EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, October 19, 1995

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[English]

The Vice-Chair (Mrs. Kraft Sloan): Order. We have representatives from the Canadian Petroleum Products Institute. This morning we have Alain Ferland, executive vice-president of Ultramar Canada; Brian Fischer, senior vice-president, products and chemicals, Imperial Oil Limited; Giorgio Grappolini, manager of business integration and industry and government affairs, Petro-Canada Products; Bob Leflar, general manager of refining, Parkland Industries Ltd.; and Alain Perez, president of CPPI.

Generally with the committee, just to give you a quick overview of how we proceed, if you have a brief or a presentation where you would like to say a few words at the beginning...and then we go to questions from the members. We generally start with opposition members and then go to the government side.

Mr. Alain Perez (President, Canadian Petroleum Products Institute): Thank you, Madam Chairman. I'm going to start, as you suggested, with a few remarks. Brian Fischer, who is the chairman of the board of CPPI, will share some of those remarks with me.

The petroleum products industry is very concerned about the decision of the Minister of the Environment to table Bill C-94 at this time. This concern has forced us to mount a very extensive campaign of communications. We have actually met with several federal departments. We have met with provincial cabinet officers and staff. We have met with federal bureaucrats. We have met with other associations.

All through the last three months during which the effort has been taking place, the reactions to our message have ranged from understanding to support, sometimes, and very strong support. However, Bill C-94 is proceeding very quickly. We thought here we would have a last chance to expose our case, respond to your questions, and maybe suggest a few courses of action for this committee to consider.

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We believe that many aspects of Bill C-94, as far as we who are in the oil industry are concerned, are counter-productive and that at this time the bill is premature and unnecessary.

We believe the bill is counter-productive because, first, from an environmental standpoint, the removal of MMT will force refiners to operate refineries differently and use more energy, and this will result in higher emissions for greenhouse gases.

We believe vehicle emissions will also increase, particularly in nitrous oxide, NOx. Depending on the age of the cars, these increases will be between 10% and 20%. You had testimony yesterday, we believe, with much lower numbers. At some point maybe we will be able to clarify this. For cars from 1988 and younger - so for the cars of the future - the tests have shown that it was 18%. We believe the 10% to 20% range to be realistic.

From an economic standpoint, number one, the removal of MMT will add about $90 million of cost to our refining operations. Any alternatives that we have to produce octane, such as ethanol or MTBE, are more expensive. In the case of ethanol, even though it's subsidized, it's as expensive, and if subsidies stop, it will be even more expensive.

More importantly, MMT is an additive and you add very small amounts. Ethanol and MTBE are replacements for gasolines, and you would add up 10% or 15%, or more, of the volume. Therefore you would lose 10% to 15% of your refinery output and raise the cost of your refinery considerably.

From a strategic perspective, we think it's counter-productive, because at this stage we are virtually certain that MMT will be reintroduced in the United States sometime between the end of the year and the first quarter of 1996. At that point our costs will go up; the U.S. costs will go down; and in terms of import or export, where we had an advantage we will have a disadvantage.

We believe also that the process used to put the bill before the House has in a sense been counter-productive because it has bypassed the existing CCME process. It has undercut the consultation with and among provinces, and this is of concern to us, because at the same time we are discussing in a very productive manner with the federal government and the provinces the whole issue of reformulated gasoline, which certainly has an impact on our costs and the way in which we will market in the future.

In terms of whether this bill is necessary, we believe it's not, because, first, removal of MMT does nothing for the health of Canadians. MMT is not a health issue. I'll quote from Health Canada:

The use of MMT as a gasoline additive in Canada does not represent a health threat to any component of the Canadian population.

I think you had testimony to that effect yesterday from Health Canada officials.

In terms of harmonizing the specifications of gasoline between us and the U.S., again, with the introduction of MMT in the near future, we believe it is unnecessary because it will work against that. We also believe - and this has been a major point of contention between us and the auto industry - that it is technically unnecessary. There is no evidence, from EPA or other studies, from anything we have seen, that MMT has fouled up sensors onboard cars. There is no evidence that we have been allowed to share with anybody that, on a scientific base, has proven that point. I think that most of you are very familiar with that issue, which also was discussed yesterday.

Why is there a Bill C-94 in the first place? We believe that the issue started with a claim from the auto industry, accompanied by threat of warranty removals, and that Environment Canada have felt as if they are in a time crunch to produce something and at one point they felt as if they had to referee between two industries. In fact I think Canada has gotten involved in a major industrial dispute that is mostly a U.S. issue between the auto industry and the oil industry.

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I believe if MMT were back in Canada it would be viewed as a major victory by the automobile industry because they would claim that probably for the first time they have won on the principle of shifting responsibility for pollution control and emissions from themselves to the oil industry.

Our position from the absolute beginning has been to try to cooperate with the auto industry and resolve privately the dispute instead of having the Government of Canada involved in trying to settle it.

Before I conclude and make some recommendations for the attention of this committee, I would like to ask Brian Fischer, because he has been a player in the game and an actor in the efforts to cooperate with industry, to summarize briefly for you the events that have taken place in the past two or three years between us and the MVMA.

Mr. Brian Fischer (Chairman of the Board, Canadian Petroleum Products Institute): Madam Chairman, good morning. My name is Brian Fischer. As Alain noted, I'm from Imperial Oil and am currently chairman of the board of the CPPI.

What I would like to do is share with you what we have attempted to do over the last two years to facilitate a resolution to this matter.

During 1993 there were several senior meetings between the board of the Canadian Petroleum Products Institute and the board of the Motor Vehicle Manufacturers' Association to discuss the topics of collaboration and harmonization. Whereas we agreed in many areas, the most contentious issue was the use of MMT in gasoline.

It was agreed by both boards in mid-1993 that Mr. Innes, my predecessor at Imperial Oil, and Mr. Matthews, Ford Canada's MVMA board member, would work together to design a process for resolution of this issue. A process was agreed on between these two gentlemen and was documented in August 1993 by Mr. Innes. The key features were the design of a study to conclude on the effects of MMT at a maximum usage level of 9 milligrams per litre, and a one-year duration required to ensure high-quality testing results.

This was put forth to both boards. The CPPI board agreed to this approach. Although costly to some members whose use went above 9 milligrams per litre, it was supported by them, since this was a level at which it appeared sound data existed that indicated no harm to emissions equipment. The data available was the 8 million miles of car-testing by Ethyl, which had been scrutinized by the EPA in the U.S. We believed selecting a level of 9 milligrams per litre would result in a speedy resolution.

The MVMA board, however, rejected the proposition brought forward by their Mr. Matthews, since they had contested the EPA findings and wished to await the outcome of new EPA deliberations during 1994.

So that was our first collaborative attempt, supported by the MVMA delegates, supported by the CPPI board, but not supported by the Motor Vehicle Manufacturers' Association board.

In early 1994 the two boards met again at our request, and it was agreed that I would now represent the CPPI, replacing Mr. Innes, and Mr. Matthews would continue to represent the MVMA to discuss further MVMA data on MMT and attempt to resolve the matter.

Following this, in early 1994 Mr. Matthews and I met with various technical support members from each association. At this session Ford presented theory rather than data on why MMT might cause a false reading on on-board diagnostic equipment, and we responded to the MVMA's request as to what the CPPI would do under various outcomes of the EPA deliberations. Our position presented was as follows.

First, if the EPA ruled against MMT on the basis of health issues, we would have to defer to Health Canada for its opinion, since Health Canada was the Canadian body to provide views or regulations relative to health.

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Second, if the EPA ruled that the use of MMT caused harm to emission equipment or on-board diagnostic devices we would curtail the use of MMT.

Third, if Health Canada had no health issues and the EPA no conclusive technical issues we would continue to use MMT.

Mr. Matthews, from Ford, viewed it and stated that this appeared to be a rational response.

In response to what the MVMA would do if no health or technical issues were ruled on, Mr. Matthews indicated they would probably be redesigning new, more robust, on-board diagnostic systems. However, he was overruled by his representative from Dearborn, Michigan, who stated that they would disregard the EPA rulings in such a case and issue warnings in owners' manuals that the use of MMT would nullify warranties.

So it appeared to us that regardless of EPA rulings on MMT, if favourable to its continued use, the MVMA was set on the removal of MMT. Obviously it is not a very logical position, to us.

Subsequently to this, at the technical level it was offered that whatever data were available from the MVMA on ethyl would be brought forward to an independent scientific panel for assessment and the CPPI would abide by the recommendations of the independent panel. The MVMA declined.

Since Minister Copps was positioning in media releases a favourable disposition to the removal of MMT, members of our board met with her and Mel Cappe in Hamilton in November 1994. We told her of our requests for an independent panel review, and told her that her apparent taking of sides with the MVMA was not facilitating the MVMA to participate in independent scientific assessment, whereas if she helped us in bringing the MVMA into such a process, we could resolve the issue based on fact rather than emotion and rhetoric. All board members of the CPPI then sent a signed letter to Ms Copps, re-articulating the need for an independent scientific assessment.

Ms Copps responded to each board member, requesting that we outline in writing our proposed resolution of the MMT issue by the end of 1994. She copied the MVMA and the Association of International Automobile Manufacturers of Canada.

Following this, we, the CPPI, established a panel with independent members - three, in fact - to which both the auto makers and Ethyl presented data. The conclusion of the independent members was somewhat discouraging to us, since they concluded that, first, the views held by Ethyl and the auto makers were diametrically opposed; data and conclusions were irreconcilable because of different vehicles, test conditions, and scientific rigor; and third, Ethyl had used more controlled testing protocols, whereas the auto makers relied heavily on warranty rate differences between Canada and the U.S. and had inferred that the differences were due to MMT. They concluded that a scientifically based testing program was necessary to resolve the contentious areas and that this could be completed by the end of 1995.

On January 12 we received a letter from Ms Copps that she would legislate the removal of MMT if we could not resolve the matter.

On January 31, along with other board members, I met with Ms Copps and advised her of the output of our independent scientific panel and that based on that assessment we had no substantial data that would allow us to inflict financial harm on Ethyl by ceasing the use of MMT...or for our shareholders to incur additional costs associated. So its full removal would have to be dictated by legislation, and we would obviously abide by any legislation.

At that meeting we did, however, make a last-ditch proposal to reach a non-legislated solution. We articulated this proposal at that meeting and subsequently documented it in a letter to Ms Copps dated February 1, 1995. This proposal, in addition to CPPI sponsorship, included support from all non-members, such as Irving petroleum and Co-op in western Canada.

The proposal had the following features: to lower the current CGSB limit for the maximum allowable level of MMT dosage in Canadian gasoline from 18 milligrams per litre to 9 by March 31, 1995; by May 30, 1995, CPPI refiners would all commence manufacturing Canadian-consumed gasoline to this new standard; and by February 28, 1995, on the assumption the MOE could solicit timely and full participation from the MVMA, we would establish technical and testing criteria on both content and test duration to develop a comprehensive database related to automobile warranty issues associated with gasoline at 9 milligrams per litre of MMT.

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We noted that in MVMA-CPPI discussions in August 1993 the period to determine MMT issues, or lack of, was set at one year. We said that we would determine with the MVMA whether required testing could be conducted in a shorter timeframe without compromising quality.

The MVMA and CPPI, we noted, would write a joint letter to the MOE outlining the process agreed upon, the expected duration, and the timing of expected interim or final reports.

The assessment team to review team output, which was to be confirmed with the MVMA, we believe should consist of members of the MVMA, the CPPI, Ethyl Corporation, third-party unbiased technical resources, and an MOE observer.

We stated that if at the conclusion of the agreed-upon test period there is conclusive evidence that the yearly cost of warranty issues that can be directly attributed to the use of MMT exceeded the cost of removal of MMT from 9 milligrams per litre to zero, then the CPPI would support the removal of MMT.

The proposal also noted that it is possible during the period of testing that the EPA will conclude that MMT will be allowed in gasoline in the U.S.A. at 9 milligrams per litre. We noted that in this case the above-noted Canadian tests would be suspended and the Canadian General Standards Board standard for MMT should be set at the limit allowed in the U.S.

We said that if the MVMA elected not to participate in the noted process, then the CPPI, in the spirit of attempting to resolve this, would continue to restrict the use of MMT in gasoline to 9 milligrams per litre, in the absence of any data to suggest that further reductions were warranted.

The minister agreed to pursue this with the MVMA. What happened in that pursuit is really not known to us, but Bill C-94 appears to be the outcome.

Thank you.

The Vice-Chair (Mrs. Kraft Sloan): Thank you.

Mr. Perez: Just to conclude, we believe that what should have been a scientific dispute and a resolution to that dispute between two industries has been treated by the government as something in which to become very involved, to the point of passing legislation.

To us, Bill C-94 is more than just the impact it would have on us economically and all the other things I have outlined. It is also something that adds up to all the costs that we will be incurring in our voluntary proposal to reformulate gasoline in Canada. Our proposal is one that would give Canada the highest national standards on environmental specification in the world.

We are also used to working with the federal government and the provinces in a cooperative and voluntary approach. We have, with Energy Canada, a very massive program of reducing our greenhouse gases, which is known as the Voluntary Challenge registry, which I believe Mr. MacLellan has described as being very cooperative and something that will achieve the government's objective.

However, at this stage we need to reach a positive conclusion. We would like to suggest and recommend to the committee that, number one, we still feel that an independent review and a test program are necessary. We restate our commitment that if the test program shows that MMT in the recommended concentration of 9 milligrams is detrimental to any party, then we will voluntarily remove it from our operations. Finally, in that interim period we will voluntarily roll back the maximum from 18 milligrams to 9 milligrams, as a gesture to show that we are willing to cooperate.

However, if this recommendation is rejected and the committee feels bound by government direction to proceed on this matter in the way the bill has been tabled and passed at second reading, then we will recommend that, because of the imminence of a U.S. decision, which then would throw us into real chaos in the industry, clause 21 be amended and allow for promulgation of the bill at a future date to be determined by the Governor in Council. This will allow the Governor in Council either to look at the result of the study, if there is one, or at least to consider what's happening in the United States and not put us in a position where it's introduced in the U.S. while it's banned in Canada and we get into real problems in import-export competitiveness and all the issues I have described.

Thank you very much.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much. I wonder if it would be possible to have a copy of some of the remarks. I don't think we have all of the remarks you made this morning, so if we could have a copy, we would certainly appreciate that.

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Mr. Perez: They are basically the result of a little bit of brainstorming last night on how we were going to focus our remarks to the committee. We will put them on paper and send them to you this afternoon.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

[Translation]

Mr. Pomerleau.

Mr. Pomerleau (Anjou - Rivière-des-Prairies): I'm a little concerned by your presentation. I would like to begin by asking you a few questions.

You talked about what it would cost oil companies to replace MMT with ethanol. Firstly, there would be technical costs directly due to changes that would be made in the plant, as well as other costs, because ethanol is not an additive, but a product which would be added to gas. Apart from the 93 million dollars, how much do you think the cost of such a change would be per litre?

Mr. Perez: Mr. Pomerleau, if MMT became a banned substance after the adoption of Bill C-94, the industry would not replace MMT with ethanol or MTBE. Given the technology at our disposal, it would be cheaper for us to simply change our refining methods.

If we can't use MMT to increase the octane level in gas, we will simply increase the amount of energy and the temperature in our units to extract those molecules from crude oil. That represents 90 million dollars in terms of additional energy costs.

Ethanol and MTBE are solutions for refineries - and as far as I know, it's not the case in Canada amongst members of the CPPI - who would not have the ability to do that. Those companies would have to substitute 10 or 15% of their production with ethanol or MTBE. In terms of cost, you would have a refinery which would not operate at 100%, but at 80% capacity.

It would be different for each refinery, but they all have very high fixed costs. So it's very important for a refinery to maximize its operational capacity.

Mr. Pomerleau: In your opinion, if Canadian oil companies were not allowed to use MMT, they would not resort to ethanol.

Mr. Perez: To my mind, they would not switch over because there are other, cheaper, ways to change their operations.

So - and this is something I heard in the House of Commons debate - ethanol would not replace MMT. Ethanol is a completely different subject. Ethanol has its advantages, but we should discuss them in another forum. However, it doesn't mean ethanol will replace MMT. That's strikingly obvious.

Mr. Alain Ferland (Vice-President and Director General, Ultramar Canada Inc., Canadian Petroleum Products Institute): Mr. Pomerleau, I'd like to add a few comments.

As Mr. Perez explained, if MMT were banned, refineries would have to increase the intensity of their refining operations. This means they would have to buy more crude oil to produce the same amount of fuel as before. Since refining operations would be more intense, Canada would become even more dependent on outside oil, particularly eastern Canada.

If we bought more crude oil, our refining operations would increase, and we would have to produce and burn more fuel to sustain the increase in refining operations. This would result in more gas being released into the atmosphere.

These issues have to be seen in their overall context. On one hand, people are trying to ban MMT, but that would lead to increased car pollution because they would burn fuel without MMT. As well, pollution would increase because refinery operations would intensify and more oil would be burned to feed them.

You have to look at the big picture before making that kind of decision.

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Mr. Pomerleau: Car manufacturers told us they have produced scientific studies proving that MMT fouls OBD systems. Have you yourself seen these studies?

Mr. Perez: No, we haven't had access to those studies. When we asked to see them, we were told they were confidential. I think there was even a debate in the House on the matter, but the answer was simply that the studies were confidential.

We feel a bit like the ground has been cut from underneath our feet. We would like to conduct independent studies, but we're told that they've already been carried out and that we can't see them! In the meantime, the 1995 deadline is inching closer. The 1996 models are on the point of being released and there have been threats that guarantees for those models would not be authorized.

By the way, the 96 models are out and their guarantees have been authorized. So that threat simply does not seem to hold water.

Mr. Pomerleau: Thank you. I'll come back during the second round.

[English]

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

For this round we'll have a maximum of seven minutes to make sure everyone has an opportunity to ask questions and follow-up questions.

Mr. Chatters.

Mr. Chatters (Athabasca): Thank you, Madam Chairman.

To review what we heard yesterday and what you said today, Health Canada assured us that there is absolutely no health threat in the use of MMT. We also heard the department say there is no conclusive evidence that MMT is causing problems with OBDs or that the failure rate is any different from that of the U.S., where it isn't used, and here, where it is.

In your view we are heading for some real problems with fuel harmonization because of the likelihood of the U.S. moving back in. You have not had an opportunity to participate in or to study independent scientific studies on the effect of MMT. You also said quite clearly that ethanol is not a substitute for MMT. In fact, if MMT is banned, you will not go to ethanol as a substitute. You will go to more intensive refining, which has its own problems.

I heard a lot of other rhetoric in the House when this was being debated on second reading, rhetoric about why Canada would possibly insist on using MMT when all the rest of the world is not using it, including Europe and the developing countries. Have you any idea why that's the case?

Mr. Fischer: From our understanding - and I'm sure you can question Ethyl when they appear on the last day - since the issue has been contested in the U.S. for a considerable period of time, most other countries were waiting for the outcome of that testing. As you know, as Mr. Perez has stated, we believe that testing will conclude that MMT will be used in the U.S. and we would then expect - and Ethyl would be a better judge of that - it would move to other countries as well. I believe it is used in a couple of other countries.

Mr. Perez: Europe, for instance, is largely using lead. They are at the same point where we were at the crossroads in the 1970s of having to decide what to do to enhance octane once the European Community imposes a ban on lead. And when they have that choice, in our view, MMT will be the logical.... This is why this debate that is happening in Canada is so huge in terms of consequences on what everybody else is going to decide. If the U.S. introduces MMT our role becomes less significant as a country because that's what Europe will do. But for the time being, Mr. Fischer is right. They're waiting.

Mr. Chatters: Most of the rest of world is using lead as an octane enhancer.

Mr. Perez: Yes.

Mr. Chatters: That certainly clarifies that issue.

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We also had some confusion over whether, after 18 years of absence in the U.S., should it now become legal to use MMT in the U.S., the technology is outdated and the U.S. wouldn't go back to that use of MMT. How do you respond to that?

Mr. Perez: Our understanding from our contacts in the U.S. is that when MMTs are introduced they will, over a period of one year to 18 months, gain at least one-third market share and will probably reach 50% of the market. It will start with smaller refiners that don't have octane capabilities.

Once it's reintroduced, that's what's going to happen. Its reintroduction is extremely likely given the tone of the hearings at the U.S. Court of Appeal. They have clearly told EPA that they have no case. They will rule on that in 60 days. That's a matter of record.

Mr. Chatters: Considering the pretty conclusive evidence that I've heard and that you've presented, in your view, what's driving this bill? Why are we introducing this bill?

Mr. Perez: I think the Government of Canada sincerely believes there is a major dispute between two industries. To be candid, there is no question that in terms of jobs and impact on the public when you threaten that warranties are going to be withdrawn, the auto industry has enormous clout.

Because of that and faced with a deadline that was approaching on the 1996 model, the Government of Canada has felt compelled to use a Solomon judgment and rule, through legislation, in favour of the consequences that were being envisioned. But those consequences are not correct. In my view, the auto industry has brought into Canada a U.S. and world dispute.

Mr. Chatters: Thank you.

That's all, Madam Chairman, except that I would ask something. I'm not too concerned about the record of the remarks because I can get those from the record of the meeting, but I would ask if this delegation could table the letters to and from the minister that they talked about.

The Vice-Chair (Mrs. Kraft Sloan): Is that possible?

A voice: Sure.

Mr. Chatters: Thank you.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

Mr. DeVillers.

Mr. DeVillers (Simcoe North): Thank you, Madam Chair.

As I understand your evidence, if MMT is banned it will not be replaced; the petroleum will be refined differently. In the process of that additional refining or additional heating there'll be more greenhouse gas emissions coming from the refineries. Why is that? Are there no regulations that govern the emissions coming from the refineries? I believe there was evidence yesterday from Environment Canada that those additional emissions would be minimal or not of consequential effect.

Mr. Ferland: There is no regulation that I know about that limits the amount of crude to be processed in the refineries in Canada. What triggers the throughput at the refineries is simply the demand for gasoline to be utilized, basically by cars.

If you say that in the future Canadians will not drive less, that they will drive the same number of miles and so on, the cars will require the same amount of gasoline. But because refining intensity is higher in order to produce the same barrel of gasoline, you would need more barrels of crude. So the refineries are going to speed up the throughput, and therefore will call upon and will buy more crude from outside countries; they will simply process more crude.

Mr. DeVillers: So it's the process that would create these additional emissions. Is that correct?

Mr. Ferland: That's a process called a reformer. It's a catalytic process that takes a product that is virgin, with very low octane, and reform it like a military reformer and produce a gasoline with a higher octane number.

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Mr. DeVillers: But it's that refining process that leads to these additional greenhouse gases you're -

Mr. Ferland: That's right; and you're burning more crude and so on.

Mr. DeVillers: Do you have any breakdowns on how significant this would be? We appear to have contradictory evidence from the Bank of Canada here.

Mr. Perez: The issue, sir, is that if you put in MMT you don't have to heat up the crude oil as much. Refining means boiling crude oil. That's what it is: you boil it and something comes out. To be a little simplistic, basically, if we don't have MMT we have to boil more crude, and boil it longer. No regulation is going to prevent the process of boiling something from using more energy. And CO2 is just a natural by-product. It cannot be helped.

Mr. DeVillers: What I'm asking for is whether there is a measure of how much greenhouse gas is produced in that process, so we would then have an idea of how much additional greenhouse gas we'll be creating. Are any figures or any measurements available?

Mr. Giorgio Grappolini (Member, Canadian Petroleum Products Institute): A study was done a few years ago through RTM Engineering Ltd. I have to admit I do not remember the number off the top of my head, but there was an increase in the thousands of tonnes of CO2 emissions from refineries as a result of having to process harder; which is basically your greenhouse gases.

Mr. DeVillers: Could we ask you to provide that to the committee?

Mr. Grappolini: Definitely we could provide that review study.

Mr. DeVillers: Similarly with the cost figure of $90 million. I think your evidence is it would be $90 million in additional expense to the industry to do this. Do you have any breakdown figures on that?

Mr. Grappolini: That study is already available through Environment Canada. It's the Kilborn study.

Mr. DeVillers: Because we've heard different figures at different times.

Mr. Grappolini: At the beginning of this year, in response to Environment Canada's request for the CCME process, the refining industry and CCPI got involved in looking at modifications to refineries to reform gasoline. The first item on the scenario was the removal of MMT from gasoline. The refineries developed the cost data, which turned out to be somewhere in the order of $115 million in capital and about $70 million in operating costs, annualized. That report is available and it's called the Kilborn study. It was submitted to the CCME and we'll gladly make it available to you.

Mr. DeVillers: The issue of reintroduction of MMT in the U.S.: you've indicated you think this is imminent. Do you have any information on how widespread that might be, if, as, and when it occurs?

Mr. Perez: I believe that question would probably be best answered by the Ethyl Corporation, since they must have some demand projection on who would be their clients. Our information is that very quickly about a third of the refiners would use MMT, and very quickly that figure would go up to 50%.

Mr. DeVillers: But you don't have any specific information. You're saying we should ask Ethyl about that.

Mr. Perez: I believe so.

Mr. DeVillers: On the question of health effects, yesterday we heard the opinion from Environment Canada that if the on-board diagnostics aren't functioning properly, then there could be additional emissions of pollutants or other airborne substances going into the atmosphere, which could have some health effects, even though maybe MMT itself doesn't necessarily have any direct health effects.

Mr. Perez: We do not believe it will foul up the OBD-II in the first place. So it must be a false debate.

Mr. Grappolini: As mentioned, Ethyl will be coming up and talking at a later date.

A couple of things. One, Ethyl has done in excess of 8 million miles of testing and has found that the emissions from MMT gasoline versus MMT-free gasoline...basically, there are reduced emissions from having MMT in the gasoline. Subsequently even the EPA came to their conclusions, which said the MMT did not impact on or contribute to the failure of on-board diagnostic systems; the emission control systems.

Ethyl has also done additional testing on what was called the ``OBD-II'', the second phase of these on-board diagnostic systems, and these tests have concluded that there is no impact on these on-board diagnostic systems.

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Mr. DeVillers: What types of tests were these?

Mr. Grappolini: These were just straight field tests, running the vehicles with gasoline with MMT in it and then doing a test on a periodic basis after so many miles as to what the emissions are and how they compare with the emissions designed for that vehicle.

Mr. DeVillers: The evidence from Environment Canada again was that the reason we don't have any conclusive evidence is these on-board diagnostics haven't been operated with MMT gasoline yet. There's been a lack of experience more than a lack of evidence. What's your response to that?

Mr. Grappolini: These systems have been available on the market since 1994. Ethyl has been testing a California-type vehicle, the Thunderbird, and I think the Honda, and those systems are on those vehicles and have been since 1994.

The Vice-Chair (Mrs. Kraft Sloan): Thank you. Perhaps you could follow up with some other questions on the second round, Mr. DeVillers.

Mr. Reed (Halton - Peel): Does CPPI speak for the whole oil industry?

Mr. Fischer: On this matter, yes.

Mr. Reed: Do you speak for Mohawk?

Mr. Fischer: For the proposal we put forward to reduce usage, we went beyond the CPPI membership and solicited support from all refiners.

Mr. Reed: Did you get support from Mohawk on this?

Mr. Fischer: To the best of my knowledge, yes.

Mr. Reed: Are they members of CPPI?

Mr. Fischer: No.

Mr. Reed: How about Sunoco?

Mr. Fischer: Yes, absolutely. They are members.

Mr. Reed: There are some really serious questions that have to be asked here.

How is it that MMT has been out of use in the United States for eighteen years? How is that it was considered advisable, beneficial and desirable to use a product like ethanol, which you consider undesirable and unacceptable, and now in the United States the volume of sales of gasoline using ethanol blends has risen to 8% and is growing by leaps and bounds? It has taken off. This year in the United States 45 new ethanol production plants are in construction. It's quite amazing.

One must throw a caution on the ruling on MMT as it relates to the EPA too, because the American government still has the option of legislating. That doesn't seem to have entered into the equation yet, but they still have that option. They can legislate outside anything the EPA might want to do.

The other question I can't seem to resolve in my head is what motive would seventeen automobile companies have for turning thumbs down on MMT in their diagnostic system? What monetary gain is there for them to say, ``Look, this mucks up our system and doesn't work very well''? I really can't come to grips.

I've followed this for a little while now, and I know that in terms of the environmental impact, it zeroed in on nitrous oxide. Nitrous oxide of course is a very small component of the emission picture, as you know. If there is a 20% increase in nitrous oxide, if you start with, to use the vernacular, S.B.A., or very little, 20% more is very little more of very little. When you consider the offsets in hydrocarbon emissions on the other side, if we use, let's say, ethanol as the octane enhancer, you see a substantial reduction in carbon monoxide and you see a minor reduction in carbon dioxide emmissions. So there are trade-offs that take place.

.0925

I know we've all been scared by NOx. NOx takes up pages and pages of research. But I think it bears saying that it has to be traded off against what the benefits are on the other side.

The other thing is, in using MMT we're using a product that's not manufactured here in this country. I'm not speaking for the government. I'm speaking for myself when I say that. It's simply an observation. MMT is manufactured 100% in the United States, whereas a product like ethanol has the potential of being manufactured 100% in Canada. One would think that might be a factor.

Finally, the last comment I would make has to do with costs - the costs of refining, and so on. I realize that when you're in business you have to deal with direct costs, and so on. When we as an environment committee are sitting here, we have to deal with whole costs.

The cost per litre at the pump is only one of the costs of petroleum consumption. There are many other costs, and it's only now that governments are beginning to quantify those costs, and if I can use a silly word, ``monetize'' those costs. Whereas if you compare the use of one kind of energy-producing system with another kind of energy-producing system, what it does beyond the cost of the end product is only one of the costs.

What does it do up there? What does it do on the ground? What does it do everywhere else? Those are the things we're wrestling with. And when we observe what is happening in the United States concerning the use of oxygenates, and so on, and the gradual phasing out of heavy metals, it seems to me it's not worth ignoring.

Mr. Fischer: Let me address some of the questions. First, on the comment you made last, on heavy metal, that's totally within the realm of Health Canada to make judgments. I believe they have them, and have said it's not an issue.

Ethanol, I do believe, is a very separate debate. The position of this industry has been quite clear. If you study the full cost of producing ethanol versus conventional gasoline with today's technology, it is twice as costly as conventional fuels.

We have stated that we would support subsidies to introduce new alternate fuels, but do not support fuels that need subsidy forever, and that's what we believe is the case with ethanol with current technology.

The motivation of the auto makers, I believe, is strictly financial. The auto makers have concerns about warranty issues, and we've been asking them to participate in a scientific study to help validate those concerns. We have not been able to do that with them. But I think it's strictly financial. They're concerned about warranty claims, nothing more and nothing less.

In the area of nitric oxide, you've tried to take a position relative to other emissions, and I'll read you what it says:

With respect to vehicle emissions, the statistical analysis shows that MMT-fuelled cars had no statistically significant effect on hydrocarbon emissions in the 1988 test fleet under one set of EPA statistical tests and slight statistically significant effect at .018 grams per mile under another set of EPA statistical tests, but no statistically significant effect on hydrocarbon emissions in the 1992-93 test fleet under any set of EPA statistical tests.

Use of MMT had no statistically significant effect on carbon monoxide emissions in either the 1988 or 1992-93 test fleets.

Finally, the use of MMT reduced nitrogen oxide emissions by a statistically significant amount in both the 1988 and 1992-93 test fleets by .11 grams per mile and .08 grams per mile respectively. That's the statistical analysis of the data based on eight million miles of road testing by Ethyl Corporation.

That's the data we have been exposed to.

Mr. Reed: Are the parameters of that test available?

Mr. Fischer: They certainly are. Ethyl would be able to provide them. I believe they've been scrutinized by the EPA.

.0930

The Vice-Chair (Mrs. Kraft Sloan): Okay, Mr. Reed, you can follow up on a second round. Thank you.

Mr. Steckle.

Mr. Steckle (Huron - Bruce): Thank you, gentlemen, for appearing here this morning. I have a number of questions, but I guess to lead into this, the American petro industry has chosen to use ethanol as a substitute for MMT and has for some good many years. We're talking about $90 million. You're reminding us that there's a $90 million cost factor involved here when we turn to non-MMT use in finding energy.

Why has the petro industry in the United States of American chosen to go the ethanol route? Were they not challenged, as you, I have to think, are somewhat challenged by the fact that there's a margin of volume that you're going to lose by going to ethanol? Is that a concern? Why is it not a concern to the Americans? Why have American gasoline prices been marginally or in some cases substantially lower than Canadian prices given the fact that they're using a more costly product, using your own analogies here on this? What about the gasoline prices here in Canada...?

For instance, we know that taxes make up a big part of gasoline costs at the pump. But ask a person on the street who comes to the pump this morning and finds gasoline at 51¢ and comes maybe to another pump tomorrow morning and finds it at 59¢. That has nothing to do with the cost of producing gasoline. Those are the questions that John Q. Public is asking as they go to the pumps. I'd like to have some answers, and I think the Canadian public would like to have some answers on some of these questions.

I have some further questions.

Mr. Fischer: I think we've again made many representations on ethanol, and I believe that is still a fairly contested area in the U.S. as well. Our studies of ethanol through its full life cycle would say it has no environmental benefits over conventional gasoline when you consider production through to end use, and I believe there are many in the U.S. who would also support that view.

The topic of gasoline pricing is again a whole topic of its own, but if you carefully analyse markets in the U.S. and Canada under similar market conditions, the entire difference between the two is taxes in Canada. There's no other significant factor affecting the difference in prices. We study that very significantly because we have communities that are near the border of the United States.

Mr. Steckle: Could I break in there and ask a question? We do not change taxes in 24-hour periods, but we do have these marginal and sometimes substantial increases. Then we have gas wars. I realize the industry can operate this way, but that is a question the public is asking. So the fact that it may represent a cost of one-tenth of a cent or whatever per litre or whatever the cost might work out to does not bear any resemblance to the cost increases we see at the pump on a day-to-day basis.

Mr. Fischer: All I can say is that the volatility you see in pricing at the street level in gasoline has very little to do with cost either. It has to do with a very competitive industry and at the bottom of those troughs the industry is in fact losing money. That's how competitive it is. We are trying through various fora to better educate the public on what causes that volatility.

Mr. Grappolini: May I make one quick comment here? We keep referring to the U.S. and the fact that they have not been using MMT for the last 18 years. That's not correct. MMT is currently in gasoline in the U.S. and it is in leaded gasoline. It has not been banned in the U.S. It is still there. It has not been allowed in unleaded gasoline, and that is what Ethyl's application is about, to put MMT back into unleaded gasoline.

Mr. Steckle: For the sake of argument, we have a generation that's talking about sustainable development and renewable resources. Or is the petro industry not concerned about that aspect of our future?

Mr. Grappolini: Sir, we are. That's why MMT doesn't make any sense. It's going to consume a non-renewable resource much faster.

Mr. Steckle: I don't get the argument.

Mr. Perez: More crude gets to -

Mr. Steckle: But turning to the option of going to ethanol, when you have a renewable resource -

Mr. Grappolini: Sir, ethanol does a couple of things. As you say, ethanol is good from the point of view of reducing carbon monoxide. Carbon monoxide is not an issue in Canada. In fact, it has been decreasing over the past 15 years and there has been a steady decrease in the level of carbon monoxide in the atmosphere.

What is at issue is, for example, things like VOC, volatile organic components, and NOx, both of which contribute to ground-level smog. If you remove MMT, the increase in NOx, which is up to about 20%, what Ethyl has calculated, there's nothing right now that I can think of that we can do to gasoline to recover that lost 20%.

.0935

So I appreciate that you said NOx is very little, but we are being asked to keep reducing that NOx so the removal of MMT, which actually increases it, seems to be counter-productive.

Mr. Perez: I have two quick comments. NOx may not be a large component of all the emission gases because of CO2, because we breathe and because of water vapour, etc., but when it comes to smog, NOx is its principal precursor in Vancouver, Toronto, Montreal and all the large cities.

I think the issue of ethanol is also a debate in itself. I don't know if the intent of the bill was to remove MMTs to introduce ethanol. But multiply the number of litres that we sell in Canada by 10% or 15% and tell us if the government would forever subsidize 15% of all of that volume at the rate of 20¢ a litre. I can make the calculation...but we're talking about many billions of dollars a year. If that's the case, it sheds light on the debate about a societal choice in Canada to spend that many billions of dollars forever to subsidize ethanol so that it replaces 15% of gasoline. We don't believe that's the case.

As Mr. Fischer said, we have supported ethanol in some localized markets for some good reasons but we do not believe we can count on ethanol to stay forever at the subsidized price that would allow us to say it's one long-term viable option so let's cut down on refining or on the number of refineries and replace that with ethanol. It's not an option for us because we don't believe it would stay at that subsidized price forever. It cannot.

The Vice-Chair (Mrs. Kraft Sloan): Mr. Steckle, if you have other questions we can get them on the second round.

Mr. Finlay, do you have questions at this time?

Mr. Finlay (Oxford): I have one short one, Madam Chair.

Please tell me where leaded gasoline is used in the United States. There's something missing here.

Mr. Grappolini: Leaded gasoline is still available in the United States. It's going to be phased out in the next year or so. It's still used and MMT has been allowed in leaded gasoline all along. It has not been banned in the U.S.

Mr. Finlay: Can you tell me why? Why would anyone buy leaded gasoline if the other is available? Is it necessary for certain engines?

Mr. Perez: Yes, basically for farm vehicles.

I think the phase-out in Canada is finished at this point. I believe the phase-out in the U.S. has been one of saying that it's phasing itself out with engines not requiring it, and that's the way it is. They're near the end of that cycle.

I think my colleague did not mean to say that it's in great use in the U.S. but that it's not technically banned as a substance.

Mr. Finlay: May I ask another short question? I presume research is going on in the petroleum field all the time. I'm a little concerned as to why MMT seems to be at the end of the line. I understand there's MTBE, which may have some problems associated with it, too, as far as emissions and possible effects on health and so on. I would hate to think we were locked in to, ``We either use this or there's some terrible future''.

Mr. Perez: No.

Mr. Finlay: You see, we can keep growing corn as long as we have land to grow it on, and we can keep making ethanol.

Mr. Perez: We're not locked into MMT, sir. If the bill passes we will comply and we will replace MMT with something else. What we are showing you here is why we think it's costly, unnecessary and doesn't do anything for the environment. Bringing ethanol into the market is not the panacea.

But there is no question that if the bill passes, over the next few years depending on how refineries evolve in Canada - the number and the configuration - you will see a combination down the road. In my view, ethanol will be a very small component as long as it's subsidized. It's not a long-term plan for the companies. You'll see some MTBE, assuming that the substance is proven safe by Health Canada; you will see a lot more energy-using reformulation; and the Canadian public will continue to enjoy the same quality of gasoline and octane.

.0940

So I hope we are not here giving a message that it's the end of the world, as that is not so. We are very concerned, because it is unnecessary. We don't understand the objectives of the bill, which is probably what throws us in the most confusion. If it was a bill to replace ethanol, we would debate it as such. If it was a bill to allow the OBD systems to work, we would say we should have a study. Then, if it fouls them up, we would change it.

So we don't understand the objectives of the bill. We are here arguing and being put on the defensive by studies that don't exist or alternatives that ought to be debated. But why are they debated inside the context of Bill C-94?

Frankly, we have not seen any support for the bill in most of the provinces we've dealt with or even in other federal ministries. People are telling us they understand us, but they don't understand us. Health Canada does not support it. Industry Canada is, at best, neutral, and the Energy people I've talked to are rather concerned about the bill.

Mr. Finlay: I don't wish to get into the attitudes of various departments.

Mr. Perez: I don't wish to either.

Mr. Finlay: We have our difficulties with many of them.

Mr. Perez: I'm just telling you that this is what's confusing to us. What are the objectives of the bill? Why is it there? Why have we passed second reading? Why is there so much inflexibility in even allowing for a reasonable delay to see how the situation would change? That's our point. We're not threatening. We're not painting dark scenarios. If you pass the bill, we'll adjust.

Mr. Fischer: I would just like to add and emphasize what Mr. Perez said. Although the cost of substituting for MMT is of concern to the oil industry, we will address that concern and abide by whatever happens.

Our bigger issue is about the lack of sound science in putting forward any kind of basis for banning MMT. This is not the type of debate in which sound science cannot be applied. When it can be applied, we are a full supporter of it being applied. Our frustration in trying to facilitate between the motor vehicle manufacturers and Ethyl through this whole period of time was in trying to bring some science to bear rather than emotion and rhetoric.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much. The chair mentioned yesterday that we're seeing this as an issue in which there are some very polarized points of view. Perhaps, when we hear from the other side, they may suggest that emotion and rhetoric are being used on the other side of the issue. So I would perhaps caution for a bit of tempering of some of the comments. I understand how you feel about this particular issue. It's an important issue, and perhaps you have some emotion attached to it yourself.

As we go through this process, we're going to have a very interesting information set coming from both sides. As parliamentarians it makes our job that much more difficult to make decisions when the issues are so polarized.

I know there has been some discussion about ethanol this morning, in terms of the subsidies to it and that sort of thing. Ethanol is really not the topic of debate, because as far as I understand, you said you're going for reformulation as opposed to any kinds of additives. Is that more the approach taken by the industry here? Was this an earlier comment I heard?

Mr. Perez: The reformulation I was referring to is the exercise we're conducting through a CCME task force.

The Vice-Chair (Mrs. Kraft Sloan): So the industry isn't looking at reformulation as a way to deal with the non-use of MMT, as opposed to additives. So the options are still open for both.

Mr. Perez: Reformulation is to decrease benzene, greenhouse gases, and NOx. The only effect between the MMT issue and reformulation is that, on the one hand, we will be decreasing NOx voluntarily as a way of decreasing smog precursors in the Lower Fraser Valley and the Quebec-Windsor corridor. We'll do this by adjusting our refineries. At the same time, with the removal of MMT another set of emissions is going to pop up from cars. So one will probably offset the other.

.0945

The Vice-Chair (Mrs. Kraft Sloan): To what degree could be debatable, as well.

Mr. Perez: I agree that we can debate, but what nobody will debate is that the removal of MMT will increase NOx, and will do so more and more as newer cars come into the market. Nobody will debate that we are taking extreme steps in those markets where ground-level ozone is an issue to lower and to change our operation to lower the vapour pressure and the NOx emissions.

The Vice-Chair (Mrs. Kraft Sloan): I know, as I said earlier, that ethanol is not necessarily the debate here, but we seem to be talking a lot about subsidies to ethanol. We also have to be aware of the subsidies to the petrochemical industry. Certainly a great amount of greenhouse gases is created in the removal of petrochemical products from the tar sands. So there are other sides to this issue. When we talk about subsidies, there are subsidies on both sides.

[Translation]

Mr. Pomerleau: I understand that car manufacturers want to protect the guarantees for the new cars to be released on the market. Obviously, the pressure is coming from there and the government does not have a lot of time to respond because these cars will be on the road in 1996.

In your presentation you said that environmental liability could be transferred from car manufacturers to oil producers. Could you please expand on this?

Mr. Perez: The MMT issue is quite interesting in this respect. If the car industry tells us that beginning in 1995, we will have to change our fuels because they changed the type of sensor used in OBD systems, what's to prevent them from coming back in 1997, demanding that we change our fuel once more because they changed the type of spark plugs in their vehicles? A few years later, they might ask us to change our fuels again because they've just installed new kinds of catalytic converters. There would be no end to this.

In the past, these issues were always negotiated between the car industry, which needs us for its fuel, and us, who need the car industry because they are an indirect client of ours.

What's unfortunate in this case, is that the financial stakes are so high. The government has made a decision without studies proving the other party's case. Car manufacturers have staked out their position, but we haven't had the opportunity to express our point of view. Why? Because their equipment is at stake. So there are two aspects to the problem.

[English]

Mr. Chatters: I think we're broadening the debate unnecessarily here. It appears to me as if we're doing that simply because the evidence is so conclusive on the issue that's before us. The issue before us is whether or not MMT in gasoline affects on-board diagnostic computer equipment, and the issue of harmonization of fuels between the U.S. and Canada. Those are the issues here, and the evidence is overwhelming that this is not the case.

.0950

But my colleagues around the table have broadened the argument considerably from the pricing of gasoline, which one of the parties is -

The Vice-Chair (Mrs. Kraft Sloan): Could you be short, Mr. Chatters, because we have about ten more minutes for this set of witnesses. Thank you.

Mr. Chatters: Thank you, Madam Chairman.

To continue, I object strongly to the accusation the chair made about the tar sands industries. All the major players in the tar sands industries are participating in the minister's voluntary CO2 greenhouse gas reduction program.

The Vice-Chair (Mrs. Kraft Sloan): Is this directly related to the MMT discussion?

Mr. Chatters: It's as directly related to the MMT discussion as any of the other discussion that's gone on around this table.

The Vice-Chair (Mrs. Kraft Sloan): Okay. Could you please put your question.

Mr. Chatters: Thank you, Madam Chairman.

The production of gasoline from the tar sands is no more polluting than any other fossil fuel production. The production of ethanol and the remark I heard about how we can keep growing corn as long as we have land.... There are serious problems with phosphate and nitrate seepage from agricultural production in this country, so I don't think that process is necessarily any more environmentally desirable than fossil fuel production.

I just wanted some of that clarification on the record.

The Vice-Chair (Mrs. Kraft Sloan): Mr. DeVillers.

Mr. DeVillers: Back to the issue we were discussing on the refinery emissions. I'm aware a study was done by Stanley Industrial Consultants. It was prepared for Ethyl Canada in 1992. It indicated the NOx and the CO2 emissions at refineries would increase by 40 to 50 tonnes and 34 to 43 kilotonnes respectively, and within the national context these amount to increases of 0.0025% of NOx emissions and 0.01% of CO2 emissions. Are you aware of that study by Stanley? Do you have new information that contradicts that?

Mr. Grappolini: No, sir, that is the RTM study I referred to. I'm used to calling them RTM. It is Stanley now.

Mr. DeVillers: But these were the increases you were referring to, 0.0025% of NOx and 0.01% of CO2?

Mr. Grappolini: Again, I don't remember the numbers. I remember the study being the one by...I call them RTM because of the gentlemen who did it.

Mr. DeVillers: Do you consider these to be significant increases?

Mr. Perez: When you talk about NOx, the increase in emissions is a bit at the refinery, according to Stanley, but it's mostly with the cars. That's where we're quoting the study about 10% to 20%.

Mr. DeVillers: That means once it's in the gasoline and the vehicles are -

Mr. Grappolini: That's right. That study is at the refinery itself, in terms of further emissions. But in refineries we cap emissions and we have all sorts of systems to prevent emissions.

Mr. DeVillers: Maybe I misunderstood the evidence earlier. I thought your concern was that by removing the MMT you're going to have do more refining and this was going to lead to more greenhouse gases.

Mr. Perez: That's correct. But the major contributors, in our view, are NOx, because of car tailpipe emissions...and in the case of our refineries, the increase is in CO2, because we just burn more crude oil.

The Vice-Chair (Mrs. Kraft Sloan): Mr. Reed.

Mr. Reed: I'd like to put a couple of things on the record. This comes from research we have done.

First of all, new emissions equipment - we're talking about NOx emissions here - have reduced NOx emissions by more than 90% from pre-control levels and new diagnostic systems will be a more effective NOx mechanism than MMT.

I have just one brief question. Is petroleum subsidized?

Mr. Fischer: I think you'd have to be more specific in your question.

.0955

Mr. Reed: I had a talk with your organization before about subsidies and the lack thereof in petroleum. I realize that your parameters for operation go from the refinery gate to the pump and don't include the wellhead. If you include the wellhead, is petroleum subsidized?

Mr. Fischer: The one area mentioned here that could possibly be an example is the oil sands. As I understand it, although I'm not an upstream participant, the oil sands tas force is not asking for subsidies. They are asking for a generic fiscal regime that would leave the government -

Mr. Chatters: On a point of order, Madam Chairman, how is this relevant to the topic before the committee?

Mr. Reed: Madam Chair, the only relevancy has to do with subsidy. The argument was made that ethanol was subsidized and therefore was really not an eligible product to be used. I'm just trying to balance the scale.

The Vice-Chair (Mrs. Kraft Sloan): I rule the question out of order, because we're not dealing with ethanol in this situation. Also, we're getting called for a vote.

Mr. Finlay, do you have a very short question?

Mr. Finlay: In answer to my other questions, the witness indicated a lot of support was not forthcoming from other cabinet members or from other departments. I want to get on the record that this act for controlling MMT was a cabinet decision and it was supported by all ministers.

I also want to say I have in front of me letters from the ministers of energy from British Columbia, Ontario and Newfoundland, all supporting this bill on balance. In the case of the Ontario government, it says the Ontario government should support a federal ban on MMT. The Ministry of Environment, Lands and Parks has also prepared a draft regulation that prohibits the use of MMT in British Columbia gasoline. I simply want that on the record.

The Vice-Chair (Mrs. Kraft Sloan): Are there any other brief comments? We have two minutes.

Mr. Perez: What I would really urge you to consider is that we all have our rationales. We all have our emotions. Mr. Chatters has said we should keep this issue as simple as we can, and really the simplest way to put it is to say there are studies that should have been done that have not been done.

In fairness to us, we're a significant industry. We would like to be allowed to participate in such a study, which would not take five years. As well, consider the fact that MMT could be reintroduced in the U.S. and throw a totally different light on even the MVMA case in the first place.

We, the petroleum industry, are just asking that you include in your bill a provision that will allow those two things to happen - a study and an examination of the U.S. situation.

There is no health issue and no imminent danger to anybody, and the 1996 models are out, so all the consumers have warranties at least until the introduction of the 1997 model, when this kind of diatribal rhetoric can start again. So in the meantime those issues can be resolved. We would be very satisfied whatever the outcome is, because science will have been the basis for a decision.

Our last point of incomprehension is why don't you give all of us a chance to look at a study and prove the evidence or look at the U.S. situation without changing the essence of the bill? If the studies disprove our claim we'll quit, and if the U.S. situation does not change, it's pretty obvious that MMT has a limited future, and in that case we'll quit also.

In order for us to keep our trust in the whole process and the whole system, we think these are reasonable demands that will not cost anybody anything health-wise, politically or otherwise. So that's our plea.

.1000

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

As I said earlier, when I was quoting - or misquoting - the chair from yesterday, it's a very difficult issue. The issue seems to be polarized into two different areas. We will be hearing witnesses from both sides, and I sincerely appreciate your comments this morning. They were very illuminating. You can pray that we have the wisdom of Solomon to deal with this issue. I don't know; we'll see how that works out. Thank you very much.

We'll call our next witnesses after a short break.

.1001

PAUSE

.1012

The Vice-Chair (Mrs. Kraft Sloan): I'd like to call this session to order.

Unfortunately, Mr. Pomerleau from the Bloc had to leave for a few minutes. He will be back.

We have Mr. Dahlstrom, senior vice-president of refining from Consumers' Co-operative Refineries Limited.

You have a brief for us this morning, so any of your comments will be reflected in the brief. Is that correct?

Mr. Barclay (Bud) F. Dahlstrom (Senior Vice-President, Refining, Federated Co-operatives Limited; Refinery Manager, Consumers' Co-operative Refineries Limited): Yes, and I have some additional comments beyond what you received in the brief.

The Vice-Chair (Mrs. Kraft Sloan): Okay. I was just concerned about Mr. Pomerleau, but he can catch up with that information.

I just want to let you know that the usual process with the committee is to ask a witness if they have a presentation to make. After the presentation there's questioning, with a longer first round and a shorter second round. If you'd like to begin, I welcome you this morning.

Mr. Dahlstrom: Thank you, Madam Chair and committee members. We certainly appreciate this opportunity to appear before the Standing Committee on Environment and Sustainable Development to present our views and concerns with respect to Bill C-94.

My name is Bud Dahlstrom. I'm the senior vice-president of refining of Federated Co-operatives and refinery manager of Consumers' Co-operative Refineries Limited.

Consumers' Co-operative Refineries Limited, located in Regina, Saskatchewan, is a 50,000-barrel-a-day conventional light fuels refinery producing a full range of petroleum products. CCRL is not a member of CPPI.

The heavy oil upgrader Newgrade Energy Inc., owned jointly by CCRL and the Government of Saskatchewan, is fully integrated with and managed and operated by the management and staff of CCRL. Consumers' Co-operative Refineries Limited is a wholly owned manufacturing facility of Federated Co-operatives, a regional cooperative operating in the four western provinces and western Ontario, with its head office located in Saskatoon, Saskatchewan.

Federated Co-operatives is owned by more than 300 retail cooperatives from the Lakehead to the Queen Charlotte Islands, serving an estimated 750,000 individual co-op members and their families.

Retail cooperatives serve their members with a wide variety of goods and services representing more than $2.3 billion in sales in 1994, with petroleum products representing a very significant part of those total sales. The entire petroleum sales of the cooperative retailing system in western Canada are supplied directly or indirectly from Consumers' Co-operative Refineries at Regina.

On behalf of CCRL and the members we serve, I'd like to stress the following points with respect to this issue under consideration, namely Bill C-94, which will effectively ban the use of MMT in gasoline in Canada.

.1015

I wish to make it clear that I speak for CCRL only. CPPI, as it has just done, speaks very effectively, in our opinion, on behalf of the petroleum products industry as a whole.

CCRL has a concern with respect to the process being followed in introducing this bill, with its very significant impact on the refining industry both now and in the future. We do not believe there has been a demonstrated justification for the proposed restriction backed up by independent studies that have been validated.

Certainly we don't believe we have seen convincing data to support the legislation.

The degree of stakeholder input and the opportunity to respond to the recommended action seem very limited. We frankly question if the views of stakeholders have been seriously considered up to this point.

We are well aware that another important segment of the transportation industry has concerns about the utilization of MMT in gasoline. We are also aware of the fact that this position was recently rejected in the U.S. Court of Appeal as part of the procedure in attempting to have MMT approved for use in the United States.

If Canada is going to follow the lead of the United States with respect to gasoline quality - and we certainly seem to be headed in that direction - then CCRL believes we should benefit from all of the work done in both countries and consider the best, most reliable information in making decisions to meet Canadian needs.

CCRL does not believe the urgency being displayed with respect to Bill C-94, without considering what may result in the United States following vastly greater consideration, should be allowed to result in a situation where Canada may ban the use of MMT and the U.S. may authorize its use.

I do not propose to repeat many of the positions put forth by CPPI. It is sufficient to say that generally we certainly agree with their position.

I'd now like to be more specific with respect to the impact of this legislation on CCRL and the co-op members we serve.

A ban on the use of MMT in gasoline would result in a direct increase in operating costs, ranging from $500,000 up to $1 million per year, for our organization. The more severe operating conditions that would be required could be met without any capital costs at this point in time, but the expense of increased utilization of fuel and crude oil and decreased efficiency are where the $500,000 to $1 million comes from.

CCRL could live with the previously proposed 9 milligrams per litre, as was discussed earlier today, with no resulting increase in emissions from either the refinery or the gasolines we produce.

The benzene content and total aromatic content of our gasolines would directionally increase, and carbon dioxide and nitrogen oxide emissions from the refinery would, of course, directionally increase. The benefit of reduced NOx emissions from our members' using gasoline containing MMT in their automobiles would be lost.

Just by way of information, the aromatics and benzene - and I'm sure that everyone's aware that these are issues that are coming up right behind MMT as far as consideration of gasoline quality is concerned.... In our particular refinery, on average aromatics would increase by 1.6%. I don't mean a 1.6% increase of aromatics. They would go from, say, 27% to 28.6%; I'm referring to that kind of an increase. Benzene, likewise, would increase by 0.1%. Maybe that doesn't seem like a very large number, but if you're going from, say, 1.6% or 1.7% to 1.8%, then it is a fairly significant increase.

I should point out that some of our numbers with respect to aromatics may be lower than have been quoted elsewhere as far as the industry is concerned. One of the reasons is that we sell very little premium gasoline, so the increase for the rest of the industry may be higher than that for our particular refinery.

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Of greater concern to CCRL in the longer term is the effect of benzene and aromatics on the gasolines we produce. CCRL, along with other members of the refining industry, recognizes that based on current information, it will be prudent to reduce benzene in gasoline, and to consider the pollution effects of total aromatics, olefins and sulphur in gasoline, either with respect to absolute amounts or by limiting tailpipe emissions from automobiles.

Any directional move, such as the elimination of MMT at this point in time, will certainly aggravate the control of benzene and aromatics that may be required in the future. Depending on the severity of regulations that are soon to be recommended for consideration by the Canadian Council of Ministers of the Environment, CCRL could then well be looking at capital expenditures in the range of $70 million to $80 million, as opposed to a much smaller projection if the regulations are tailored to meet what we believe to be Canadian needs.

It has also been proposed that levels of benzene, aromatics and olefins be held at 1994 levels until such time as new regulations are in place. This is something that will be impossible for us to meet in the short term if MMT is banned.

If I may, I'd just like to make some comments with respect to ethanol, based on the discussion that took place earlier. Ethanol isn't particularly a pertinent issue as far as we're concerned. It's a different issue - and I should point out that our organization represents a very large farm membership - because ethanol is primarily an oxygenate. Certainly, it does have a higher octane level, but it's been viewed as a substitute for MMT, so in my opinion they're not a related issue.

The question was asked whether Mohawk, for instance, supports either the discussion that's taken place or the proposal of CPPI. Mohawk does not have a refinery. Thy purchased their product from other companies. During the period of time that we supplied them, there certainly was MMT in their gasoline, and they would splash blend alcohol in on top of that.

I don't think it's a matter of either/or with MMT and ethanol. They're separate issues as far as we're concerned, and if ethanol can stand on its own right with regard to economics, or because it's legislated, or because oxygenates ultimately are legislated in Canada, then ethanol certainly becomes very much an issue. But the utilization in the U.S. occurs primarily because of the fact that oxygenates are required in U.S. fuels in so many areas.

The other area of issue is, of course, subsidies, but at this point in time I'm not going to comment on subsidies. The important thing is that I don't think it's an either/or issue. I believe that's the point I'd like to make.

For the reasons just stated, Consumers Co-operative Refineries Limited, on behalf of Federal Co-operatives Limited and its members, respectfully requests that this committee give very serious consideration to the justification and the need for the ban on MMT proposed by Bill C-94. Further, if the bill passes, we would request that any introduction of regulations not be introduced and not proceed until the situation has been made clear in the United States. Again, as was mentioned earlier, we seem to be going in opposite directions at the moment. That may not turn out to be the case, but certainly we would recommend that any introduction of regulations be delayed if the bill passes.

Also further to that, if the need is ultimately justified - in other words, if studies indicate that MMT does in fact interfere with on-board diagnostics - then we certainly have no problem with taking MMT out of our gasolines, which I think was the point made earlier by CPPI, namely, at this point in time we just don't believe the need has been justified by independent studies.

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I have to admit that I think there is a possibility, without question, that there may in fact be problems there. As was indicated earlier, we have the same problem that was referred to: one industry is saying that based on the information we have seen, there isn't a problem; the other industry is saying that in fact there is. Our position is that we would like to see some proof before that occurs. Certainly, the removal of MMT has a negative impact on the environment, in our opinion.

That concludes my remarks. I would like to thank you for the opportunity to appear before you today.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much, Mr. Dahlstrom.

Mr. Pomerleau.

[Translation]

Mr. Pomerleau: Mr. Dahlstrom, thank you very much for your presentation.

Yesterday, we heard from a lawyer for the Department of the Environment, who said that in the United States, despite the fact that Ethyl made some gains, they might only be temporary because of possible court actions, which would delay any change for a year or two.

That being the case, what are the chances that MMT will, before long, be used again in the United States?

My second question is on the same subject. Is it true that if MMT was reintroduced in the United States, American gas would be cheaper than ours?

[English]

Mr. Dahlstrom: To answer your first question, with respect to delays on MMT in the U.S., if it were delayed for legitimate reasons - because it does not in fact appear to be interfering with on-board diagnostics, which I believe is the point the automotive industry is making - certainly that would be a source of concern. If we are talking about legal manoeuvring, I guess I'm not sure I know what the answer is because of the fact that it still wouldn't prove that the benefits of MMT to the petroleum industry, and thus obviously to the consumers and to the environment, should be lost in Canada.

As far as the competitive situation is concerned, I must first acknowledge that in our particular location, we are not subject to gasoline coming across the border from the U.S. into Canada, so that is not an issue that I can really comment on very intelligently.

[Translation]

Mr. Pomerleau: Thank you, Madam Chairman.

[English]

The Vice-Chair (Mrs. Kraft Sloan): Thank you.

Mr. Chatters.

Mr. Chatters: Thank you, Madam Chairman.

Thank you for your presentation. I don't have a lot of questions, but I would just like to confirm that you appear to support the evidence that we have seen from the witnesses up to this point: that the use of MMT doesn't present a health hazard; that the evidence is inconclusive as far as the effect of MMT on on-board diagnostic computer equipment is concerned; and that we may be moving prematurely in the harmonization of fuel between the U.S. and Canada. Would you support the evidence you have seen?

Mr. Dahlstrom: Yes. In our opinion, firstly from an environmental standpoint - and I think this obviously is the issue at heart - MMT is positive. There are no negative effects that I am aware of, and we certainly believe there are no negative health effects. As far as the industry is concerned, it is a positive.

So the real question is whether or not it does interfere with diagnostics, with the automotive equipment, or with new diagnostic equipment. Certainly the automotive industry, as we understand it, believes it may. This is the case because of the fact that they also believe there is a difference between some of their experiences in Canada and the U.S.

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Gasolines in Canada and the U.S. tend to be a bit different in make-up, as they do across Canada to some degree, depending on the area of the country and so on. Whether this explains anything or not, we don't know. So I guess our response is that we would like to see an independent review, and depending on the results of that independent review, we would then certainly be willing to accept that.

Mr. Chatters: So you support the holding of this initiative, this legislation, pending an independent study, and you will accept the results of that study one way or another as far as removing MMT or leaving it in is concerned.

Mr. Dahlstrom: That's correct.

Mr. Chatters: Thank you, Madam Chairman.

The Vice-Chair (Mrs. Kraft Sloan): Thank you, Mr. Chatters.

Mr. Reed, please.

Mr. Reed: Thank you, Madam Chair.

I think this business of the Court of Appeals's ruling in the United States needs to be clarified. I would just like to read a research statement into the record so that we all know what the basis is here. The U.S. Court of Appeals recently ruled that the U.S. Environmental Protection Agency exceeded its legislative authority in denying Ethyl Corporation's waiver application to add MMT to U.S. unleaded gasoline. However, the court's ruling was restricted to the EPA - that is the Environmental Protection Agency - apparently exceeding its legislative authority under the Clean Air Act in denying the application purely on public health grounds. The court further ruled that its decision does not have any bearing on the EPA's authority to continue the eighteen-year U.S. ban of MMT based on the impairment of the performance of any emissions control device.

I read that into the record in order to clarify it because the Court of Appeals's decision is being used as a lever and it is being said that MMT is coming back into American gasoline regardless. But it's not at all clear that MMT will ever come back into American gasoline. Even if the studies of eighteen automobile companies - which ultimately will be revealed - don't provide sufficient evidence to the Supreme Court, there is still the obvious probability of legislation. So I think we have to be a little careful.

The thing I have to hearken back to in all these cases is this: if the elimination of MMT is in fact going to put this large burden on the refining industry and so on, how is it the Americans are able to compete? It doesn't make any sense that you have all of the U.S. not only doing without MMT in unleaded gasoline, but also using more and more oxygenate substitutes, to the point now where 8% of all of the gasoline sold in the United States contains oxygenate, i.e., ethanol, MTBE, ETBE, or whatever. So I'm bothered when I hear the presentations here. I say to myself, well, this has been going on in the United States for eighteen years; they've been doing without MMT and there has to be some sort of reason why they decided not to use it.

Do the Americans know a lot more about refining than we do? Are they able to do things so much more efficiently that the removal of MMT doesn't matter in competitive terms? I respectfully suggest this is not the case.

Mr. Dahlstrom: If I may, I believe the information you have with regard to the Court of Appeals's decision has two parts to it. The first is the point you made. My understanding certainly is that it is valid and correct.

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Second, there was a position put forth by the automobile manufacturers to prove the case we're talking about right now, which is that MMT does in fact interfere with the diagnostic equipment. There was a ruling by that same Court of Appeals that the case wasn't justified. I think we're talking about two situations that are really.... I don't disagree with you that the EPA may very well find some other possibility, because up to this point, for whatever reason, they have seemed intent on banning MMT.

As was pointed out earlier, there is still lead in gasoline. Canada unilaterally got rid of lead a number of years ago and we had a phase-out period that suddenly was cut off in the middle and replaced with a ban. In the U.S. there is a mechanism for companies and industries to appeal certain decisions. As I understand it, that mechanism doesn't exist in this country. There certainly are more long, drawn-out procedures occurring in the U.S. because of that.

You made a point about 18 automobile companies - I'm not aware of 18 automobile companies - that have done research in this area but -

Mr. Reed: There are 17, sir.

Mr. Dahlstrom: There are about five I'm aware of that have put forth the point. The entire automotive industry has done what the petroleum industry has done. As I understand it, some parts of that industry have done a lot of work and speak for the entire industry. I wouldn't suggest at all that I know how much work other members have done, but I certainly am aware of the fact that four or five companies have done a lot of work and that they feel quite strongly about the issue.

I don't think banning or not banning MMT is going to affect the refineries' abilities to compete. Broadly speaking, we certainly compete with each other as far as Canada is concerned. If there are new regulations, you'll meet the regulations. I think it's exactly that simple. There will be situations where there will be a lot of cross-border movement in both directions with regard to products. If one segment of the industry on one side of the border has an advantage over the other - such as MMT, as was suggested earlier - then there will be a dislocation or a period of adjustment. I don't think there's any question about that.

But I have no problem with regard to Canadian refiners being able to compete equally with the U.S. refiners. I don't think they're any smarter than we are. The technology is essentially the same. I can walk into a refinery in the U.S. and discuss very intelligently what they're doing and what we're doing, and in most instances they will be exactly the same. I don't think that's a real issue.

The Vice-Chairman (Mrs. Kraft Sloan): Thank you.

Mr. DeVillers, please.

Mr. DeVillers: Thank you, Madam Chair.

Mr. Dahlstrom, I want to go back to your comment about this process for Bill C-94, and your concerns over lack of consultation with stakeholders, etc. The impression I've been left with up to this point is that this has been a very long, drawn-out dispute between two different segments of industry. Your comments are a little inconsistent with the impression I've had so far. Can you expand on that?

Mr. Dahlstrom: I'm primarily referring to what is currently going on with regard to - and I don't like the word ``reformulation'' - potential reformulation of Canadian gasolines. New regulations may come about with the activity of the Canadian Council of Ministers of the Environment in respect to looking at where gasoline is going to go in the future. That's been quite a formalized procedure with respect to establishing a long timeframe; studies; task force advisory groups; and so on.

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I'm not suggesting it's without its problems either, because of the fact that reports seem to come in very late and with very limited time for the various stakeholders to have their input, but at least that is a procedure that has been developed for that particular purpose.

In this instance, that procedure did not take place. We've essentially had a discussion between two segments of the industry that, as you pointed out very correctly, went unresolved. But as for the fact that studies would have come out, as they currently are still being carried out, in the second issue of the CCME situation, that didn't happen in the same way, in our opinion. In other words, there was a disagreement, if you will, between two industries. The minister said that if these people couldn't agree, legislation would be put forth to resolve the issue.

That seems to me to be what happened. It was without the opportunity, if you will, for other independent studies to take place, and so on.

Mr. DeVillers: I think the consultation just wasn't conclusive. Maybe that's more the point.

But when you mentioned CCME and that process, I was just wondering if you're aware of the studies. I have an article here from the Times Colonist, of Victoria of Monday, October 16. It makes reference to studies prepared for the CCME that do a couple of things.

First, it says that they challenge contentions by the auto and fuel industries that more stringent standards would be unacceptably costly for consumers.

The second thing deals with the issue of savings in health care, which is similar to studies being done in California.

Are you familiar with those studies in the CCME process?

Mr. Dahlstrom: I'm certainly familiar with some of the work that was done in that regard, more particularly with regard to the second issue.

I referred to the reformulation of gasolines. That's the reason I mentioned things like benzene and aromatics and so on. That's the next stage of this procedure with respect to gasoline.

Under those circumstances, there are some issues there that the industry would find very difficult to argue with. It will always be a matter of degree.

As for MMT, first, in some studies, that's been taken as a given, because of the fact that legislation has been introduced. So it's been dropped. I'm not aware of MMT being a subject of those studies such that it can't be justified with respect to costs and so on.

Mr. Finlay: Thank you for your brief.

I'd like to deal with a couple of things. We've heard that MMT in gasoline reduces NOx emissions from burning that fuel. However, we've heard also that it doesn't reduce CO or CO2, as other additives may do.

We're now hearing this morning that some emissions from the refineries will increase if we remove MMT and don't allow the refineries to use it.

Do you have an opinion with respect to emissions - I'm concerned about the total environment - as to the ratio by volume, tonnage, or whatever, between the emissions from refineries of CO and NOx, let's say, and the emission coming totally from the tailpipes of millions of automobiles that do not have functioning on-board diagnostic emission controls? I'd like to know whether you have any sort of answer to that question.

Mr. Dahlstrom: First, the emissions, if I can back up a little bit, from refineries, as it was pointed out this morning, will increase if MMT is banned. They increase, very simply, because of the fact that the severity of the processing in the refinery goes up and a bit more crude oil is used. In our our instance, it will amount to about a 0.5% increase in total fuel requirements. So whether it's CO2, NOx, whatever the emissions from the refinery are, those will go up approximately linearly by about 0.5%.

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The emissions of some of the things that you point out from automobiles are in fact greater than the total emissions from the refinery, so the point you're leading to, I believe, is correct.

However, consider the point you also made, which is whether non-working diagnostic equipment will jeopardize the situation.

First, the diagnostic equipment in itself does not necessarily, as I understand it, jeopardize the operation of the automobile. A well-designed automobile is still going to have dramatically reduced emissions from where we used to be.

But I don't argue with you that there's a concern if that diagnostic equipment is not working. We have a concern as an industry. If our fuel prevents the diagnostic equipment from working, then the argument is over. The real question is whether that's a fact.

Mr. Finlay: I hear your point about asking for some time for these industries to get together and do some studies that they will agree to. We've given them some time. My understanding, as Mr. DeVillers pointed out, is that they don't seem to be able to do that.

One of the problems with the Ethyl study for me is that it was done on a fleet of well-maintained, new cars. It was probably done in one area - maybe it was across the country; I'm not sure - but they were not the normal automobiles you and I drive, which are perhaps serviced properly and perhaps not, and so on.

In other words, I don't think the test represents the real world at all. It may be impossible to get a test in time that does represent the real world.

But if MMT does in fact interfere with the diagnostics, you said you would take it out. You just said it again.

My understanding is that automobile companies - you mentioned it earlier - have to meet standards of emissions with their automobiles in order to sell them in this country. Those standards, under the Canadian Council of Ministers of the Environment, may be increasing and becoming more stringent. The government establishes those emission standards for automobiles.

Why, in your opinion, would the auto manufacturers, who are required to meet these standards, want MMT out when it gives them a 20% reduction in NOx? I wonder why they would not use it, unless it's because they feel very clearly that their ability to meet those standards is being jeopardized. I can't see any advantage to them in wanting it out.

Mr. Dahlstrom: I'll respond first with regard to the Ethyl study and the automobiles they used. They used normal automobiles. There wasn't anything fancy or unusual about them. I don't think the maintenance was any greater than that used by any normal individual with respect to just taking good, reasonable care of their automobile.

So I don't think we can suggest that the study wasn't fair, if you will. That, to me, has not been an issue.

With regard to the people who use their automobiles or don't take care of them, there's no question in the world that this is the biggest problem anyone has, from an environmental standpoint. This brings us to another issue that hasn't been discussed, which is inspection and maintenance.

Without care of your automobile, I don't care what kind it is, it may reach a stage at which it's an environmental hazard on the road. Certainly older automobiles, without any question, are major polluters, if you will, or major causes of high emissions. So the newer automobiles are just dramatically better.

Consider this last step that has occurred, which is to meet regulations, not in Canada, but in the U.S. I don't believe Canadian regulations require the automobile manufacturers to do what is currently being done, but certainly it is going to be required in the U.S. to meet their regulations. They are the same automobiles.

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So it makes eminent sense for us in Canada to take advantage of what is available, whether it is regulated or not. It may very well be regulated down the road - I don't believe it is at the moment - but I would never argue that it doesn't make good sense for us to take advantage of it.

Mr. Finlay: You said that you were prepared to accept Ethyl studies as fair. Are you prepared to accept that of GM and other automobile manufacturers who are meeting these more stringent standards in the U.S.? Are you suggesting that what they have done is unfair?

Mr. Dahlstrom: No, not necessarily at all. I don't want to use Ethyl Corporation as the sole expert in this area. Ethyl Corporation has done a lot of work using different automobiles to make their own case in front of EPA.

EPA set up very rigidly established criteria for the tests, and Ethyl Corporation was forced to do that to meet their case for their own requirements. As a result of that, their tests are certainly somewhat believable. It's because of the fact that they were done for EPA.

The work done by automobile manufacturers - I don't want to suggest that they haven't done work in their own right - isn't a matter of proof so much as inference. In other words, they have had troubles in Canada that haven't existed in the U.S. It has been blamed on MMT - which may be valid - but no independent work has been done.

I am not suggesting that Ethyl Corporation should be accepted while the automotive work should be rejected. I am not suggesting that at all. There may be a difference in the criteria that were used to set up the tests, but again, what I am really suggesting is that there should be an independent review looking at everything that is out there.

The automobile companies may very well have information that goes a long way toward proving their points. If they do, that obviously becomes part of this independent review.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

Mr. Steckle, do you have a question?

We have seven and a half minutes left. Are there any short questions from the other members?

Yes, Mr. Chatters.

Mr. Chatters: Take the automobile manufacturers association. We heard yesterday that the minister received five studies by manufacturers, which she accepted, apparently, as valid in bringing forward this bill.

The U.S. Court of Appeals, I understand, through extensive testing rejected those studies by automobile manufacturers as inconclusive. Therefore, the evidence was inconclusive that they interfered with on-board diagnostic systems. Is that correct?

Mr. Dahlstrom: I am not in a position to say what was presented in the U.S. in the way of proving their case. What I really do know is that the Court of Appeals said they did not prove their case. I don't know what was presented in the way of studies, and whether they had the same information that was presented to the minister here. I just don't know.

Mr. Chatters: Okay.

Thank you, Madam Chair.

Mr. Reed: As I understand it, there seems to be some difference of opinion over just what happened with the Court of Appeals and the EPA. From what I can gather, the Court of Appeals said that the EPA had exceeded its authority. But it also said that their decision didn't have a bearing on what would come from the diagnostic equipment argument. I don't know whether or not all the cards are in on that.

Mr. Dahlstrom: But I think there is a second part to that in which the Court of Appeals indicated that the automotive industry did not prove their case with respect to the effect of MMT on their diagnostic equipment. I believe there is a second part to that which forms part of the overall issue.

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The Vice-Chair (Mrs. Kraft Sloan): Mr. Dahlstrom, I want to thank you very much for your presentation this morning. You've given us something that has been presented in an objective way and we appreciate the information you've provided to us.

This has been a long morning, with lots of information. It's been very interesting. It's a somewhat difficult subject. I thank my colleagues around the table for their patience this morning in staying here and sticking to it.

We now have representatives from the Canadian Automobile Association. Richard Godding is the vice-president.

If you would be so kind as to present your other witness, we would ask you to give a presentation and then we'll have two rounds of questioning.

Mr. Richard Godding (Vice-President, Canadian Automobile Association): Thank you, Madam Chair. With me this morning is David Leonhardt, CAA's manager of public and government affairs.

This morning we'd like to talk to you a little about, first of all, CAA's role in fuel and environmental issues. We will proceed from there to tell you about our position on this matter.

CAA is pleased to be here to provide you with the perspective of the largest automobile consumer federation in Canada on the issue of MMT. CAA is the federation of not-for-profit auto clubs across Canada, with 3.7 million individual members. We take our role as motorists' advocate very seriously; so seriously that we named our newsletter The Motorists' Advocate. Each of you receives this newsletter at your office, and I want to highlight the two most recent issues, which include a number of articles on federal efforts to create cleaner fuels for Canadians.

In the most recent issue you will have noticed an article saluting the government's plan to place a lower cap on benzene content in gasoline. In the edition before that we talked about Bill S-7, which prescribes alternative fuels for the federal fleet. You may recall that CAA wrote every member of Parliament on that subject, asking you to vote for this bill, which you did, making it the first private member's bill originating in the Senate ever to become law. In that same edition CAA laid out its position on MMT. In all three cases we want to say how glad we are that the government is listening to motorists, who are asking for cleaner fuels to enable them to pollute less.

I would like to back up for just a moment and give you some background information on motoring and the environment. You may recall in April we sent you a report we had commissioned from an outside consultant. The consultant took government data and projected trend lines to the year 2000. I would summarize the data and projected trend lines by stating that emissions from cars are decreasing, and will continue to decrease, even as emissions from other sources continue to grow, and even as the vehicle fleet continues to grow.

What that tells us is that cars are no longer a major polluting problem, and that other sources, such as trucks, buses, and stationary sources, require immediate attention. It also tells us that drastic measures to curb automobile pollution are no longer warranted. What it does not tell us is that our efforts to make cars cleaner should end. CAA's position is that we should continue to improve automobile emission standards at a steady and cost-effective rate rather than adopt harsh measures such as more taxes or restrictions on mobility.

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Our position is based as much on member opinion as it is on technical information. Allow me to share with you a few highlights of CAA member opinion surveys over the past few years.

Of the CAA members polled, 84% rate the environment as an important issue. Motorists want government to regulate emissions from - in order of importance - industry, trucks, power plants and cars, followed by commercial furnaces, aircraft, ships, trains, etc.

The most popular measure by far would be tighter mandatory fuel consumption standards. We respectfully suggest that the government's next project be to proclaim a motor vehicle fuel consumption standards act. Bicycle infrastructure, high-occupancy vehicle lanes and urban transit investment also get the nod from motorists. Increased parking fees, carbon taxes and charges for access to city cores are almost universally opposed.

Periodic vehicle emission inspections are also supported by over 60% of CAA members. I'll come back to that point later.

CAA supports steady and cost-effective improvements such as the benzene regulations, Bill S-7 and Bill C-94, which will have a positive effect without causing hardship.

As I see it, there are three issues to address when speaking about MMT - process, environmental protection and consumer protection.

Has due process been followed? Petroleum companies have claimed that due process has not been followed. I recall the complex multi-stakeholder consultations that went into previous emissions regulations, particularly those regarding NOx and VOCs for vehicles. I'm aware of a number of discussions on benzene. I'm also aware that the government has been holding secret talks with automobile manufacturers and oil companies on the MMT issue for years. CAA was kept out of this circle, so I cannot say with a straight face that due process was followed.

The petroleum manufacturers, however, have certainly been consulted more than enough - as we understand it - and CAA respectfully suggests that their concerns over process should not be a reason to hold up a worthwhile piece of legislation. CAA has been able to secure enough technical information on this subject from Environment Canada and industry sources to proclaim its support for the merits of eliminating MMT.

The second issue is one of environmental protection, and I should stress that this is the main issue from CAA's perspective. MMT has been shown in studies to degrade all sorts of equipment that affects emissions from automobiles. We have seen data showing how catalytic converters degrade faster with the presence of manganese in the exhaust. The catalytic converter is the single most effective tool in reducing exhaust emissions, as it removes pollutants from the exhaust before they reach the outside air. The faster the catalyst degrades, the sooner emissions from the vehicle increase as the vehicle ages.

We've seen data showing that manganese coats spark plugs. The automobile manufacturers claim this has resulted in malfunctioning of the spark plugs and has thus increased emissions. We have not seen concrete evidence of that. It is a claim they've made to us.

We've been shown that manganese also coats oxygen sensors, causing the sensors to sometimes give false readings to the on-board computers. This is important because the air fuel ratio of gasoline that an engine burns is based on the oxygen sensor readings. Auto makers meet current emission standards partly through careful computer calibrations that send the optimum ratio of air and gasoline in the fuel mixture that goes to the engine. If that mixture becomes too rich or too lean, the vehicle may no longer meet the standards to which it was designed and may, in fact, consume more fuel than is necessary.

Interestingly enough, Ethyl Corporation, whose principal line of business is manufacturing MMT and arguably has the greatest vested interest, has come up with contradictory data. Those members of the committee who have been here for awhile will probably recall how CAA has been calling on government for years to conduct its own independent tests to confirm what the advantages and disadvantages of MMT really are.

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We understand that the issue is not black and white, that Environment Canada recognizes that it's not black and white, and that the minister also recognizes this.

We have also been made aware of two outside opinions that Environment Canada obtained from people more qualified than I am to analyse the conflicting data. These opinions tell us that gasoline should be MMT-free.

To the best of our knowledge, there are now only four impartial opinions: Environment Canada's, CAA's, that of Steven Carter, who is an engine technology expert with ORTECH, and that of Michael Walsh, who is a former U.S. Environment Protection Agency specialist in mobile emission sources. All recognized the ambiguities in the issue, yet all have reached the same conclusion that MMT should be banned.

I quote from the ORTECH opinion:

In my opinion, the OEMs

- auto makers -

have substantiated the claim that MMT's use produces significantly different emissions behaviour and long-term durability results than the clean fuels allowed in the U.S.; that is, MMT tends to degrade emissions system performance and increase repair rates.

Michael Walsh's opinion suggests that Ethyl's laboratory tests seem designed to prove a particular point, whereas real-world data indicate that MMT causes some emissions to increase. Michael Walsh seems to have reached the same conclusion as the one CAA arrived at almost a year ago.

Common sense would indicate that if the use of MMT really improved emissions or made the manufacturers' job easier, they would be its biggest advocates.

We also know that just three countries in the world still allow MMT in their fuel: Canada, Bulgaria, and Argentina. Other developed nations do not permit this substance. The opinions of so many national governments tell us that MMT might not be such a good thing.

We also recognize that this is the first time auto makers have taken such a keen interest in fuel formulation, which also leads us to believe that MMT is almost certainly a real problem.

To be sure, the strength of auto maker interest is probably in response to the warranty question. I'm sure you've probably heard plenty by now about how new vehicles in 1996 will be equipped with OBD-II, which includes a warning signal for motorists when emissions equipment fails to meet certain operating standards. That warning signal sends the owner back to the dealer for warranty-covered repairs.

The warranty signal is based on readings from the oxygen sensors, and auto makers are concerned that false readings caused by manganese coating the oxygen sensors will send motorists to dealerships for unnecessary warranty repair work. It also tells us that concerns over MMT's effects on the environment are very real, because those same oxygen sensors effectively control the air/fuel mixture.

One does not have to be a Nobel Prize-winning chemist to understand why a heavy metal-based additive that coats surfaces would have the effects the auto makers have claimed. If the oxygen sensors are coated with a heavy metal, how can they properly detect oxygen?

Along similar lines, catalytic converters function by passing exhausts over specially coated surfaces and pollutants are removed through a chemical reaction between the exhaust fumes and the surface of the catalyst. If the surface is coated with manganese, how can that chemical reaction properly take place?

CAA's concern is that if manganese coating the catalytic converters will cause vehicles to pollute more, then we will all suffer, not just the automobile manufacturers that may be required to repair the vehicles under warranty.

A few moments ago I informed you that a majority of CAA members support vehicle emissions inspection standards. We view OBD-II as being an ongoing emissions inspection program. Unlike traditional programs, such as British Columbia's air care program, OBD-II catches vehicles as soon as they fall below standard. Meanwhile, no one whose vehicle continues to meet the standard is inconvenienced and there is no cost to motorists or taxpayers for the inspection process. There would be cleaner cars, with no bureaucracy to inspect them.

OBD-II is a new and improved national emissions inspection program. It is one of the best things that could happen to cars from an environmental perspective, and if MMT would reduce its effectiveness, CAA wholeheartedly endorses a ban on the substance.

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CAA shares auto makers' concern over needless repair work being conducted. Although some of the possible scenarios are purely consumer protection concerns, many of them are just as much environmental concerns.

I offer you three scenarios.

In scenario one, MMT remains in the fuel and OBD-II technology is introduced on new vehicles, resulting in false-alarm failures of emission equipment. At first repair work is under warranty, costing the consumer nothing in currency, but plenty in time and frustration. Ultimately the consumer will pay more in higher prices for new vehicles or for warranty coverage. Furthermore, motorists will be likely to complain to dealers and some may resort to circumventing the pollution warning system, as you may recall they did with seat-belt chimes a decade ago. Once the warranty runs out, consumers will of course pay directly for repairs made as a result of false alarms.

In short, there will be two results from this scenario. First, the environmental benefits OBD-II promises will not come to fruition, and second, motorists will pay in both time and money while not benefiting from OBD-II.

In scenario two, MMT remains in the fuel but manufacturers decide to remove or disable OBD-II vehicles sold in Canada. Canada would not benefit from the new technology that would help vehicles avoid becoming bigger polluters over time. A cost would likely be attached to such a move, although it would likely be a minimal cost.

Motorists are willing to pay small premiums for safer or greener cars than those made in the U.S. market, but to be asked to pay a premium for an environmentally inferior vehicle just to accommodate MMT in gasoline would not be well-accepted by consumers.

In scenario three, MMT is removed from Canadian fuel. Canada and the United States have similar fuel mixtures serving the same basic vehicle technology. Canada will benefit from vehicles that meet emission standards not only the day they leave the factory but for years afterward. Our levels of harmful emissions from motor cars will once again be substantially reduced.

In conclusion, CAA recognizes that the MMT issue is not black and white and that numerous technical questions do remain. However, we believe the evidence weighs very heavily in favour of removing MMT. We believe the most productive and cost-effective means of reducing emissions from vehicles is through technology. MMT alone stands in the way of Canadians benefiting from OBD-II, the latest in pro-environment technology.

Warranty concerns are very real. Financial costs to motorists are a concern. We don't want motorists to feel obliged to tamper with emissions control technology.

The risks of inaction are many. These risks can be eliminated by banning MMT. Quite frankly, we just don't see too many risks if we take that path. The government is to be commended for its MMT stand, as it should be for its benzene regulations and its support for the passage of Bill S-7.

If the minister is following these proceedings, we recommend to her the next two steps in the areas of large truck and bus emissions and of mandatory fuel consumption standards for cars, trucks and buses.

Thank you for providing this forum for a consumer voice on this subject.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much for your presentation. It was very clear and very easy to follow. I'm wondering if it would be possible for the committee members to get a copy of your presentation.

Mr. Godding: Absolutely. We did forward a copy to the clerk a couple of days ago, but we can certainly provide you with additional copies.

The Vice-Chair (Mrs. Kraft Sloan): Is this the copy?

Mr. Godding: No. That's an appendix.

The Vice-Chair (Mrs. Kraft Sloan): Okay. We'll look and see if we have copies, and if we don't, if you could give us another one, that would be very helpful.

As I suggested earlier, perhaps we could limit this first round to five minutes.

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[Translation]

Mr. Pomerleau: Regarding this issue, as an individual, I would be tempted to take the easy way out and say that MMT will be banned. However, my main concern is that there's a very real possibility that MMT will be reintroduced in the United States.

You've mentioned various studies, but it seems that the American courts clearly ruled that, one, MMT as such was not dangerous, and, two, that car manufacturers had not managed to prove that MMT would affect their emission control devices.

[English]

First, are you aware of that decision? And what do you think the immediate impact of the decision will be in the next two years?

Mr. Godding: Yes, we're aware of the court decisions in the U.S. We've been following with interest what is happening there. Our understanding is that other countries - European countries, for example - are putting everything on hold and waiting until the U.S. decides what it's going to do with MMT.

Our feeling is that waiting until the U.S. decides on what it's going to do really shouldn't have a huge impact on Canada. If Canada removes MMT from gasoline now, we're taking what we believe to be the safest route.

If the government proceeds, as we and I think others have recommended, and does more formal technical studies of this subject over time and determines that there is a benefit to having MMT in the fuel, then it would be a simple matter to reintroduce it at that time.

Of course, reformulated gasoline does not have MMT in it, and that makes up something like 30% of the fuel market in the United States right now. If 70% of the fuel in the United States had MMT and Canadian fuel did not, we don't see a downside for Canada.

The Vice-Chair (Mrs. Kraft Sloan): Thank you.

Mr. Chatters.

Mr. Chatters: Thank you, Madam Chairman.

You made a couple of statements that I'd like some clarification on. First, we had two witnesses before us this morning who said that the evidence was conclusive that the environmental impact of the removal of MMT from gasoline had a net beneficial effect on the environment. Do you reject the position that the refineries have presented to us?

Mr. Godding: We don't reject that position. I think what we've stated is that we've seen that position and we've seen the information. We can't refute that information because we don't have the technical expertise to do so, nor do we see any obvious flaws in the technology.

However, on the other hand, we have seen information that identifies that there is a problem, and equally we cannot refute that information. So we're being presented with two opposing pieces of information, both of which seem very logical and well prepared and sound.

Mr. Chatters: But you stated that the removal of MMT has a positive effect without hardship. That's in direct conflict with what the refinery people said this morning.

Mr. Godding: What we're saying is that, based on the collective information we have seen, the removal of MMT from the fuel will have a benefit.

We've heard concerns by the automobile manufacturers that with the warranties they must meet on emission control equipment, with the continued use of MMT in the fuels and the tightening of the emissions standards, their vehicles are going to start to exceed the emissions over time because of the degradation of the catalyst and so on. They're afraid that they, in fact, are going to find themselves....

I believe at the present time they must warranty their emission control equipment for five years. They're saying that with the current emission regulations, they have evidence that shows that the emissions do increase over time, but they still stay within the limits.

With the new regulations that are coming in on emissions, they're saying that they have major concerns that they're going to start to exceed those limits before the warranty time for the emission control equipment runs out. Therefore that tells us if they have concerns about meeting their warranty obligations, the emissions are increasing, as opposed to decreasing.

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Mr. Chatters: I'm not sure you've answered my question. Anyway, we'll go in a different direction here.

You spoke at some length on the independent opinion on this subject that's been available, yet you did not refer to the U.S. Court of Appeals, which heard experts of both sides of the issue and ruled that the evidence that MMT has any detrimental effect on OBDs is inconclusive and ruled that therefore it should be allowed in gasoline because it hasn't been proven that it affects OBDs. Do you again reject that independent opinion?

Mr. Godding: I don't reject that independent opinion. What happened in the U.S. Court of Appeals, in our view, was they were unable to prove conclusively that MMT does degrade pollution control equipment. The onus was on them to prove that it degrades it, and because they were unable to prove that, they are saying it has to be allowed. But we've seen information that satisfies us that it does degrade the pollution control equipment.

Mr. David Leonhardt (Manager, Public Affairs Services, Canadian Automobile Association): There's obviously a lot of confusion around the table here over exactly what the U.S. court did rule on. There are sections of the Clean Air Act that permit EPA to rule on health grounds and there are sections that permit them to rule on gasoline additives and composition. What the court did rule is that there wasn't an overlap between those two and that EPA could not ban MMT based on health grounds. It hasn't ruled on, and hasn't been presented with, information on OBD-II. EPA has been presented with information from the auto makers on emissions equipment in general. On the tight framework in which EPA has to rule on these things - and it's laid down in minute detail - the real-life experience of manufacturers did not fit those types of requirements.

That doesn't invalidate it. It doesn't validate it. But the court has not ruled on that, nor has EPA ruled on that in a formal manner.

Mr. Chatters: Clearly there's a conflict in what we've heard between what you say and what other witnesses have said.

Mr. Leonhardt: The court has ruled...and it said on the grounds that EPA denied the waiver, EPA is out of order. But those grounds were health concerns, which EPA continues to hold. But they've granted the waiver based on a whole bunch of other regulations that are still before the court.

Mr. Chatters: There was a second part of that ruling that said the automobile manufacturers were unable to prove conclusively that MMT adversely affected OBDs.

Mr. Leonhardt: Nobody we've spoken to at the American Automobile Association, our sister organization, and nobody we've spoken to at EPA, has mentioned that or has been able to find that.

Mr. Chatters: One last question. Does your organization have any direct business association agreement with any of the major automobile manufacturers to do with automobile repair or warranty repair?

Mr. Godding: I'll answer that question in two ways. I'll start off by saying no. Then I'll qualify that by saying CAA runs a program across Canada which we call our ``improved auto repair service program''. That program approves garages to repair members' cars...and they guarantee their work. Some of those repair facilities are dealerships of all stripes. Others are independent repair facilities. So our individual member clubs would have a contractual arrangement with a dealership saying if a member brings their car there and has a complaint about the repair, CAA will arbitrate that repair complaint and the dealership will be required to fix the car again or whatever if CAA deems it to be so.

We don't have any relationship with the manufacturers directly aside from that.

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Mr. Chatters: Do you have any agreement under the new warranty provisions that if you have a new car and it's under warranty and it fails on the road, the manufacturer will, at no cost to the consumer, repair that vehicle? You're not involved in that part.

Mr. Godding: On the repair side of it, no.

Mr. Chatters: Okay.

Thank you, Madam Chair.

The Vice-Chair (Mrs. Kraft Sloan): Mr. DeVillers, you have five minutes.

Mr. DeVillers: Thank you, Madam Chair.

Back to the question of the independent test, I think you had indicated that you're recommending independent tests but you're distinguishing between Mr. Carter and Mr. Walsh. What they've done is just review the evidence and give an opinion on it. Is that correct?

Mr. Godding: That's correct.

Mr. DeVillers: Apart from those two individuals or companies, are there any other persons or groups that you are aware of who have reviewed the evidence and given opinions on it?

Mr. Godding: Not that we're aware of, no. Certainly not in Canada.

Mr. DeVillers: So this is the extent of it.

Mr. Godding: Yes.

Mr. DeVillers: We've heard this morning from witnesses from the CPPI that one of their concerns is if this MMT is banned it may be opening the door and that the petroleum industry would be at the mercy of the auto makers down the road; they'd say they want some other changes made to the formulation because of their equipment, etc. How do you react to that position by the petroleum industry?

Mr. Godding: That's a very interesting point you raise. Recently we have made comments to Environment Canada that there needs to be some kind of facility put together because automobile manufacturers who are designing vehicles around the fuel and the fuel refiners who are designing the fuel for the cars need to have a way of communicating better what each other's needs are. There needs to be some kind of a process; I don't know what you would call it. It wouldn't be an arbitration process but certainly those two types of organizations are extremely closely linked and yet don't seem to see eye to eye on what are the future needs for fuels and vehicles.

Mr. DeVillers: But that's a concern that would go beyond this particular issue we're dealing with now, of MMT. Is that correct? Is that your position?

Mr. Godding: I think the way you stated it was, are we opening the door to having manufacturers then say they now need something else changed in the fuel because they want to build vehicles to a certain standard?

Mr. DeVillers: That was the opinion expressed by the petroleum industry.

Mr. Godding: I don't think it would get to that point. I would hope not. But there needs to be some way of having the concerns of both groups met in the middle somehow without having one having the upper hand over the other.

Mr. DeVillers: As a representative of your members' and consumers' interests, what's your reaction to the second scenario you described, where the MMT remains in the gasoline and the auto makers are disconnecting the OBD? What's your reaction as a consumer advocate group, say, to that action by the auto makers?

Mr. Godding: We don't like the scenario at all. I believe the auto makers would then be at odds with the federal government in terms of its emission standards if they said we're not going to bring OBD-II into Canada. Whether they could still meet the emission standards is uncertain to us at this point. I believe they probably still could, so they could remove the OBD-II system. I shouldn't say they could remove it but they could remove the sensing part of it...

Mr. DeVillers: Disconnect.

Mr. Godding: Yes, they could disconnect the warning to the driver. They still need the system to manage the engine function of the vehicle. But if they remove the warning side of it, then Canadians would lose out on that opportunity to ensure vehicles are maintained within the emission standards that have been set. Emissions are going to go up, and we're all going to suffer as a result of it. I don't think our members would be in favour of that because our members have stated very clearly that they are strongly in favour of reduced emissions.

The Vice-Chair (Mrs. Kraft Sloan): Thank you, Mr. DeVillers - until the second round.

Mr. Reed, please.

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Mr. Reed: I think one of the things you are indicating to us, too, is that if scenario two came into existence, as consumers we would probably end up paying for OBD-II without getting the benefit of it.

Mr. Godding: [Inaudible - Editor]

Mr. Reed: And thank you very much for providing a clarification of the EPA. This has been a subject of much confusion. What I think I heard you say is that all the cards haven't been played yet in terms of the EPA, that OBD-II has not been injected into the equation yet in terms of the courts.

Mr. Leonhardt: To the best of our knowledge it hasn't, and the people at EPA we've spoken to have indicated that when all the regulatory process - presuming they were to lose the current court case, which is the secondary administrative nightmare, and are forced to grant the waiver, or forced to...never mind the technology, they've granted the waiver and have to do something else - presuming that all that goes, and Ethyl Corporation is allowed to introduce MMT into commerce in the United States before the end of the year, the prediction that EPA gives is that there will likely be a few small refineries that have fewer options on the octane question that may actually use MMT.

But the big ones aren't going to because there is a high likelihood.... We understand right now that the big parent company auto makers in the States are starting to work now with the OBD technology and produce more scientific testing, more testing according to EPA regulations - the type that Ethyl has been conducting all this time. In other words, the refineries are not very keen on introducing something that's then going to be banned again, when they don't see a need for it in the first place. It's an opinion that's been given; it's not a fact.

Mr. Reed: Thank you. That's very helpful.

The Vice-Chair (Mrs. Kraft Sloan): Mr. Steckle, do you have a question at this time?

Mr. Steckle: The question I might have is related to one that was asked earlier by my colleague across the way. In terms of certain standards being required, do you see a diminishing standard as cars become older, or can they be brought up again to the original standard? The OBD equipment, of course, only really relates certain measurements to the driver, but I wonder whether down the road these vehicles are going to have a much more quickly depreciating value because of what we're going to demand of our cars on the road in the future. I'm not sure that I've put the question correctly....

Mr. Godding: To date our emission standards have applied to new vehicles only, so when a vehicle rolls out the factory door its emissions must not exceed these amounts. We also require that the emissions equipment on the vehicle maintain those emission levels for a period of time. So the manufacturers have to design a vehicle so that if the emission standard is here when it rolls out the factory door, the vehicle has to be here, because over time it's going to increase as the emission control equipment degrades to a degree. There are things that they can repair and replace over time to keep the vehicle within that standard. For example, if the catalytic converter becomes fouled, it can be replaced and the vehicle can be brought back close to the standard.

But of course over time, as the engine parts wear, the valves don't work quite as well as they did when the vehicle was brand new. You're never going to be able to bring it back to the factory door level, but you should be able to keep it within the standard.

So as the standards, which are here now, move to here, it becomes more and more difficult for the manufacturer to maintain the vehicle at that level. The amount of increase of emissions over time that they can allow has to decrease. This is part of the reason for OBD-II system, to ensure that a vehicle....

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Computer controls is a fantastic thing we have these days to allow the vehicles not only to run better but also to emit fewer pollutants. It's a very fine-tuned process they use, and any little change in it can throw the whole process out. This is our concern.

Mr. Chatters: Are you aware, and do you acknowledge, that this OBD technology in the U.S. has been unreliable to the degree that the EPA had to lower the standard to allow licensing of these automobiles on the road, at least until now - that the failure rate of the OBD technology was so high that in fact it couldn't meet the standards and those standards had to be lowered for licensing?

Mr. Godding: Yes.

Mr. Chatters: You would agree that in an environment where MMT is not -

Mr. Godding: I'm not positive on that information, but I've heard something to that effect. I think the OBD-II system will become more reliable over time. Certainly our sense is that, from the manufacturers' perspective, an extremely important component of the OBD-II system is the oxygen sensor and any fouling of that sensor is going to defeat, to a large degree, the success of the system.

Mr. Chatters: The failure rate of the technology is a real concern in an environment where MMT is not used in gasoline.

Mr. Godding: As I say, I've perhaps heard that the OBD-II systems are still under development, that more work needs to be done, but I've nothing concrete to offer you in that sense.

Mr. DeVillers: In earlier testimony this morning we heard from Mr. Fischer. He's the senior vice-president, products and chemicals, of Imperial Oil. He gave us the opinion that the motivation of the auto manufacturers was strictly financial, because of concerns about warranty work. I guess that was the bottom line.

Do you share that opinion?

Mr. Godding: We haven't formed an opinion as to precisely what the automobile manufacturers' motives are. We recognize that this is probably one of them, but we also believe that automobile manufacturers are being required by law to meet certain emissions standards and from their perspective the motivation is that they want to be able to do so, or else they will not be able to sell their vehicles.

Mr. DeVillers: We were also told this morning that if MMT were banned, Canada would have the highest environmental standards in the world. What's your reaction to that? Is that a positive or a negative?

Mr. Godding: I see that as being a positive.

The Vice-Chair (Mrs. Kraft Sloan): Do you have any other remarks you want to make to the committee?

Mr. Godding: Only to thank you for the opportunity to be here today. We appreciate your time and your questions.

The Vice-Chair (Mrs. Kraft Sloan): Thank you very much.

I have to remark that, as someone who gets stranded the odd time on the side of a country road, I'm going to have to talk to you about a membership - which is no form of endorsement of your opinion over another opinion.

Mr. Godding: You're probably the only person in the room who doesn't.

The Vice-Chair (Mrs. Kraft Sloan): Probably. I think a number of members around the table do.

This meeting stands adjourned to the call of the chair.