terms of how we schedule and connect our markets, there are a number of issues associated with what we call “uplift” charges and how that is applied and used in the context of exporting.
Number two is in relation to facilitating what we need when we need it to go south of the border. With our storage assets, we have this disconnect between being charged retail costs when we're loading and charging only wholesale costs when we're discharging. That's problematic.
Number three is not having the associated benefit of an overarching policy and integration between some of the IESOs, the IESO in Ontario in particular, and PJM. That is problematic. There are a number of rules that need to be harmonized between the FERC and the IESO. We've done a bit of this with FERC 686 historically. We have more work to do in that regard.
Those are a number of regulatory barriers that we really do need to address.
Good afternoon, Mr. Chair and members of the committee.
Thank you for this opportunity to address the committee on the topic of strategic interties.
My name is Mike MacDougall, and I'm the director of trade policy with Powerex. My colleague is Tom Bechard, and he's the managing director of gas and Canadian power.
Powerex is a wholly owned subsidiary of B.C. Hydro, responsible for marketing electricity, natural gas, and renewable energy products across western Canada and the U.S. Today we would like to give you the perspective of a user of the transmission system as to how the existing interties function, how additional value might be gained from the existing facilities, and some of the circumstances necessary for new interties to provide benefits, including greenhouse gas reduction benefits, to users of the system and the ratepayers of the utilities that build them.
First, I will give you a bit more perspective on Powerex so you can understand what informs our perspective on these issues. Second, I will discuss the nature of these interties from the everyday perspective, that is, what is available for use by customers of these systems. Then Mr. Bechard will provide you some information on how the various markets provide signals or not to make use of the facilities for economic exchange and how they incent or not the use of external clean generation resources to reduce greenhouse gas emissions. Lastly, he will cover what economic incentives might be necessary to support the expansion of new intertie facilities.
As I mentioned, Powerex is the wholly owned subsidiary of B.C. Hydro. We were formed in 1988 and have nearly 30 years' experience participating in energy markets across North America. In 2016 we were the second-largest exporter of electricity from Canada to the U.S., responsible for roughly 13,600 gigawatt hours, or 19% of Canada's total exports to the U.S. We were also the largest importer of electricity from the U.S. into Canada in 2016, bringing 8,000 gigawatt hours, or 86.5% of all imports to Canada. We also buy and sell electricity in the Alberta market, with volumes representing on average 10% of our export activity and 3% of our import activity over the past five years.
In order to transact this volume of electricity, Powerex must purchase transmission services from a wide variety of transmission providers. Within the U.S., Powerex holds over 5,000 megawatts of long-term transmission capacity, spending in excess of $125 million per year on transmission services. One key concept we would like to share with the committee is the difference between the design capacity of transmission facilities and their everyday operational capacity.
For a user of transmission services what really matters is the operational capacity. B.C.'s connection with Alberta is nominally 1,200 megawatts when moving from B.C. to Alberta; however, the actual operational capacity is usually in the range of 430 to 600 megawatts, or only 35% to 50% of the design limits. Likewise, B.C.'s connection to the U.S. is nominally 3,150 megawatts, with a typical operating capacity of 2,500 megawatts, or roughly 80% of the design limit.
This difference is caused by a multitude of factors related to the design of the facilities, along with the operation of the grid itself; however, from a customer perspective, only the lower capacity is available to be used to move power. In the case where transmission rights are sold to users to support the cost recovery, as in B.C., this lower operational limit is also the amount that can reasonably be sold. In the case of B.C. to Alberta, roughly half the capacity is stranded and unable to be sold to recover the costs of B.C. Hydro's facilities.
When reviewing investments in strategic interties, we should first be considering whether we are getting the most out of the existing facilities. In the case of B.C. and Alberta, much of the limitation lies within the Alberta system itself, including choices made when the Montana-Alberta intertie was connected to the Alberta grid in 2013, resulting in a facility that did not increase Alberta's overall ability to import electricity.
Addressing the usable capacity of the existing interties is important from an efficiency perspective and could be substantially more economic than the cost of new construction.
In addition to the available capacity, one must consider whether users of the transmission system would see sufficient incentives to purchase the capacity made available by the transmission facilities and hence support the cost recovery of the investment.
For that discussion, I will turn to Mr. Bechard.
I would like to thank the committee for inviting us to speak today regarding strategic interties.
At a high level, it seems pretty clear that there is much to be gained, both economically and environmentally, from improved and expanded wholesale electricity trade between B.C. and Alberta. Alberta is a province transitioning from coal generation to additional natural gas and wind generation, and perhaps eventually solar generation as well. B.C. is a province rich in clean, flexible hydroelectric generation. This diversity in generation technologies between B.C. and Alberta should support mutually beneficial trade between the provinces. However, there are two key barriers that have hindered maximizing these wholesale electricity trade opportunities: transmission transfer limitations and market design.
As Mr. MacDougall noted, B.C. has had a significant surplus of electricity available for export; however, in recent years, very little of that surplus electricity has found its way to Alberta. Over the past few years, Powerex has exported the vast majority of this surplus to California, while less than 10% has been delivered to Alberta. In effect, clean electricity from B.C. has travelled thousands of kilometres to California, generally reducing natural gas generation levels in California. From the perspective of reducing carbon emissions, this seems inefficient, as B.C.'s clean surplus electricity could have been sent right next door to Alberta to reduce coal output.
Aside from the challenges with transmission transfer capability, as described by Mr. MacDougall, a primary reason for this outcome is the relative price signals provided by California's organized market, compared with Alberta's, for clean generation imports.
Fortunately, Powerex expects this situation to shift to some extent in 2018, as Alberta implements its carbon competitiveness regulation, or CCR. This CCR program will have the important effect of pricing Alberta's carbon emissions and raising the value of electricity imports. We expect that this will make Alberta a more attractive destination for B.C.'s clean surplus electricity, which is expected to displace Alberta's coal generation.
Although we expect that the introduction of the CCR program is likely to increase trade between the provinces, providing mutually beneficial economic and environmental benefits, opportunities exist to expand these benefits further.
In particular, as Alberta installs qualifying renewable resources, largely expected to be wind generation, under its climate leadership plan, it will require additional flexible resources to provide renewable integration services. While some of these flexibility services will be provided from Alberta's current and expanded natural gas generation fleet, B.C.'s resource mix is well situated to compete to provide these services, while further reducing greenhouse gases. For example, B.C. may be able to back down its flexible hydro generation and utilize Alberta's surplus wind generation when the wind output exceeds Alberta's ability to use it. Later, B.C. can return clean electricity to Alberta, displacing fossil fuel generation, when Alberta wind is not producing.
Achieving this outcome, however, requires at least two key areas of co-operation. The first one is a commitment to a fair, efficient, and robust market design and/or a long-term commercial arrangement that results in an equitable allocation of the short-term production cost savings, the environmental cost savings, and the investment cost savings, compared with Alberta going it alone. The second one requires expanding the limited transmission transfer capability between the provinces.
Importantly, both of these areas of co-operation must occur together. The economic and environmental benefits of market design improvements and/or long-term commercial arrangement will be significantly limited without expanding the current transmission transfer capability between the provinces. Similarly, expanding the transmission capability under the current market framework without a new commercial arrangement is unlikely to achieve the economic and environmental benefits required to justify the necessary investments in the new transmission facilities, or to equitably distribute those benefits between the provinces.
We thank you for your attention and will be happy to answer any questions.
I would like to thank the committee members.
It's a pleasure to present again today in front of all of you.
At the Conference Board recently, we did a report called “The Cost of a Cleaner Future”, and a lot of what we talk about in the report is on electricity and the electrification of the economy.
My role today is to discuss with you the main results of this exercise, this analysis of Canada's options for a lower-carbon future. In doing so, I will draw heavily on the results of a joint research effort of the Conference Board and the Canadian Academy of Engineering. We partnered with the Canadian Academy of Engineering to develop these scenarios.
The analysis studies three distinct policy measures: the impact of carbon pricing and a shift in the electricity generation mix; the impact of substantially decarbonizing our electricity generation sector; and the impact of investments that will allow Canada to reduce its emissions by 60% by 2050. The key findings are a couple of main points here.
Carbon pricing and a shift in our electricity generation mix will have a small negative impact on the economy, but there are distributional impacts that will need to be considered by policy-makers.
The other key finding is that pricing carbon and decarbonizing our electricity system will need to be accompanied by trillions of dollars in spending on clean energy infrastructure and significant changes to the way we consume energy. In that context, changing public behaviour will play a crucial role. This will require significant participation by Canadians, and it needs to be made clear that they're part of the solution in this transition. This requires policy-makers to present and to make more clear the plan to reduce greenhouse gas emissions going forward.
These findings, as I've mentioned, are the result of a technical modelling exercise with the Canadian Academy of Engineering; the economic modelling that we do at the Conference Board, which is what we're known for; policy analysis; and I must say in this case, given the magnitude of what we're talking about, a fair share of head-scratching.
The main results were presented at our Reshaping Energy conference here in Ottawa last spring, which involved industry, government, and academic presenters. As you know, the Conference Board is a non-partisan evidence-based research organization. We're non-partisan in all of this. We try to bring the facts to inform the policy in the transition to a low-carbon world. That event was a good example of how the Conference Board does this.
There are two overarching messages.
Simply pricing carbon and moving away from fossil fuels are insufficient measures to achieve the deep reductions that we were talking about in the Paris agreement. While technology and innovation will play a role in the long term, they can't get us to the 2030 target given the relatively short window available to develop and adopt these solutions. The second overarching message is that, given that the required investment will be in the trillions of dollars, policy-makers need to communicate to Canadians the scale of what we're talking about in terms of this transformation that will have impacts on everyday life.
I don't want to get into the details of the report, but there are a couple of highlights that I think are important in the context of what we've talked about today and the zooming in on electrification. The report examines the impacts of carbon pricing and of the investments needed to help Canada achieve the deep reductions—significant reductions—in greenhouse gas emissions. It finds that even taxing carbon at $200 a tonne by 2025 would result in only a 1.5% reduction in greenhouse gas emissions outside of the power generation sector, so it's not that much. We're talking about much more if we want to make a bigger dent.
Carbon tax revenues, in the context of our scenarios, significantly add to government coffers. In fact, the rule of thumb here is $6 billion for each tranche of $10 a tonne for carbon. Our assumption in this scenario is that the revenues collected are expected to be put back into the economy through tax cuts and higher public spending and investment. The assumption that carbon revenues will be recycled into the economy is, frankly, the key reason why the total impact on the economy is small.
The research also quantifies the economic impact of making deep greenhouse gas emission reductions. The investment requirements are based on—as I mentioned—the work of the Canadian Academy of Engineering, under the overarching Trottier energy futures project analysis. Outlined in this technical piece of work are several technical pathways, and in fact, over eight scenarios.
Those scenarios were developed by a combination of engineers, the David Suzuki Foundation, and some academic researchers at McGill University, who are experts in technical modelling. They didn't get into the policy options to get there, but they really describe, if we put everything on the table that's available today, how deep the reductions could be. They have various scenarios going from 30% to 60% by 2050. Of course, the 30% reduction below 1990 levels by 2050 leaves us far away from the Paris agreement. The 60% gets us closer, but none of those scenarios gets to 80% according to the technical analysis that was done.
I'll just talk about the 60% reduction, because this is the most ambitious and the one we signed up for. The 60% reduction in emissions will require a $3.4-trillion investment. That's about $100 billion annually, or just to put it in context, about half of what Canada spends on non-residential business investment every year. It's a significant amount relative to what's spent today on other things. Just to put that amount in perspective, those big numbers at a certain point become meaningless, so I think that's kind of a way to see what it means in terms of relative spending that happens today.
Of course, in that—and I've talked about electrification being a central theme of this—more than half of the investment would be directed towards power generation to enable the electrification of Canada's economy. One challenge that needs to be kept in mind—and we've heard Stephen Poloz, the Governor of the Bank of Canada, talk many times about this—is that the potential growth of Canada's economy going forward is coming down, largely due to the aging of our labour force. In other words, when we talk about the potential of Canada's economy, we're approaching a capacity to grow at the level of 1.5% to 2% a year versus 3% to 3.5%, which we were used to hearing about a few years ago.
We're reaching the capacity of our economy to absorb new investment. What we're saying in the scenarios is that this new investment would have to crowd out other investments that would have taken place if this policy wasn't in place. In other words, or as a different way to present that, our capital is in place currently in the economy and our labour force is fully employed. There's no large pool of labour capital waiting to be redirected towards these new investments, so the simple fact is that Canada is unable to leverage the funds, capital, and labour resources required to generate these investments without taking funds and productive capacity away from other economic activity.
One element to keep in mind, which I think is really important in terms of the solutions going forward, is that all scenarios of emission reductions analyzed in our study do not account for carbon leakage. To the extent that trade adjustments include declining exports of carbon-intensive goods without corresponding reductions in consumption of those goods by our trading partners, the emissions reductions in Canada could be fully offset by increases elsewhere. In other words, if we don't produce it here, it could be produced somewhere else.
We've identified five priorities for action in our work. The first is end-user acceptance. I think it's impossible to overstate the importance of this. The policy-makers for that low-carbon transition journey need to clearly communicate what is needed from households and businesses to achieve large emissions reductions and communicate that society is ready to make those commitments. History has taught us that long-term change cannot be successfully imposed by governments; rather, it must be desired by their citizens.
The second point is the acceptance of large-scale projects. I think really central to the electrification context is that substantial investment in large-scale hydro, nuclear, and wind transmission projects is required in all parts of the country. Large-scale projects typically attract their share of controversy. Acceptance of these projects among environmentalist groups, indigenous groups, and the public is necessary.
The third point is that an effective environmental assessment process for large projects is needed. This takes time. Cumulative effects over time need to be included in these environmental studies. The development life cycle for a large project can easily extend over a decade, so this needs to be included in our policy objectives.
The fourth element is regulatory acceptance of the need for investment and cost recovery. Of course, it's a business decision to invest in these projects. Business needs certainty over the long run.
The final point, which is the greatest opportunity for Canada, is that we need to think of all of this transition to a low-carbon world and to a net-negative greenhouse gas emission in context. At the end of the day, this is what matters worldwide.
An effective made-in-Canada greenhouse gas reduction policy needs to consider the global competitiveness impact on trade, and the net change on world greenhouse gas emissions. This is particularly important in the context where Canada is an open economy, dependent on trade, which was built over the years by a key competitive advantage, with an abundance of natural resources and low energy prices, so of course our economic fabric today reflects that.
Policy options where Canada gets credited for net greenhouse gas reductions from exports of Canada's expertise in technological solutions represents a major opportunity for Canada. It demonstrates leadership, and it creates employment and economic opportunity for Canadians. It's something that hasn't been talked about yet. It used to be talked about in the nineties quite a bit when Rio and Kyoto were signed, but it hasn't come back on the radar screen. I would encourage you to seriously consider that as an option. That's a clear win-win for Canada and the planet.
There's no easy answer to this. If it was straightforward and economically viable to supply electricity to remote communities, it would happen now. If it's not happening, it's because there's a major cost associated with bringing all that infrastructure to communities that are spread throughout a really large territory. It's a challenge for a country like Canada.
On top of that, you have weather and so on. Then you start moving jurisdiction by jurisdiction: how the base load is constructed, how the peak loads are constructed, and how the system's designed by the province. There's no easy answer.
You mentioned a general average. That's the challenge. There's no general average, because remote communities are really different in terms of their economic development and in terms of which group you're talking about. If you're talking about indigenous groups, whether you are talking to Inuit groups that are farther north or to first nations—depending on which first nations and even within those first nations—then you have different levels of knowledge and socio-economic development.
As part of the board's work on remote communities, we have an initiative called the “Centre for the North”, and we've been exploring that for the last six years. The overarching message from all the work is that it's really hard to find a homogeneous, blanket solution to some of the challenges, whether it's about infrastructure development, indigenous youth, or governance. Each region has its own specific fabric, characteristics, and DNA, so I'm sorry to say it but I can't answer that with a rule of thumb.
The second point of your question, around solutions for really remote communities and probably those that are further north, is this challenge of storage. Right now, diesel is the main source of fuel. It comes once or twice a year based on a guess as to how much is going to be needed for the season, and then you just hope it's going to work out. It's really polluting, it's not really efficient, it's noisy, and there are all kinds of challenges associated with it.
Wind power and storage capacity is starting to emerge as an option. It's not the case for hydro and nuclear, but for a lot of the renewables—say, if you're thinking of offshore or onshore wind—the big challenge is the battery and how you accumulate that energy. Some technologies are starting to emerge on that front. We've talked about this, in fact, as part of our work. It's not scalable and economically viable yet, but as part of the low-carbon transition, it's definitely something that needs to be considered.
I'm sorry, can you rephrase your third question for me, please?
Cyber-risks or international security risks are there all the time. In fact, we responded to the OPEC crisis in 1973 exactly for these reasons, because we felt we were exposed. It's part of the equation.
In our work, we talk about what it would take to meet the Paris agreement to decarbonize the economy. In that context, you need to think of electricity and clean electricity. There are no technological solutions or any other way out. It goes with cars, how we move, how we play, how we work, how we do business. It's throughout, and electrification through clean energy electricity is a central element. When you bring the other dimensions to this, it adds an element to the analysis that definitely needs to be considered.
That's why I like to insist on a made-in-Canada carbon policy that includes options for delivering to the rest of the world, where it's much more carbon intensive, where the regulatory standards are not Canada's standards, and where security systems are not just in Canada but across the world. We are a provider of solutions, and we can turn that into a great opportunity for Canada.
A domestic-only, made-in-Canada within our geography, approach is extremely self-limiting. We need to start opening up options that go beyond, because at the end of the day, that 450 parts per million we're talking about when we consider limiting temperature growth to two degrees, it's a world problem. We need to find a world solution. Canada, by definition, is a small, open economy, and it turns out we can offer a lot of elegant solutions to the rest of the world in this new carbon transition.