INST Committee Meeting

37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Tuesday, December 10, 2002

º

1600

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

Mr. Colin Isaacs (Chair of the Board of Directors, Canadian Environment Industry Association)

º

1605

º

1610

The Chair

Mr. Richard Paton (President and CEO, Canadian Chemical Producers' Association)

The Chair

Mr. Richard Paton

º

1615

The Chair

Mr. Richard Paton

The Chair

Mr. Richard Paton

º

1620

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

Mr. Richard Paton

The Chair

Mr. Richard Paton

º

1625

The Chair

Mr. Bliss Baker (President, Canadian Renewable Fuels Association)

º

1630

º

1635

Mr. Jeff Passmore (Executive Vice-President, Iogen Corporation; Director, Canadian Renewable Fuels Association)

º

1640

The Chair

Mr. Pierre Fortin (Executive Director, Canadian Hydropower Association)

º

1645

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Richard Paton

º

1650

Mr. James Rajotte

Mr. Richard Paton

Mr. James Rajotte

Mr. Bliss Baker

Mr. James Rajotte

Mr. Jeff Passmore

Mr. James Rajotte

Mr. Colin Isaacs

º

1655

The Chair

Mr. James Rajotte

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Pierre Fortin

Mr. Larry Bagnell

Mr. Pierre Fortin

Mr. Bliss Baker

»

1700

Mr. Larry Bagnell

Mr. Jeff Passmore

Mr. Larry Bagnell

The Chair

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

Mr. Richard Paton

»

1705

Mr. Paul Crête

Mr. Richard Paton

Mr. Paul Crête

Mr. Richard Paton

Mr. Paul Crête

Mr. Richard Paton

Mr. Paul Crête

Mr. Richard Paton

Mr. Paul Crête

Mr. Pierre Fortin

»

1710

Mr. Paul Crête

The Chair

Mr. Andy Savoy (Tobique—Mactaquac, Lib.)

Mr. Colin Isaacs

Mr. Richard Paton

Mr. Andy Savoy

»

1715

The Chair

Mr. Bliss Baker

Mr. Jeff Passmore

Mr. Pierre Fortin

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

»

1720

The Chair

Mr. Bliss Baker

Mr. Brian Fitzpatrick

Mr. Bliss Baker

Mr. Brian Fitzpatrick

Mr. Bliss Baker

Mr. Brian Fitzpatrick

Mr. Bliss Baker

The Chair

Mr. Pierre Fortin

»

1725

Mr. Brian Fitzpatrick

Mr. Pierre Fortin

The Chair

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.)

Mr. Jeff Passmore

Mr. Nick Discepola

Mr. Jeff Passmore

Mr. Bliss Baker

Mr. Nick Discepola

Mr. Bliss Baker

Mr. Nick Discepola

Mr. Colin Isaacs

The Chair

Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance)

Mr. Bliss Baker

»

1730

Mrs. Cheryl Gallant

Mr. Bliss Baker

Mrs. Cheryl Gallant

Mr. Bliss Baker

The Chair

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CANADA

Standing Committee on Industry, Science and Technology

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NUMBER 010

l

2nd SESSION

l

37th PARLIAMENT

---

EVIDENCE

Tuesday, December 10, 2002

[Recorded by Electronic Apparatus]

º  (1600)  

[English]

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

    We have a number of witnesses here today, and I'll introduce them: Canadian Environment Industry Association, Colin Isaacs, chair of the board of directors; Canadian Chemical Producers' Association, Richard Paton, president and CEO; Canadian Renewable Fuels Association, Bliss Baker, president, and Jeff Passmore, executive vice-president, Iogen Corporation; and Canadian Hydropower Association, Pierre Fortin, executive director.

    Thank you very much for your patience; we had to go through a vote.

    We'll now begin, and I would ask you to make your presentations. I'll start from the top unless you have decided differently, and then we'll open it for questions.

    Mr. Isaacs, you may begin.

    Mr. Colin Isaacs (Chair of the Board of Directors, Canadian Environment Industry Association): Thank you very much indeed, Mr. Chairman, and members of the committee, and thank you for your invitation that I appear before you today to discuss what we see as a very important topic, the implementation of the Kyoto Protocol.

    First, very briefly, I'll give you a description of Canada's environment industry. We are a substantial contributor to Canada's high-technology economy. Our industry has sales in excess of $14.4 billion, which is a significant part of Canada's GDP. Exports of Canadian environmental technology have been increasing by over 20% per year, and totalled $1.3 billion in the year 2000. About 160,000 environmental practitioners are employed in Canada, more people than work in forestry, pulp and paper, or the chemicals industry. Half of those working in the environment sector are university or college graduates, and about one-quarter are women.

    However, the industry that generates this high level of economic activity is dominated by small and medium-sized enterprises, exactly the group of companies that have been identified by Canada and by international organizations as having the greatest potential for growth. Of the roughly 6,400 companies in Canada that engage in environmental business, 99% employ fewer than five hundred people. Two-thirds of these companies employ fewer than one hundred employees.

    I'll move to the topic before us today. In 1999 the Technology Issues Table of the national climate change process issued a 316-page paper, which we believe made a significant contribution to discussion of the implementation of the Kyoto Protocol. I'd like to make a few points that are drawn from that paper, from other issues tables in which members of our industry have participated, and from our ongoing work since the issues table consultation process concluded.

    First, the Technology Issues Table paper identified more than 1,300 technologies that are available today and that can make important contributions to meeting Canada's greenhouse gas targets. It's important to realize that these technologies are relevant to virtually every sector of the Canadian economy and of Canadian society. Meeting the targets established by the Government of Canada is not just about reducing the burning of fossil fuels, it's primarily about making more efficient use of energy and resources in all aspects of our society. If we do this in the right way, we will not only greatly enhance the positive impacts for Canada and for the Canadian economy, we'll also minimize and potentially eliminate negative impacts on Canadian industry.

    The environment industry's role is to increase the eco-efficiency and resource efficiency of our manufacturing and resource industries and of our society. That's why we're generally supportive of the Kyoto Protocol. We understand that increasing resource and energy efficiency helps make our industry more competitive and our society more sustainable and more livable. As an industry that is also engaged in a significant and growing export business, we recognize how important it is that Canada maintain a leadership position on environmental management within the international community and global marketplace.

    It's our view, based on experience, that it's most unwise for government to try to pick winning climate change technologies. Instead, the government should give priority to fostering a climate in which innovation and eco-efficiency thrive. The government has already indicated through the innovation strategy process that it intends to implement initiatives to foster a more innovative economy. We're fully in support of that move. A key focus of the innovation strategy being proposed by government will be in the climate change arena. Improved environmental and greenhouse gas performance is an integral and inextricable part of an innovative economy.

    The major benefit of ratifying Kyoto is that it monetizes or places an economic value on carbon within the global economic system. Canadian initiatives to achieve Kyoto targets should be built on this opportunity. Cost-effective economic instruments, including emissions trading and the encouragement of accounting for environmental costs and benefits, should be the tool of first choice when government seeks to provide society with the incentives to work towards Canada's Kyoto target.

º  (1605)  

    Our industry has more than fifteen years of experience with the use of economic instruments to achieve environmental goals. We've seen how cost-effective this approach can be. Should regulatory approaches be necessary in the future, they must be performance-based and not prescriptive.

    There have been numerous estimates of the cost of meeting Kyoto targets. In this regard we make two points. First, the cost of not ratifying Kyoto would be very great to our industry, jeopardizing our increasing importance as a supplier of environmental technologies and services around the world. It may also place in jeopardy exports of other Canadian goods to countries that have ratified the protocol. Second, there is no need for Canada to buy credits offshore, nor should we plan to do so. However, we must not rule out obtaining credits in return for Canadian investment in clean development mechanism projects.

    Based on research by the environmental affairs branch of Industry Canada, we estimate that the environment industry, broadly defined to include suppliers of alternative energy, energy efficiency, and cleaner production technologies as well as the very wide range of environmental protection and pollution prevention technologies and services, will see an increase in investment of close to $60 billion by 2010 resulting from Canada's decision to ratify the Kyoto Protocol. This is equivalent to an average of $7 billion per year or 50% growth in our industry's revenue. At current ratios this will lead to an increase in annual employment of about 75,000 people in the environment industry, many of them, like our current workforce, highly qualified and experienced professionals.

    Another of the major benefits of participation in the Kyoto Protocol is the opportunity for Canadian companies and other organizations to work with developing countries on projects under the clean development mechanism. The CDM encourages the sustainable development of countries, municipalities, and industries in a way that mitigates emissions of greenhouse gases and allows Canada to apply the emissions reductions generated by Canadian expertise and investment in Canada's Kyoto target.

    Through the work of DFAIT's clean development mechanism and joint implementation office in close partnership with Canadian companies and organizations, Canada is currently a world leader in CDM. We must maintain this leadership position. It provides a superb opportunity for growth in the export of environmental technologies and services and for the development of sustainable trade relationships in rapidly growing markets on all continents.

    In addition, we must work to ensure that essentially all Canadian international investment, except for overseas development assistance, which is specifically excluded by the protocol, will be attuned to the opportunity to create emission reductions to be applied to Canada's target. This will enhance Canada's environmental and economic profile in those nations that are the recipients of our investment and will contribute to achieving the targets we've chosen.

    The Canadian Environment Industry Association urges all stakeholders to put the battles over Kyoto behind us and to develop our collective resources for developing and implementing a cost-effective, eco-efficient implementation program that supports a more innovative and competitive economy. The knowledge and experience of our industry convinces us that it can be done.

    Today we invite other industry associations, provincial environment industry associations, provinces and territories, municipalities, civil society organizations, and the federal government to join with Canada's environment industry to work on climate change initiatives that will enhance economic and environmental sustainability throughout the next decade and beyond.

    Thank you very much, Mr. Chairman.

º  (1610)  

    The Chair: Thank you very much, sir.

    Mr. Paton.

    Mr. Richard Paton (President and CEO, Canadian Chemical Producers' Association): Thank you very much, Mr. Chair.

    First of all, I'd like to thank the committee for making this opportunity available. Given the vote today, I can see that implementation is actually an important issue that's before this committee, Parliament, and the country.

    I'm going to talk, basically, to this deck I have here; has it been handed out?

    The Chair: No. I think it's only in English and not in French.

    Mr. Richard Paton: Right. Given the short notice we had, we didn't really have a chance to translate it.

º  (1615)  

    The Chair: It was on short notice. Let's pass it along.

    Mr. Richard Paton: Thank you.

    I have basically four themes in my presentation, which you'll see on the second page, but the theme is to be the best we can be, which does build a little bit on what Mr. Isaacs was saying. We aim, as an association representing Canadian chemical manufacturers, to be high environmental performers and high economic performers, and we believe that those things are possible, given the right policy framework and regime.

    Given the fact that we've just been through a ratification vote, I'd like to be as frank as I can with you today. The first point I'd like to make is that the policy process for Kyoto was a disaster of a process. It was basically a very poor process, and I'll go through some of the points on that. Second, I want to show you what we've done in terms of reducing emissions, some of the real economic implications of Kyoto for our industry, and you've heard from the Canadian Manufacturers and Exporters association and the Canadian Council of Chief Executives. I'm not going to repeat what they've done, because they've talked more broadly about the economy. I'll talk more specifically about our sector, about specific companies in our sector, and finally about some of the implementation challenges we face as we go ahead here.

    I'm going to skip right through to page 4 here. We believe there was a common agenda possible here on reducing greenhouse gases, but the process that was used never produced a common agenda. We are now at the point where, except for a few parties, Kyoto was defined up until the very last minutes as an environmental issue. Government basically spent most of their time dismissing the need for a plan at all. Believe it or not, a year or a year and a half ago we couldn't get the federal government to even talk about a plan at all. They weren't even interested in making a plan.

    The modelling work done on Kyoto is absolutely, totally inadequate. You are making that vote today, but I believe that parliamentarians have not had an appropriate level of information to make the decisions you have to make. We have estimates ranging from a $40 billion negative impact to a $50 million-plus positive impact. You have very few sources of independent analysis. The best report that was done was just recently leaked by Industry Canada, and we tabled it--or one of my colleagues tabled it at this committee the other day. The information has not been available for you to really understand what the economic impacts are.

    The result is that we end up at the end of this process with very little sectoral consultation, notwithstanding the fact that some ministers have said there's been a lot. The fact is, up until two months ago the government really wasn't talking to business in any kind of realistic way. It was not really trying to understand the investment realities. Unfortunately, while that may be water under the bridge, there's going to be a budget in February, there's going to be money in the budget, it's going to relate to Kyoto, and you're going to have to make the same decisions on the budget based, probably, on the same level of information.

    If we look at the kinds of decisions this country has to make on health, gun control, or anything, if this is the kind of process we can expect government to lead to make big decisions, it really isn't going to be very useful for the country or for Parliament. We have a serious problem. We end up at the end of this process with several provinces that are very unhappy, with industry feeling totally left out with no real consultation, with no real independent analysis of costs and options, and with no real plan. Notwithstanding Colin's optimism about where we can go, he would still agree that there is no plan. That is really not a very good position for us to be in as a country.

    I had to get that off my chest, because that represents four years of work for which we feel a lot of pain and agony and very little satisfaction.

    I want to turn to slide 13. A number of you asked this question of my colleagues from other associations: Just how big is the target?

    The Chair: What is the title of that slide?

    Mr. Richard Paton: The title is, “Policy Process: Is this just an Environmental Issue?”

    We have to really understand what we're talking about here. We are talking about a 30% reduction in greenhouse gas emissions between now and about 2010. That is an absolutely huge reduction. That is, as Jay Myers said the other day, an 800% increase in our technological progress based on our previous track record--800%. We have a number that is pretty well unbelievable.

    Most countries in the world don't believe they can meet the Kyoto targets. We don't believe the Kyoto targets can be met, notwithstanding the fact that we believe that a lot of progress can be made. We are dealing with a gap that is unbelievable. Industry has been given a gap of 55 megatonnes, which it's supposed to reach with no real economic analysis behind it. We are facing the prospect of having to make huge reductions at the expense--and I'll be very clear about it--of growth and investment. This is not one of these total win-win situations. Even when we have hydropower, ethanol, and all kinds of environmental technologies, we don't believe we're going to get to 30% without sacrificing growth and investment.

    Now, I'm going to turn again to some slides here on pages 12, 13, and 14. One of the reasons this is such a big problem, and I'll address what I consider to be one of the big myths in this area, is a view that, well, industry hasn't been doing very much. You'll remember the charts Mr. Myers showed the other day of all the sectors of the economy; the only sector that has actually had negative greenhouse gas emission growth since 1990 is in fact the manufacturing sector. It's the only sector that has done a substantial amount.

    We're in that same category. If you take a look at our numbers here, and I'll just quickly go through these charts, you'll see the numbers going down. We're reducing our total emissions--this includes more than greenhouse gases--and while our CO₂ emissions are going up, it's because we're growing. We've grown from a $12 billion industry to a $17 billion industry since 1990. If you take a look at that yellow line on page 13, our emissions per unit of production are steadily going down.

º  (1620)  

    Mr. Dan McTeague (Pickering—Ajax—Uxbridge, Lib.): Mr. Chairman, I have a point of order. Could the witness let us know which titles he's referring to?

    Mr. Richard Paton: Yes. The next is “Global Warming Potential”. Take a look at that number; it's gone down dramatically, and that includes nitrous oxide. The reason it flattens out is that our companies will not put out any numbers as projections more than three years beyond where they are making capital investments. Generally, our numbers have been going steadily down due to the use of fine technologies, the use of hydropower, and many other things. The fact is, our numbers are going down dramatically.

    You can see on page 15 just a quick summary of that. We are producing chemical products with 72% less emissions than in 1992.

    The Chair: We have no numbers on our pages, so you'll have to repeat the titles.

    Mr. Richard Paton: Okay.

    So the CCPA performance conclusion: we're down to 72% less emissions. Now, why is that a problem? That is a problem because, unfortunately, with the federal proposals at the current time, they're not going back to 1990 to count the numbers. They're starting the numbers at about 2000 or 2002.

    Basically, if you as a committee were to say to me in my sector, “You have to meet the Kyoto target”, I would say, “Fine, we'll take it right now, we'll meet the Kyoto target, because we will be below Kyoto in 2010.” But that's not the deal. The deal starts where those lines start to flatten out, meaning that all the work that we've done for the last 10 years basically does not count. Essentially, the best performers are the worst off as they go forward with Kyoto. That is the reality of the situation.

    Let me turn next to a couple of quick examples of companies. This will be three company cases--DuPont, Nova, and Consumer Products. I know you all represent ridings, many of you have industries in your ridings, and I'd like to kind of bring this to a company level.

    We have three excellent companies in our membership. All of these companies are world-class performers economically, compete internationally, export tremendous amounts of product, great employers. Their view is they're all going to be penalized for all the previous investments they've made and would face substantial costs for implementing further reductions, or for those investments.

    I'll give you an example. On the chart saying “DuPont Canada, greenhouse gases”, you see the bar chart going back to 1990, then the lower bar chart that is carbon dioxide, nitrous oxide; that is a profile of DuPont Canada over the last 10 years. You can see the dramatic reductions they had made both through environmental technologies in nitrous oxide and carbon dioxide emissions.

    They will have to start, as a company, and probably have to reduce an additional 15%.That will cost them a substantial amount of money and will probably make some of their products uncompetitive, making further investments difficult. This is notwithstanding that this company has been an absolutely model environmental performer for the last 10 years, and has by itself contributed to probably around 10 megatonnes of greenhouse gas reductions. Notwithstanding that, it will pay a penalty for those investments.

    The next case I want to give you is Nova in Joffre, Alberta. They've just built a $1-billion plant, the largest petro-polyethylene plant in the world, state-of-the-art technology, the best environmental technology you can have. You would think that this country would think that growth was good, that job creation was good, that building a state-of-the-art plant was good. You would think that's pretty logical. We believe in growth in this country. Notwithstanding that, because they have built a plant, they unfortunately do produce one megatonne of greenhouse gases.

    Under the current proposals, they would get 85% free permits for those emissions and they would have to pay, either through credits or through other investments, a 15% difference. Let me give you the numbers here. At $10 a tonne over 25 years, they will have to pay $285 million for emissions credits, and at $50 a tonne it would be $1.4 billion. So do you think that investment would have been made in Canada if those had been the numbers? The answer is probably not.

    So we have set up a dynamic here where the best possible technology, the best possible environmental technology, the best investment for this country would actually be penalized. We're saying to these companies, “Don't grow here, we want to meet our Kyoto targets.” This is a problem.

    I'm going to leave you with that and go on to the next slide, “The Chemical Sector: investments, growth, competitiveness”. Our theme is that growth is the friend of environmental performance. Colin has given some very excellent examples. We're going to hear more examples, I'm sure. If companies are not making money, if they're not investing in this country, they will not have money to invest in environmental technology.

º  (1625)  

    They will simply move somewhere else. And, folks, those other places are China, India, and Mexico, which don't have nearly the environmental level of performance we do because they use coal as their fundamental base fossil fuel. So we'll be just moving emissions from one part of the world to the other, and probably adding to those emissions.

    We believe that growth and environmental performance can go hand in hand. In our own area, you've seen the reductions we've made. We've remained competitive, but we've done them in a reasonable way. When an agreement like Kyoto is set up, if the implementation approach becomes unreasonable, you will simply drive growth out of the country. Eventually it will not be sustainable, and we'll all be running around in circles doing some crazy things.

    So there is a way forward. It means that in your work and the work of the government, we have to work on a plan. I'm still waiting for the plan. It has to address realistically, not in sugar-coated terms saying there'll be no economic impact, no job impact, and we'll be able to solve all the problems. We have to deal with the problem of how are we going to make sure the country grows with good technologies, in an eco-efficient way, yet deals as much as possible with greenhouse gas reduction?

    We believe that's possible. It's probably not possible or realistic to make a 30% reduction. It's probably possible to make some significant gains.

    Just to go to our next slide, one of our themes is “go Dutch”. The Dutch have a great line in their MOUs and covenants, of which we're very strong advocates, that, after all, it is better if these companies' facilities produce in the most efficient possible way in the Netherlands than less efficiently somewhere else. So we believe that as we move forward on Kyoto, the test should always be, how can we grow and invest in this country, and at the same time make as much progress on greenhouse gas emissions as we can?

    However, there will be points in this debate when we can very easily make decisions that will discourage growth. That is already happening, because it has not been made clear by this government yet that it strongly supports growth. It's still very ambiguous, hence the oil industry and many others are concerned about investment.

    In conclusion, there are a lot of implementation realities here. The devil is in the detail. Is there going to be legislation? How are we going to deal with growth? Are we going to be using tax incentives? Are we going to shift to new technologies? Are we going to really look hard at the cost of running Kyoto-type programs, in terms of government expenditures? This could be huge in itself, as we've seen in other files. So the implementation side of this is extremely important. Ratification is one step. Implementation is the reality of making this work in a way that's good for Canada and good for the environment.

    Thank you.

    The Chair: Thank you very much.

    Mr. Baker.

    Mr. Bliss Baker (President, Canadian Renewable Fuels Association): Thank you very much, Mr. Chair, and thank you to the committee members for the opportunity today to present.

    I'm with the Canadian Renewable Fuels Association, and we represent the ethanol and biodiesel industry in Canada. I have with me a colleague who will say a few things at the end about Iogen technology and the future of cellulose ethanol in Canada and in the world.

    At the risk of throwing off my colleague, I'm going to throw away my prepared text. We have 10 minutes and I want to get straight to the last three slides of my presentation, which you do not have yet, but I will make bilingual copies available shortly.

    I want to cut right to the chase. Under the Kyoto plan, ethanol and biodiesel are what are called “targeted measures”. They are outside the emissions trading system, and they are measures the government has identified as opportunities to reduce greenhouse gases outside the emissions trading system.

    What does the Kyoto plan say about renewable fuels? It sets out two very specific targets. It sets a clear target for ethanol production in Canada of 1.3 billion litres by 2010. Today we produce about 220 million litres, so it's a significant increase in ethanol production in Canada. It's a target; it's not a mandate, it's a target.

    It also sets a target for biodiesel consumption in Canada of 500 million litres coast to coast, which again is a target, and it's outlined in the plan. These targeted measures, as you know, may or may not require some additional investment on the part of the government, depending on regulatory instruments they may choose to adopt.

    Let me jump, again quickly, right to the point: what will we achieve by reaching these Kyoto targets with renewable fuels? When you look at renewable fuels, I think it's important to consider all the benefits of ethanol and biodiesel. It goes well beyond the greenhouse gas reduction impact and well beyond the smog reduction impact. When you look at what we might achieve by reaching this Kyoto target, we are looking at a 1.3 billion-litre target for ethanol, and we'll produce over $1 billion in new investment in rural Canada. That's $1 billion in new investment in rural communities in Canada with the building of ethanol plants.

    It will create new markets for 100 million bushels of Canadian grain. Those are new markets in your backyard, in your ridings, that don't exist today. It will create 1,000 to 2,000 new jobs in rural Canada. It will also create new tax revenue at the local level. It will also, while we're on the subject of Kyoto, reduce greenhouse gases by 2 megatonnes per year each and every year, and that's with the modest step of 1.3 billion litres.

    It will also result, and Jeff will talk about this in a second, in the commercialization of cellulose ethanol in Canada, which is not by any means a fait accompli. It will also increase farm revenue. We know that ethanol production increases the price of grain at the local level. It won't affect world prices, it won't affect Chicago Board of Trade prices, but it will impact grain prices at the local level.

    We know, for example, what happened when the Chatham ethanol plant that was built in southwestern Ontario was shut down for a week last month for their annual cleaning. The grain prices in Chatham, Ontario, dropped 10¢ a bushel for the week they were shut down. That's real money in real farmers' pockets.

    What I want to say today is, again, the government is to be commended for the steps taken in the Kyoto plan. We certainly applauded the government for setting those targets. I want to say a word of caution, though, that building an ethanol and biodiesel industry in Canada will not happen by setting a target. About a month ago we put forward a comprehensive plan to Minister Anderson and Minister Dhaliwal on a very simple plan, one that will get the industry going and get the industry as humming, as we say, as it is south of the border.

    It's very frustrating for some of our members trying to finance $100 million ethanol plants right now in Canada when they look south of the border and see that the United States is building one new ethanol plant a month this year. They are on record. They are on course to produce 20 billion litres of ethanol by the year 2010. We're having trouble building plants here in Canada. We're having trouble financing plants in Canada. At Varennes, near Montreal, the plant is on hold because they're having trouble getting financing. The stark reality is, and some people don't like this, that it is not economical to finance ethanol plants in Canada today under the current conditions.

    We have a great target under Kyoto, and we commend the government for it. We put together a proposal to the federal government that includes two elements that would see the ethanol and biodiesel industry--I hate to use this term--explode in the short and medium term.

º  (1630)  

    Looking south of the border, what are the Americans doing to build their ethanol industry? They have two things we don't have here. One is, they have significant tax exemptions on ethanol. We have them in Canada. Ethanol is exempt from the gasoline tax in Canada, as it should be because it's not gasoline. If you look south of the border, the federal government provides over two and a half times what the federal government here provides in tax exemptions for ethanol, so they have very aggressive incentives for ethanol and biodiesel. Second, they have a guaranteed market for ethanol because they have strict clean air requirements in the United States that encourage the use of ethanol in gasoline. Those two elements would produce an ethanol and biodiesel industry in Canada.

    Before I pass it over to Jeff--I may even surprise you and finish off with eight or nine minutes--I'm going to quote a figure here. You asked, well, is it worth the investment? Should we bother investing in the ethanol and biodiesel industry in Canada? A gentleman by the name of Professor Michael Evans from the Kellogg School of Management at Northwestern University in Chicago did a comprehensive study on the U.S. ethanol program and ethanol industry a couple of years ago. He came to several conclusions, but the main conclusion he came to was that for every dollar the U.S. government puts into the ethanol program, the U.S. economy benefits by $5.50. This is not a professor from an unknown school who received his PhD from an unknown school; he is a well-respected professor from the Kellogg School of Management. So the U.S. government has recognized this is a valuable and worthwhile investment.

    I don't want to get into a ton of detail on the environmental benefits. I think many of us are familiar with them, and during the Q's and A's I'll be happy to answer any questions.

    That's the point we wanted to make today, that we have a huge opportunity here to build an industry, a green industry, from the ground up if we put the right programs in place.

    I'll pass it over now to my colleague, Jeff.

º  (1635)  

    Mr. Jeff Passmore (Executive Vice-President, Iogen Corporation; Director, Canadian Renewable Fuels Association): Thank you, Bliss.

    I think together we get ten minutes, so I'll try to keep my remarks to three.

    First of all, let me congratulate the government on passing the Kyoto Protocol today, and those parties that also supported the bill. The Canadian Renewable Fuels Association and Iogen Corporation both think this is taking a step in the right direction.

    I have a couple of very quick comments and then a couple of anecdotes, just to help make the points more forcefully. First, I can't believe people actually think we can know what the economic impacts of Kyoto are going to be. If you ask an economist to tell you what Canada's economy is going to be ten years from now, they'll laugh at you; ask them five years from now and they'll laugh at you; ask them three years from now and they'll laugh at you. Economists back-cast; they're best at looking in the rear-view mirror.

    All kinds of things are going to happen in Canada's economy between now and 2010 that are going to have far more impact on this country's economic activity and growth than Kyoto. So I think we should just get over that, get on with doing what Colin did, and figure out--since we've now ratified--how we're actually going to implement and create economic growth through greenhouse gas emission reduction technologies.

    Let me give you two examples. I drive a flexible fuel vehicle. Some of you may know what that is, but some of you may not. It's a car that burns 85% ethanol, and 15% gasoline. I fill it up at a MacEwen station at Bank and Sunnyside here in Ottawa. The ethanol that goes into that MacEwen station comes from the U.S. Now what the heck am I doing buying E85 gasoline and supporting U.S. farmers? I'd far rather be buying ethanol that was made in Canada, but we don't have a vibrant ethanol industry in this country.

    As Bliss pointed out, they're on target to make 20 billion litres. They currently make 6 billion litres of ethanol a year in the U.S. We import about 100 million litres of that every year into Canada, and make about 230 million litres ourselves. So that's my first anecdote.

    Now, what about that car, where did it come from? It's a result of CAFE standards that exist in the U.S., and the original equipment manufacturers get no credit for selling those vehicles in Canada. I bought an E85 flexible fuel Ford Taurus three years ago, which had to come from Chicago. The lease expired on that car, and I decided I would then go to the Chrysler dealer at Southbank Dodge Chrysler here on Bank Street and order an E85 2003 Sebring. It was like déjà vu. The Chrysler dealer said to me, “What the heck is a flexible fuel vehicle?” I said “Well, there are only 1.2 million of them on the road in the U.S”. So guess what? It had to be ordered from Detroit. So again, here I am driving a U.S. car and filling it up with ethanol made in the U.S. So there's an opportunity to change those dynamics by getting on with the program here in Canada.

    Second, what is my job at Iogen? I'm not a chemist, but I look at competing countries, North America and Europe, to determine where we should build the world's first cellulose ethanol plant. When I say cellulose I mean plant fibres. In the case of corn it's the cobs, stalks, and leaves; in the case of wheat it's the straw--western Canadian cereal straw, for example.

    It's very hard to make the business case in Canada, compared to Europe. Europe has huge incentives for clean fuels. If we do the internal rate of return on a project in Germany or the U.K., we're looking at an IRR of 21% to 23%. If you do the IRR for a project in Canada, you're looking at a return of between 11% and 15%.

    It's fine for us to set a target of 1.3 billion litres, as Bliss pointed out, but under the current economic environment in Canada it's going to be very difficult to justify building that first plant here, because you just can't make a good business case to lenders. So we need the sorts of additional incentives that exist in other countries--the type Bliss has spoken about--in order for us to build our first plant here.

    I'll just close by saying we absolutely want to build the world's first cellulose ethanol plant in Canada.

    Thank you.

º  (1640)  

    The Chair: Thank you very much.

    Mr. Fortin.

    Mr. Pierre Fortin (Executive Director, Canadian Hydropower Association): Thank you very much, Mr. Chairman.

[Translation]

    I want to thank the members of the committee for this opportunity to appear here today.

[English]

    As it is our first opportunity to appear before this committee, I'll just take a few seconds to tell you about the Canadian Hydropower Association. It represents over 95% of the production of hydroelectricity in Canada. Our mission is to promote the benefits and advantage of this source of electricity.

    You may be interested in knowing, if you don't already know, that the Canadian hydropower industry produces more than 60% of all the electricity in Canada, and represents, on average, over 65% of the exports of electricity to the United States. The affordable cost of hydropower, its unique operational flexibility, and its renowned reliability contribute to the development and competitiveness of most Canadian industries.

[Translation]

    Over the years, Canada also developed a world recognized know-how in the area of the design and the building of hydropower facilities, a know-how which is exported all over the world, which contributes to the economic development and to improving the quality of life of all Canadians.

[English]

    Needless to say, as the association representing the interests of the hydropower industry in Canada--meaning generators, manufacturers, and engineering firms--the CHA has a direct interest in the economic impact of Kyoto. We believe the implementation of Kyoto represents opportunities for our industry, but there's a caveat. Certain measures must be taken to ensure the healthy development of the hydropower industry.

    Before describing these measures, allow me first to remind you that hydropower is a renewable and low-emitting source of electricity that plays a key role in reducing greenhouse gas emissions at a low cost. Hydropower produces sixty times less greenhouse gases than coal-fired plants, and about twenty times less than the least carbon-intensive of the thermal generation options, the natural gas combine cycle. In fact, emissions produced during the life cycle of a hydropower facility are equivalent per kilowatt hour to those of solar or wind power.

[Translation]

    It is worth noting that with an almost exclusively hydro-based power generation, Quebec emits twice less CO₂ per capita than the Canadian average.

[English]

    A similar comparison could be made with Manitoba and British Columbia, where most of their electricity also comes from hydroelectricity.

    Hydropower is clean, renewable, and produces very few greenhouse gases and no other air pollutants; nor does it generate any toxic waste byproducts. As a base-load energy option, hydropower is the best source of electricity for supporting the development of renewable, but intermittent, sources of electricity, such as wind and solar.

    Despite the clear advantages of hydropower over other available sources of electricity, hydropower faces serious difficulties in environmental permitting. It is much easier and much faster to obtain authorization for a coal-fired power station that for a hydroelectric power plant. Given that climate change is possibly the most serious environmental problem today, and for generations to come, these obstacles to hydropower project development are, in our view, obstacles to a successful climate change strategy.

    Indeed, in the 1920s, hydropower represented more than 97% of all the electricity produced in Canada. As I mentioned earlier, today it today represents about 60%, and by 2020, hydropower's share could diminish to 45%, according to Industry Canada.

    The point here is that we don't think hydropower will be replaced by wind power or solar energy. Instead, if we do not act to facilitate and increase development of hydropower projects, fossil-fuel generated electricity will supply most of the growing demand.

    That said, since hydropower is key to reducing greenhouse gas emissions from the electricity sector, the implementation of the Kyoto Protocol could have a positive effect on the hydropower—but only, as I mentioned earlier, if some measures are put in place to increase its development.

    Let me go through some of these measures. They could include streamlining the environmental assessment process and licensing procedures for hydropower projects; greater harmonization of the federal and provincial environmental processes; and including in the environmental assessments the impact of new projects on greenhouse gas emissions, and emissions causing air pollution, acid rain, and smog. This point means that if we look at the environmental impact of a hydropower project that could have an environmental impact at a local level, or if we look at the global impact of that same project—because we know climate change is a global issue—the local project will have an impact on the whole emission rate for the country.

    These measures should also include incentives for the development of all clean and renewable sources of electricity. The government should facilitate interprovincial trade as a possible means of reducing regional greenhouse gas impacts, for example, by expanding the electricity grid across Canada to allow for greater east-west trade in hydropower. It's interesting to note that there are more exports today of hydropower to the United States than there are within our country between, for example, Quebec and Ontario, or Manitoba and Ontario.

    We should establish a domestic emissions trading system that includes a price signal, which would provide an incentive to limit emissions. We should also include an allocation to the new low-emitting sources of electricity, such as hydropower, and wind and solar power. And we should, as mentioned in the government plan, commission a federal study to assess the potential of hydropower development across Canada.

º  (1645)  

[Translation]

    According to the assessment of the hydropower potential made recently by the Table on electricity in four provinces, B.C., Manitoba, Quebec and Newfoundland-Labrador, it is clear that there is an enormous potential in Canada to develop new environment-friendly hydropower projects. An assessment of the untapped hydropower potential in the other provinces could generate increased economic benefits.

    Canada is a world leader in hydropower generation. Canadian expertise in low greenhouse gas emitting renewable energy could be used in the fight against climate change but the federal government and the provinces should ensure hydropower development to continue to provide, in a growing economy, reliable, efficient and affordable electricity.

    Thank you very much, Mr. Chair.

[English]

    The Chair: Thank you very much.

    We'll now go to questions. I'll keep the questions to about five minutes, so I'd ask that the questioners make them short and that we get direct answers, also short.

    Mr. Rajotte, please begin.

    Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman, and thank you, gentlemen, for your presentations today. I'll try to question all of you because I thought all your presentations were very good.

    I want to start with you, Mr. Paton, regarding the issue of recognizing past actions. You said that all the work that has been done will not be credited. I want to make sure I'm correct on that because there's been some confusion on whether industries and companies would be credited for past actions. But within your industry, do you say companies like Dow and Noble will not be credited for past actions from 1990 onwards?

    Mr. Richard Paton: As far as we know. Now, the current plan does say, and we've heard from the Deputy Minister of Natural Resources that there will be an effort to make sure that past actions were not penalized. Nobody that I know of has ever gone back to 1990 and the way to do that is not very clear. So here's an example of where the devil is in the detail.

    Unfortunately, that chart I showed you with no numbers on it, that 30% gap, they've already built in all the improvements that industry has made into those numbers. So if you went back and started pulling those out, it would therefore make the gap bigger.

º  (1650)  

    Mr. James Rajotte: More than $240 million.

    Mr. Richard Paton: That's right. So there's a reality here that's going to be difficult to deal with. Unfortunately, for an individual company that has done an exceptionally good job, they will in fact be...as the forest product guys say very well, if you've done a very good job....

    Just imagine you, as a member of Parliament, spending $40,000 to put new energy-intense windows in your house, and insulation, and you have the best R2000 house on the whole street. Then somebody comes along and says, well, we want you to do another 20%. You can tell them what you've already done, but it doesn't matter. And the guy next door has done nothing, and all he has to do is fill in a few gaps around his windows and he has his amount.

    So that's the reality. That's why the implementation realities of this become exceptionally important. Even if you want to reduce greenhouse gases, it has to be a fair process. Otherwise, people will basically not be very happy about it.

    Mr. James Rajotte: Okay, thank you for that clarification.

    I do want to ask a question of the two gentlemen from the Canadian Renewable Fuels Association. You said you were in favour of Kyoto, but then you also pointed out the fact that for the industry and the companies right now, the economic environment is not there to be building ethanol plants. You also mentioned you had presented a plan to the two ministers. Would we be able to get a copy of that plan for the industry committee here?

    Secondly, how much investment happens now, and how much investment do you think would be required to procure that? What form would that investment take, more in terms of tax credits? You talked about toughening up the emissions standards, which I think is certainly viable, but what other sort of investments would you recommend? And what has been the government reaction so far? This was signed in 1997. Has the government responded to your ideas since 1997 up until 2002?

    Mr. Bliss Baker: Let me start by answering, yes, we will make a copy available to you. Blueprint for Growth is what it's called, and I summarized it in my presentation. It's very simple. What we asked of the government were two things: one is a regulatory mechanism to mandate renewable fuels into gas, as they've done in the United States and as they've done in Europe, Poland, India, Australia, and on and on, some regulatory mechanism to create a market for renewable fuels in the gasoline pool.

    Secondly, we've asked the government to create a renewable fuels fund to help provide an additional incentive on a temporary basis for ethanol, to help build plants. The total cost for that was $400 million over the next eight years.

    Mr. James Rajotte: Okay, my final question--

    Mr. Jeff Passmore: Can I say something? Bliss mentioned the cost, but you can't do only a cost analysis. You have to do a cost-benefit analysis. If the cost is $400 million, to meet the government's target of 1.3 billion litres would require a private sector investment of $1.2 billion. So there's going to be all kinds of benefits there that are offset by that government expenditure.

    Mr. James Rajotte: Finally, for Mr. Isaacs, I'm wondering if you would identify some companies that are in your association in terms of how they would help lower CO₂ emissions. As well, would you identify some specific measures to go in an implementation plan that would be developed to help reduce CO₂ emissions? That, to my mind, has not been brought forward. What specific things would you recommend to help your industry reduce CO₂ emissions?

    Mr. Colin Isaacs: The Technology Issues Table of the climate change issues table process had extensive discussions around the appropriate technologies for reducing greenhouse gas emissions. As an association representative, I'm always reluctant to pick out individual members of our association and give them particular highlight. However, just to illustrate, we have many companies involved in energy efficiency programs for industry as well as for institutions, for commercial facilities, and for residences. That is an area in which tremendous potential continues to exist for reduction of greenhouse gas emissions by reduction of energy use.

    We have many companies involved in the provision of municipal services, including drinking water treatment and waste water treatment. Water treatment and waste water treatment plants are large consumers of electricity. By introducing more efficient technology as well as by fine-tuning the operating systems within those plants, we can dramatically reduce energy utilization.

    One of our member companies, RWDI, specializes in traffic management planning. Traffic congestion is a large and unnecessary contributor to greenhouse gas emissions. By reducing congestion, one can reduce consumption of fuels, increase the efficiency of the transportation system, and have a whole lot happier population. I mean, who votes for traffic congestion?

    So one can give a wide range of examples. I've picked three, but in the issues table report there are 1,300 of that nature, all of them cost-effective within a reasonable payback term of three to five years.

º  (1655)  

    The Chair: Thank you very much.

    Mr. James Rajotte: Could I just quickly ask--

    The Chair: No, I have to move on. Maybe in the next round.

    Mr. Bagnell.

    Mr. Larry Bagnell (Yukon, Lib.): I have a question for each of you, but I guess I'll do just two this round. If I get a chance I'll do the other ones later.

    My first question is for you, Mr. Fortin. I'm sure the environmentalists love hydro for the emissions reason, but flooding a big lake is anathema to them now. It's heresy almost, so it must be really hard to do any new hydroelectric project when you're flooding ecosystems.

    As a corollary to that, is there any big advancement on in-stream generators that might solve that problem, and you don't have to make a major change in the environment? And I mean a big advancement, not just some little pilot project.

    To Mr. Baker, I was quite interested in the United States and Europe funding mechanisms that you talked about. Perhaps you could go into more specific detail on some of those tax incentives, funding mechanisms, or anything else done to help those plants.

    Mr. Pierre Fortin: Yes, it's sometimes difficult indeed for the hydropower industry to implement some of its development projects. On the other hand, Manitoba, for example, is looking at some developments in the northern part of their province. There will be some flooding, yes, but years ago when they did some projects in northern Manitoba thousands of square miles were flooded. They are now at the point where, because of technology and so on, the project they're looking at will flood about one square mile. And it's as efficient, if not more efficient, than the earlier projects. So there have been lots of improvements on the technological side.

    The other point is that I think the industry now recognizes, much more than it did years ago, that it needs to mitigate the potential impacts on the environment side. Lots of work is being done by the industry, by utilities, and also by independent producers in terms of getting new turbines that are more “fish friendly”, if I can use that term, because when you build a power plant there obviously will be an impact on the fisheries.

    So a lot of R and D is being conducted at this time, yes.

    Mr. Larry Bagnell: Is this on the in-stream, the ones that just lie in the bottom of the stream, too?

    Mr. Pierre Fortin: Yes.

    Mr. Bliss Baker: We like to make fun of the Americans sometimes because of their position on the environment, but what the Americans have down there, which we don't have, is a Clean Air Act. In 1990 they made amendments to the Clean Air Act that introduced oxygen requirements in gasoline in certain areas where there are problems with smog.

    In those clean air zones, those non-attainment zones, they had to oxygenate their gasoline. There are only two effective ways of oxygenating gasoline, One is to add ethanol, which is made of 35% oxygen, or add MTBE, which is a natural gas derivative that you can add to gasoline to oxygenate your gas. It doesn't have the same level of oxygen as ethanol, but it has oxygen in it. MTBE is banned in 16 states right now for polluting ground water and is about to be phased out from coast to coast, so that's part of the reason ethanol is booming in the United States. They have this Clean Air Act that guarantees a market for ethanol through legislation and through regulations under the Clean Air Act, and now there's only really one cost-effective way of oxygenating gasoline.

    Before Congress rose two weeks ago, the Senate passed--and it was in conference--a bill for a renewable fuel standard in the United States that would get rid of the oxygen standard and introduce a renewable fuel standard that would guarantee basically 20 billion litres of ethanol in gasoline by the year 2010. On top of that, they provide federally a 23¢-a-litre tax exemption for ethanol and it's based on a fuels tax. We have a 10¢-a-litre gasoline tax here. Ethanol doesn't pay that tax. It's exempt, because it's not gasoline, and in the U.S. they've done a similar thing by exempting gasoline except that the levels of exemptions are well over double what we provide here federally.

»  (1700)  

    Mr. Larry Bagnell: And Europe?

    Mr. Jeff Passmore: Again, it's the regulatory environment that is different and the tax exemptions and incentives that are higher. Germany recently, about three months ago, issued a 66¢-a-litre incentive for all biofuels. Brussels has passed a directive--it's not a requirement yet, it's an indicative target--that 5.75% of all petrol in the 15 member states will have to be biofuels by 2010. The mechanism by which they have suggested that member states achieve that target is through tax incentives.

    Mr. Larry Bagnell: Thank you.

    The Chair: Thank you, Mr. Bagnell.

    Monsieur Crête.

[Translation]

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

    I thank you for your presentations. My first question is for Mr. Paton.

    Today there was a vote which, in my opinion, is the most important since I've been in the House, since 1993. It is the most important decision we have ever made for our children and our grandchildren. I think a very clear message was sent by the elected representatives namely that everyone must do its share, particularly those who polluted a lot in the past and who are largely responsible for the present situation.

    In your submission, you say that the implementation process of the Kyoto policy is inadequate because Kyoto would be defined only as an environmental issue and economic arguments would be totally dismissed.

    Could you tell me whether, in the development of your industry, all the products are submitted to sustainable economic development criteria, to ensure that, to be made and accepted, they should not only be cost-effective in economic terms but they should also integrate a screening for sustainable development?

    Mr. Richard Paton: Thank you very much. I will answer in English because it is a difficult question to answer.

[English]

     Let me say that one of the reasons we are so disappointed in the process is that it has not been based on sustainable development. Sustainable development principles are balancing social, economic, and environmental considerations. If one does this, and does it realistically, then it's like in French, développment durable. You will have a sustainable set of actions. I believe what you have seen here in this process is an avoidance of some of the real challenges we face, or an effort to underplay the economic realities.

    As you can hear from the other presentations here, notwithstanding the fact the U.S. has not signed Kyoto, the U.S. is taking significant actions. So it's quite clear one can act quite vigorously in a sustainable development way without having adopted Kyoto. Personally, I would prefer real action on the ground that works as opposed to statements that don't have much behind them in terms of a real plan and real development.

    So I totally agree with you, and I will just give you an example from our industry. When you insulate a house, you are using chemical products. This is good sustainable development. Well, if our industry was now able to triple or quadruple our capacity to develop insulating products, it would cost us emission credits. We would be penalized for doing this, even though we were benefiting sustainable development. These are issues that are very important to work out. You don't want to discourage good development. You don't want to discourage hydro development, or biofuels, or whatever.

    So we don't have any difference in what we believe in here. We support sustainable development. Our responsible care ethic leads us this way. But to develop an approach to an issue requires more than nice statements. It reminds me of the famous statement that we're going to eliminate child poverty by the year whatever. Fine. Good idea. But I'd prefer to have real plans with real actions linked to achieving that objective. And we are nowhere near that today, nowhere near it.

»  (1705)  

[Translation]

    Mr. Paul Crête: Yes, but do you agree with me that the reality today is quite not ideal and that it was made in an environment where there was no plan, no clearly defined direction or objective and that the present situation requires us to react dramatically?

[English]

    Mr. Richard Paton: I would agree with you on that. I would say that the one good thing about having Kyoto on the table is it has stimulated good debate. I think it has increased our sensitivity to energy issues. The last time I remember energy issues being important was about 1979.

    I used to work in the federal government, and I remember all the program cuts we did with program review in 1995. Guess what was cut at NRCan, and guess what they offered to cut—all of the energy conservation programs.

    So, yes, I agree with you, it has been very good to make this a high priority. But I guess my only point would that it is not enough to say something is a priority. It is not enough to say we're going to ratify something. It's even more important to do something about it than to say you're going to ratify it. You have to do it in a way that's economically viable, because some day, sir, you will face, we will face, your province will face, a company that is going to leave the province because of Kyoto.

[Translation]

    Mr. Paul Crête: Sir, this argument does not scare us anymore because we have been told for 40 years that people are going to leave because of sovereignty. This is another similar talk over a different subject.

[English]

    Mr. Richard Paton: Yes, okay.

[Translation]

    Mr. Paul Crête: So, this king of talk does not have any impact any more in Quebec.

[English]

    Mr. Richard Paton: You're most used to it than the rest of us are.

[Translation]

    Mr. Paul Crête: We decided to change the companies when they were leaving.

    Mr. Richard Paton: The aluminum industry, for example, is doing a lot to reduce energy costs and emissions. It is not easy for them to make further reductions.

[English]

    That's going to be a problem for them. So we have to deal with that reality.

[Translation]

    Mr. Paul Crête: Mr. Fortin, I would like you to give us a picture of what would be possible in 20 years, for example, if we chose to promote hydroelectricity in a significant way. In what kind of environment would we be in Canada in terms of the targets to be achieved and, globally, in terms of the possible results? What kind of tool should we use to go there?

    Mr. Pierre Fortin: Thank you, Mr. Crête.

    Hydropower production in Canada is presently around 68,000 Megawatts. The people in the hydro industry who were involved in the National climate change process have determined that it would be technically and economically possible to produce a further 118,000 Megawatts of hydropower.

    If we went ahead with this development, it would be, of course, over a long period, because environmental permitting is a very long process. In order to promote the development of hydropower I already suggested a review of the Canadian Environmental Assessment Act.

    This project could, in our view, achieve a reduction in greenhouse gas emissions which would be equal to 8 or 9% of the total reduction required. This would be equal to the amount of emissions produced by 114,000 cars over a year?

    There is there an enormous potential which is worth exploring. I must say that the paper which has been released by the federal government at the end of November recognizes much more than the first draft made in October the role that hydropower could play in achieving Kyoto targets.

»  (1710)  

    Mr. Paul Crête: Thank you very much.

[English]

    The Chair: Mr. Savoy.

    Mr. Andy Savoy (Tobique—Mactaquac, Lib.): Thank you very much, Mr. Chair.

    Gentlemen, thank you very much for your presentations.

    I would like to address Mr. Paton's argument that the jurisdiction with the more stringent environmental regulations or standards will automatically be the jurisdiction that warrants the least investment and in fact sees an exodus of companies from that jurisdiction. In the last 40 years California has been one of the most progressive, aggressive environmental jurisdictions in the world, and we've seen no mass exodus from California. There are a number of other instances around the world. In fact, it would lead to an environmental sector cropping up in California to help address these technologies and to California being seen as a more progressive jurisdiction. I'm very concerned about the argument and the threat that because of our environmental initiatives and direction, we'll see a mass exodus of companies.

    Have we had the best consultative process possible? No. Have we set targets and timelines? Yes, with Kyoto ratification today. Do we have to have a more defined plan on how to get there? Yes. Do we need buy-in from the stakeholders, that is, industry, environmental groups, municipalities, and provinces? Yes, no question.

    In those terms, specifically, I see a plan where we involve a regional basis and a stakeholder basis, which includes maybe five regions--Atlantic, Quebec, Ontario, the West, and B.C.--something along those lines, with 15 to 20 stakeholders around the table, including the energy, chemical, environmental, and biofuel sectors, looking at these targets and coming up with a game plan. Everybody would meet in Ottawa and look at regional issues and come up with an action plan that is really bottom up as opposed to potentially top down, which is what I think we have now. We have the targets and the timeline.

    I'd like to hear your thoughts on that, starting at this end and moving across.

    Colin.

    Mr. Colin Isaacs: Yes. I agree.

    Mr. Richard Paton: I have to comment on your point. We're not against regulation, nor do we think that stringent regulation is necessarily going to drive industry out. Much as you just proposed, you have to work on the approach to it so that you can balance the economic and environmental performance. We don't believe that has been done. We've just picked a target out of the sky and said we have to meet it. However, as I have put in this paper, we're very strong advocates of covenants or memoranda of understanding with sectors, and we already have some with Environment Canada and several provinces. As you can see in the sectors we're talking about, they're very different. There are very different dynamics. You really have to understand those dynamics and what the economics are and work out approaches that work for that. This is going to be very complicated, but I think it's essential that we get to that point.

    We also have to be realistic here. We have to start with the premise that we want to grow, and as we say in our presentation, to be the best environmentally that we can be. If that's the basis upon which to negotiate, we're ready to do that today. That has not been the basis we've been given to date.

    So there are still some difficulties in figuring out upon exactly what basis we would have such discussions.

    Mr. Andy Savoy: Thank you.

»  (1715)  

    The Chair: Mr. Baker.

    Mr. Bliss Baker: I don't think any of us would applaud the process, but the fact that you set targets and goals and objectives is admirable. Somebody has to do it. We forget the fact that we have the polar ice cap melting. People want to dispute it. Fine. But there's enough evidence around the world right now that climate change is real and somebody has to take action.

    The process will never be perfect. The targets will never be right. I'm not happy about the targets on ethanol. I think we could have tripled those targets. But somebody has to set a target and you've done that, so I think you should be applauded for that. The process, frankly, was frustrating for us as well, and we stood to benefit from this whole process. But the targets have been set and I think it was high time it was done.

    Mr. Jeff Passmore: I guess I'd say, consultation if necessary but not necessarily consultation.

    I ask myself, why does Canada not have a clean air act? Why does Canada not have CAFE standards? Why does Canada not have reformulated gasoline specifications?

    We think we wear environmental white hats in this country but we don't. It's a cultural joke, is what it is. It's partly, I think, constitutional. We have a small population, 30 million people. It's a huge country, so we take our environment for granted. When I grew up, I could go and swim in a freshwater lake every summer. I mean, the environment was simply taken for granted.

    I'm a proud Canadian, but I think we need federal government leadership on this issue. Consult with the provinces, great, but if they're going to drag their heels then we'll have to make decisions and show leadership. Very much in the biofuels area in which Bliss and I are working, we very much need provincial buy-in, because we have this constitutional thing where the feds can take stuff out of gasoline but it's a provincial jurisdiction to put stuff in. With sulphur it's taking things out but for renewable fuels it's putting something in, so we then we need the provinces to buy in. But anyway, as I say, consultation, yes, but we need federal government leadership and I think you've shown that today. I think we've got to bite the bullet and get on with the implementation plan.

    As far as the consultation process was concerned, I might differ slightly with Bliss. I was very much involved in the consultation process and it seemed to me the feds would try to come forward...there was a five-year consultation process in which there was a lot of resistance from the naysayers. There were lots of studies done and numbers of consultants made lots of money, but at the end of the day, somebody had to make a decision and Ottawa took the decision to move forward.

    As I say, I think that's what had to be done. Otherwise we would have consulted for another five years and never actually arrived at the point we are today where we can say, fine, we've ratified. Now let's move forward from here as a collective Canadian society and figure out how we're actually going to deliver. Otherwise, as my colleague two to my left said, we won't actually meet the targets.

    Mr. Pierre Fortin: I believe we need consultation, especially if I look at the industry that I represent. There needs to be some national direction, but the actual implementation or the development of the actual projects falls under provincial jurisdiction. So there's definitely a need to have the provinces involved. Obviously, the provinces recognize that, since it was one of the 12 points they submitted to the federal government.

    So, yes, I think there's a need to have as many players around the table as possible. There's no doubt in my mind about that.

    The Chair: Very good question, Mr. Savoy, but you've taken all your time.

    Mr. Fitzpatrick.

    Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): I have a couple of general comments.

    Everybody is using models and forecasting on this sort of thing, and I read a quote from Warren Buffet the other day that said something to the effect that economic modellers and forecasters were invented so fortune tellers would look brilliant. And I'm inclined to accept that, because if one assumption is wrong in your model, your conclusions are all off-base, and everybody knows that. And I don't know of anybody who can get all those assumptions right, to get the right results. So I think we have to take a lot of that stuff with a grain of salt.

    Another thing I think is very important is commanding, or wishing, a result and actually managing a system to a result. And all I'm going to mention on this is that when we shoot from the hip and get going on that sort of thing, just think of firearms registration. If there is no plan or process in place to get to a result, and government is just going to wish or order it, it's not going to work, quite frankly, and that's the concern a lot of people have here.

    But I want to get to these alternative energy things, too, because I come from the school that says there is no free lunch in this world. I understand Archer Daniels is big on converting corn into ethanol in the U.S., but I also understand if you go right back to the farm and work that whole chain right through the whole system and you take into account the CO₂ all along that chain, there are a lot of people saying there is no net gain out of this process. Maybe the fuel in the car is cleaner, but if you take the whole chain into account, there is no net gain.

    I understand that Mr. Passmore's cellulose is in a different category, and I think I understand his industry, but if we're taking conventional grains or corn, we may not be gaining anything.

    And in terms of hydropower, if Matthew Coon Come was here today he'd probably tell you there's no free lunch with hydro.

    And Alberta now is talking about damming up the Saskatchewan River, which is causing no end of concern in Saskatchewan and I might say Manitoba as well, so there is no free lunch.

    And the amazing thing is that in terms of alternative energy forms I've heard no mention in any plans about something Canada is the biggest producer of in the world, and that's uranium, atomic power. I've heard no mention whatsoever of it. It seems to be a taboo we're not even talking about, but France and Japan are on it.

    I'm just going to leave that with you, gentlemen. You can respond to it. I come from Missouri; I don't buy into the argument that there's a free lunch on this thing. I don't think we can just move from fossil fuels to this or that and everything is just going to be hunky-dory. I don't think that's the way things work.

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    The Chair: Are there any comments?

    Mr. Baker.

    Mr. Bliss Baker: Thank you very much. I'm glad you raised that issue, because it is one of the biggest misunderstandings about ethanol out there today. In fact, it is the biggest misunderstanding about ethanol right now. On a life cycle basis, ethanol has been accused of taking more energy to make it than you actually get out of it, and all I can say to that is: wrong, absolutely, unequivocally wrong.

    I can fill this room with studies, and there are studies that have been done as recently as 2000, 2001, and one that was done this summer, and studies done by the Department of Energy in the United States, Natural Resources Canada, Agriculture Canada, and several studies done from National Renewable Energy Lab in Colorado. They've all concluded that you get a net energy benefit when you make ethanol from grain on a life cycle basis when you include all the inputs and all the outputs.

    I should add that Canadian ethanol is even greener, because, as you know, coming from Missouri, in the midwest, a lot of.... Did you say Missouri?

    Some hon. members: Oh, oh!

    Mr. Brian Fitzpatrick: They've got that in Saskatchewan, too. It's a good thing to have.

    Mr. Bliss Baker: But Canadian ethanol is even greener because a lot of the midwest U.S. ethanol plants use coal-fired energy and Canadian plants do not. They use natural gas and in many cases they don't dry their grains so there's no energy, or very little energy, input.

    So I can say unequivocally, based on all the research I've seen, with the exception of one study, that there is a net energy benefit or gain to making ethanol, to the tune of 50% or higher, and that's grain ethanol.

    Mr. Brian Fitzpatrick: It may be factual, sir, but in Saskatchewan there are ethanol plants on the drawing board and I can tell you there are people in science involved on both sides that are arguing this very point you have. So it's not just one person, there are two schools of thought on this--

    Mr. Bliss Baker: Right.

    Mr. Brian Fitzpatrick: --and there are a lot of people who haven't made up their mind on it.

    Mr. Bliss Baker: I understand that. I've been to Saskatchewan many times and have seen the press clippings from the Regina Leader Post and all the papers in Saskatchewan, and the vast majority of the people opposed to developing the ethanol industry in Saskatchewan have been quoting one study. It's a Pimentel study from Cornell University that was based on 20-year-old data.

    The Chair: Mr. Fortin.

    Mr. Pierre Fortin: Thank you. I'd like to offer a couple of observations on your comments.

    As an industry, we're definitely not saying hydropower should replace all sources of electricity. I think there are roles also for fossil fuels, coal, nuclear, and the new emerging renewable technologies. But we certainly say that hydro should be part of the solution to the larger issue of climate change.

    And just quickly, if Mr. Coon Come were here today, he would have to admit there's no hydropower development going on today without the participation and partnership of the aboriginal communities. I don't want to be facetious, but maybe they are the ones getting the free lunch. That's a joke....

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    Mr. Brian Fitzpatrick: You said that, I didn't.

    Mr. Pierre Fortin: Yes.

    The partnership is there, and considering the environmental implications and the participation of the local communities, I think he would have to admit there's been a tremendous change in attitude on the part of our industry.

    The Chair: Mr. Discepola is next for a short question.

    Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Mr. Passmore, you said you needed an investment of $400 million over eight years. Is that direct investment, or could it be in the form of foregone revenues on the part of the government?

    Mr. Jeff Passmore: The proposal by the association is for a 10¢-per-litre production tax credit on ethanol for eight years. Based on the volume of production, that comes to $400 million.

    Mr. Nick Discepola: Are you saying from that you'd probably generate 1.3 billion litres?

    Mr. Jeff Passmore: Yes.

    Mr. Bliss Baker: There would be eight to ten world-class ethanol plants, depending on the size, because some of them vary.

    Mr. Nick Discepola: What is the stumbling block in the Montreal area?

    Mr. Bliss Baker: It's really financing. I've met with them many times on this, and when you look at the plant and the return on their investment, it's in the low teens. When their board of directors--and I don't dare speak for them--make a decision to build their next plant, if they go across the river 30 kilometres south into New York State, or from Ontario to Michigan or Ohio, their internal rate of return is in the low 20s because of the additional incentives.

    So it's an easy decision for them to make. They want to build in Canada, they're a Canadian company, they want to build in Varennes, but it doesn't make sense right now.

    Mr. Nick Discepola: Mr. Isaacs, if we want to, as a government, accelerate the implementation of some of the environmental technologies, what should we be doing?

    Mr. Colin Isaacs: The number one priority is to encourage innovation within industry and within society at large. The implementation of an innovation strategy to essentially educate all sectors of Canadian society on the importance of being more innovative and more competitive is absolutely essential.

    As you're aware from the material that's been tabled by Minister Rock, there's a wide range of components to an innovation strategy. Some of them involve financial assistance, but the majority of them involve education and providing an appropriate knowledge-based infrastructure.

    The second priority is to make more people aware of the excellent environmental technologies and knowledge-based services that are available in Canada, and as Mr. Savoy has suggested, bring the suppliers of the technology and the know-how together with the potential users in every sector of the economy, in order to build the partnerships that can move us to a more greenhouse-friendly and innovative economy.

    It's essential we do that, not just to achieve the targets the House has agreed upon today, but to ensure that we remain competitive as a world player, as dependent on exports as we are.

    The Chair: Mrs. Gallant is next for one short question. Time is running out.

    Mrs. Cheryl Gallant (Renfrew—Nipissing—Pembroke, Canadian Alliance): Thank you, Mr. Chairman.

    I'd like to know whether or not the ethanol industry is receiving any benefits from the carbon credit system. If not, are other countries receiving carbon credits for the use of ethanol? And If ethanol plants in Canada were supplying the pumps at Canadian gas stations, as opposed to American ethanol, would consumers see a drop in price?

    Mr. Bliss Baker: On your second question, right now ethanol-blended gasoline is sold at par, and is competitive with other gasolines in Canada. So at Suncor, Sunoco stations in Ontario, for example, and MacEwen's, they sell ethanol-blended gasoline. They compete with Imperial Oil, Shell, and others that don't have ethanol. So it's done at par here in Canada, as it is in the United States.

    I forgot your first question, sorry.

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    Mrs. Cheryl Gallant: It has to do with carbon credits. We don't receive any--

    Mr. Bliss Baker: My understanding is that right now, because ethanol is a targeted measure, it's outside the emissions trading system and there are no carbon credits. So ethanol producers wouldn't get carbon credits; MacEwen's fuel wouldn't get carbon credits.

    Now, there's a grey area there, I'm told, and there are still some details to be worked out, but right now, my understanding is there are no carbon credits.

    Mrs. Cheryl Gallant: Other countries aren't giving for ethanol either, that you're aware of.

    Mr. Bliss Baker: As far as I know.

    The Chair: Thank you very much.

    I apologize, but we're at the end of our time. It's been an excellent discussion, and revealing to the members in the industry committee. So I want to thank the witnesses for your patience while we were voting, and for your dialogue and exchanges. I'm sure if there are further questions, we will be calling on you to help inform the committee.

    This meeting's adjourned until tomorrow afternoon.