NRGO Committee Meeting

STANDING COMMITTEE ON NATURAL RESOURCES AND GOVERNMENT OPERATIONS

COMITÉ PERMANENT DES RESSOURCES NATURELLES ET DES OPÉRATIONS GOUVERNEMENTALES

EVIDENCE

[Recorded by Electronic Apparatus]

Thursday, November 6, 1997

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): Colleagues and guests, I'm pleased to call to order this meeting of the natural resources and government operations committee for Thursday, November 6. We're continuing our study of issues in advance of the Kyoto conference on climate change scheduled for early December of this year.

We have in this first hour witnesses from the Canadian Petroleum Products Institute represented by Jack Belletrutti and Robert Clapp. We have from the Canadian Chemical Producers' Association, Mr. Richard Paton.

Let me just say a word about the institute for the record. The Canadian Petroleum Products Institute was founded in 1989. Its members are those from the downstream sector in the petroleum industry, which I would take as essentially retail?

Mr. Robert Clapp (Vice-President, Canadian Petroleum Products Institute): Refining and marketing.

The Chairman: About the Chemical Producers' Association, founded in 1962, there's much we can say, but they employ over 27,000 people, which is pretty important to this country.

I understand the representatives from each of the organizations will speak for six or seven minutes and then we'll proceed directly to questions. Without any further ado I'll invite the institute to proceed, Mr. Belletrutti or Mr. Clapp.

Thank you.

Mr. Robert Clapp: Thank you, Mr. Chairman. My name is Bob Clapp and I'm vice-president with the CPPI, running our Ontario division, and Jack Belletrutti is from our Ottawa office.

Let me say a few words of introduction and then Jack is going to carry the meat of the presentation.

As the chairman said, we do represent the refining and marketing aspects of the petroleum industry in Canada. Our members include people such as Shell, Petro-Canada, Imperial Oil, Suncor, Ultramar, and Chevron, operating coast to coast in the country. We represent over 85% of the refining and over 85% of the products sold in this country.

CPPI has been very active on the climate change file over the past five years. We were present and a key participant in a multi-stakeholder group that formulated Canada's national action plan. We participated in the first review of the plan that took place last year. We've also been a core participant in the revitalization of the Canadian industry program for energy conservation, otherwise known as CIPEC. We've also been a key member working on the establishment of the voluntary challenge and registry and the office that has recently been set up. I'm very proud to say we've been able to engage all of our members to sign up and participate in that.

We've also, mostly recently, been involved in the national air issues co-ordinating committee and the advisory committee on climate change, and in working with others in the industry, the Business Council on National Issues and other industry organizations, on this file. So we have a very broad and lengthy involvement in this issue.

It's now my pleasure to turn it over to Jack Belletrutti, who will go through the essence of our presentation to you, and we'll take questions later. Thank you.

Mr. Jack Belletrutti (Vice-President, Canadian Petroleum Products Institute): Thank you very much.

CPPI is very pleased to have this opportunity to present its views on this issue. Given Canada's energy-intensive, export-oriented economy, this may well be one of the most important economic policy decisions that our country faces, certainly in the next decade.

As you all know, the United States has recently declared its negotiating position on climate change. That position essentially consists of stabilizing the emission of greenhouse gases at 1990 levels by the time period 2008-2012, which I assume is that an average over those five years must equal stabilization. They've also identified a potential for further reductions beyond the period 2012.

As we all know, Canada has not as yet declared its position, but it would appear from everything we've heard that Canada seems to be aligning itself with the U.S. position and possibly even exceeding it. If this is the case, it appears to us that Canada seems to be locking itself into a position without clearly understanding how it intends to achieve these goals. How do we get there from here seems to be the big question on our mind. Therefore, we challenge the federal government to detail for all Canadians—provinces, public, private sector—how it intends to achieve legally binding commitments and what sacrifices Canadians are expected to make before we sign on in Kyoto.

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In our view stabilization of greenhouse gas emissions cannot be achieved in the indicated timeframe, that is, 2010, without seriously slowing down the growth of the Canadian economy. This is a price that we do not believe the Canadian public, according to surveys that have been conducted, is prepared to pay. It is also our view that drastic action is premature and unnecessary.

I'll elaborate on both of these points by basically speaking to two items. The first item I'll speak to is that stabilization of greenhouse gases in the next decade means curbing economic growth—I'll touch upon that—and the second point I'll deal with is that drastic action is premature and unnecessary.

With respect to the first one, energy use and economic growth go hand in hand. Economic growth requires energy, of which in Canada more than 70% comes from fossil fuels and for which there are no readily available acceptable economical alternatives that can just be plugged in today to replace fossil fuels.

Canada's fossil fuel part of the energy mix is 70%, as opposed to the U.S.A.'s, which is about 85%—and I think that also is a world average. What this means is that Canada has already done a great deal in terms of energy efficiency to reduce its dependency on fossil fuels. A lot of those things were done, for example, during the off-oil programs of the 1970s and 1980s. So for us to reduce even further we have a tougher task.

Actions by industry alone will not be sufficient to stabilize emissions. Industry in fact has done a fairly decent job in improving its energy intensity—energy intensity being the energy used per product per unit of production. Industry has improved this by about 1% per year since the year 1990. The petroleum products industry, which is what we represent, has reduced its energy intensity by over 12% since 1990, and our refineries in fact emitted between 3% and 6% less CO_*2 in 1996 than they did in 1990. So in terms of our own industrial facilities, we are below the 1990 stabilization target, if you like.

What we're saying is that these initiatives, although very good, will eventually be overtaken by increased energy demand associated with Canada's projected growth in population and the economy.

Emissions are forecast to grow in all sectors. I've put two charts at the end of our presentation. I would ask you to refer to them, in particular the first one, which says “limiting emissions means restricting energy use by everyone”. What that chart shows is various sectors of the economy and the CO_*2 emissions that emerge from those sectors, and it's CO_*2 plotted in millions of tonnes per year on the vertical axis, and the sectors are on the bottom.

On the very right-hand side of that chart you see the gap that is projected in the year 2020 in a business-as-usual scenario. These numbers come from Natural Resources Canada's energy outlook. The gap by 2020 will be 164 million tonnes. It is made up of all of these sectors that are indicated here. What we're showing is you can't zero in on any one sector and achieve a stabilization target. You cannot make up the 164-million-tonne gap by focusing on any one sector. For example, in electricity generation I suppose if you converted everything to nuclear you could make a very significant impact on that gap.

One of the largest areas is the area of transportation, and it is the area that affects absolutely everybody. It deals with the cars we drive, how much we drive, how we drive, where we go, and the distances we cover. So if you want to make an impact on the stabilization gap, you really have to focus on all areas. What we're saying is that every sector of the economy has to have a role if we are going to achieve this gap.

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To give you an idea of how difficult it is, I have a few examples on the next chart, which are there really to illustrate how difficult it is to meet a stabilization target in the timeframe shown. For example, if we were to eliminate half of the automobiles in this country we would reduce the gap by about one-third. If we were to stop immigration totally, again, about one-third of the gap would be reduced. If you were to triple the price of crude oil from $20 a tonne to $60 a tonne—and that would have the effect of probably close to doubling the price of a litre of gasoline at the pumps, so you're looking at about $1 a litre—you can probably close the gap. But that is a very expensive and pretty drastic measure, assuming that consumers behave according to the elasticity models upon which a calculation like this would be based. We have some doubt that this is true.

Economic models. A survey done by the Conference Board of Canada has basically shown that the cost to the Canadian economy of a stabilization scenario by the year 2010, for example, would cost the Canadian economy annually about 1.5% to 2.5% of our gross domestic product. That works out to some $15 billion to $30 billion per year by the year 2010. So to get there is a very expensive and costly proposition, if that is going to be our target.

The next point is that drastic action, in our view, is premature and unnecessary. It really all has to do with the fact that the scientific findings on this issue are issuing a warning. There are too many uncertainties and too many unanswered questions for us to be able to say that the science is certain. So what we're looking at here is a prudent risk management approach. We should be taking cost-effective actions while these uncertainties are being addressed, as opposed to very high-cost policies that really hurt our economy.

Most scientists who believe in global warming, the proponents of global warming, don't expect it to have serious effects for many decades. There are a couple of documents you can look at that talk to that. One is a document prepared by the Heritage Foundation in the U.S. Another one was prepared by the C.D. Howe Institute in Canada that talked to that particular issue.

What we're saying is that we therefore have time to proceed cautiously, focusing our efforts on enhancing voluntary measures, such as the voluntary challenge registry in which all CPPI members participate. For example, why don't we test the voluntary measures approach to its fullest potential? We believe there's still a long way to go in that area—not only to its fullest potential but on the broadest possible base. This means including more and more folk into this initiative.

Public education and energy conservation and a responsible use of all forms of energy are all outreach programs to the consumer that I think can pay fairly significant dividends. We should be doing a lot of that. Our industry, for example, is considering doing exactly that. We're trying to figure out the best way to do it, but that is one initiative we wish to pursue.

In addition, we have the time to develop economically viable new technologies, because we are going to need technological breakthroughs to get there from here in order to be able to replace less efficient energy-using infrastructures; in other words, an opportunity in time to allow appropriate turnover of capital stock.

These are simply some very brief comments, but I hope I've been able to indicate to you that this is not an easy job. Getting there from here is very difficult, and we don't really think you can get there without taking drastic measures, if indeed stabilization by 2010 is going to be the target. By drastic measures...we're talking about things like significant energy taxes and possibly and/or even energy rationing, alternatives that I think there is no appetite in this country to pursue.

In the absence of a plan.... In other words, we are asking, Canada, how are we going to get there? Government, what is your plan for getting us there, if that is the path we are taking? If we don't have such a plan, we should either ensure that the targets are not legally binding or that there is enough flexibility in whatever agreement is signed with respect to implementation protocols. For example, that could mean differentiated targets to take into account our national circumstances, credit for emissions reductions in other countries. I can say a lot more about that if you have a question with regard to that particular one.

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Engagement of developing countries—I also have a few views on that if you wish to hear them.

In other words, we need this kind of flexibility. Joint implementation is a big one. We need these in order to be able to avoid sanctions and perhaps political embarrassment down the road.

Thank you, Mr. Chairman.

The Chairman: Thank you very much. I believe you've handed out a summary, and hopefully in answering questions you can add to the points you've already made.

We will turn to Mr. Paton and Mr. Caswell from the Canadian Chemical Producers' Association.

Mr. Richard Paton (President and Chief Executive Officer, Canadian Chemical Producers' Association): Thank you very much, Mr. Chairman. I think my presentation will complement the CPPI presentation in that I will focus particularly on the chemical-producing sector and show you some of the challenges we would face with climate change stabilization targets.

First, I would like to thank the committee for taking the time to get involved and knowledgeable about this issue. I think it is one of the most critical issues this country is facing right now. Without overstating it, it is very alarming that we are approaching this issue with so little information at such a late date. This is easily a decision that could affect the employment prospects of our children, the nature of our economy, and the growth of the economy. It is really difficult to imagine how we've come to the position where we are involved in the Kyoto discussions with so little information on the impact it has on the country and on Canadian citizens.

I'll just tell you a little bit about our companies and our association. We represent 72 chemical-producing companies. These are the Dows, the Duponts, the Shells, Imperial—many of the companies that are in your ridings across the country. We have about $15 billion worth of production, employ 27,000 people directly, with many spin-off jobs throughout the economy, and we're a growing industry. Right now we have, for example, $4 billion in investments going into Alberta that will generate about 12,000 construction jobs, 100,000 total jobs in spin-off, and we have projects going across the country.

The reason I mention growth is because growth, unfortunately, in most cases consumes fossil fuels. Growth produces CO₂. So one of the challenges we face, and I think the government faces, is reconciling the realities of growth and jobs versus CO₂ and greenhouse gases.

CCPA is a unique association because we are the founders of what's called Responsible Care. This is probably the most rigorous voluntary program for environmental and health protection in Canada and probably the world. We initiated Responsible Care in the mid-1980s. It's how our companies operate, in accordance with Responsible Care codes and principles. This program has now been adopted by 42 countries around the world and we are committed to always reducing, on a continuous basis, the impact we have on the environment and on communities. We work in a very open way with Canadians on information about our emissions and on our impact on communities.

As part of that Responsible Care initiative, we are members of the voluntary climate registry and we've been very active participants in reducing CO₂ and other greenhouse gas emissions. Also, as part of Responsible Care, we produce an annual report on reducing emissions. In fact, Bruce Caswell has the honour, and unfortunately the challenge, of producing it every year. We report on all the chemical emissions, all the emissions we produce as an industry. All of our companies report this information to us and we publish that information annually. Very few organizations can say they do this, but it also provides us with a clear understanding of what our emissions are with respect to CO₂ and other greenhouse gases. I'll come back to that in a minute.

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On our reducing emissions I should mention that in 1966 members reported a 6% increase in carbon dioxide emissions since 1992 while, according to preliminary Statistics Canada data, the value of shipments in constant dollars increased by over 18% in the same period.

I highlight this because our industry is about 2% of total CO₂ emissions in the country. We have grown by 18% since 1992. Our CO₂ emissions have grown by only 6%. That shows an energy efficiency rate that's somewhat similar to what CPPI was mentioning.

In other greenhouse gas areas, not just CO₂—for example, nitrous oxide—we were able to reduce our emissions by up to 90% by 1997. So in areas where specific greenhouse gases can be identified by company, and companies can invest money to reduce those gases, in fact our companies have done that. However, we are still left with a CO₂ problem that is related largely to our growth.

On energy efficiency, our members have been improving energy efficiency measured in terms of energy used per tonne of manufactured product. Since 1973 members' energy efficiencies improved by 35%, exceeding the Canadian industrial average. Members continue to report energy consumption through Stats Canada and continue to make improvements in energy efficiency.

As a Responsible Care organization, we expect our members to be committed—and they are—to reducing their emissions, which they are doing.

In specific areas where we can identify specific chemicals or emissions that we can reduce by reducing or changing the environmental operations at a particular plant, we have made major progress. However, on CO₂ we have a huge problem.

I want you to look for a moment at the charts attached to this document, which give you graphically an idea of what that problem is and some of the problems with the Rio formulation.

If you look at the first chart you might notice that the green line, the very bottom 1991 figure, shows the recession period. Our CO₂ production level was at its lower point during our lowest point of production. It's very unfortunate that the number for stabilization was set at the bottom of the economic cycle and not even three years before—in say, 1989—because if that had been the case, we'd be almost at stabilization now.

However, it wasn't set at that point. If you take a look at the 1991 level and you go up the green line, that is our product output. You can see that our product output is going up substantially, which I would assume for all you members of Parliament is good news. This is jobs. Jobs is also a problem we have in this country—a very serious problem.

That line will continue to go up—unfortunately in terms of climate change debate but very fortunately in terms of the economy. So our product output continues to go up.

You may note also, in the next line down, that our CO₂ emissions don't go up as fast as our product output, but the fact is, they are up. They are up over that 1991 level. Even though they don't go up proportionate to product output they do still tend to go up.

If you look at the next chart you'll see maybe a better story in that if you look at potential greenhouse warming gases—this includes gases like nitrous oxide—we're able to drop those numbers down substantially. But the fact is, we're left with a quite difficult challenge dealing with CO₂. That challenge is related to the fact that the Rio formulation does not account for the Canadian economy, the nature of the resource intensity of the Canadian economy or population or economic growth. The numbers are all based on a formulation that does not reflect the Canadian economy.

I'd like to come to what our views are on climate change. Given that reality and the reality for our industry, the fact is, for this subject, this is a major economic issue for this country. We cannot introduce the kind of drastic measures that the CPPI has mentioned without affecting the investments in the chemical industry in Canada and without affecting growth.

So the ideas that have been suggested by the government, that we're going to treat this as an opportunity, that we'll work our way out of it with technological innovation, are very optimistic, even naive. There are real costs here and there are real trade-offs. Canadians should know that those trade-offs aren't just problems that the chemical industry is going to face; they're problems that they're going to face on their cars, on their houses, on every aspect of their lives.

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CCPA has a few suggestions on this. First of all, we should be looking at the longer term here. The one big advantage that we have as a chemical industry is that with appropriate R and D and innovation, there may be different ways to produce chemicals other than by heating them up and causing reactions, but this is not going to happen by the year 2010. Plants have been built and plants are producing chemicals, but the technology has its limits in the next ten years. We need a longer timeframe in order to be able to make the kinds of adjustments that are necessary.

We have to really recognize differentiation. Canada is not the United States, it's not France, it's not Germany or the U.K. Everybody has their own particular challenges, but we are a high-energy-intensity economy. A lot of our exports, such as natural gas, end up reducing energy costs and CO₂ emissions in other countries. The Prime Minister, I understand, has recognized that fact, but the Rio formulation doesn't recognize that, and I don't see anything in the Kyoto discussions right now that would recognize it. So we have to be very careful about how we set those goals, and we have to recognize that Canada is a different type of economy and has different kinds of challenges.

The developing countries have to be included in the formulation. This is a global issue. It has a global solution. Ten years from now we could easily end up in a situation in which we will have made dramatic changes and will have watched the growth and investment just leave our country and go to other countries. This is very much a possibility. The total is not changing at all, because the developing countries have actually increased their CO₂ production to a level dramatically higher than ours.

Harness the full creativity of the businesses and marketplace. The marketing of devices such as emission trading probably would be useful. Use voluntary measures, as CPPI has mentioned. Encourage R and D investments in climate friendly technologies. Engage all sectors of society in the solution. Right now, this seems to be a discussion in which many people feel industry is the solution and the problem. This is not the case, as the CPPI presentation indicates.

Let me just conclude with a general summation. This is a serious challenge for the economy and for Canadians. We are very concerned that all the indications today are that Canada is simply sleepwalking towards following the American formulation of the problem, without really recognizing the realities of the Canadian economy and the impact on Canadians. Thank you.

The Chairman: Thank you, Mr. Paton.

Before we move to questions, I'll just remind members that we're trying to get a lot of witnesses in over a few meetings because of the conference in early December. I'll therefore ask you to keep your questions short, and I'll ask our witnesses to try to get right to the point with their answers.

We'll start with Darrel Stinson and then go over to Julian Reed.

Mr. Darrel Stinson (Okanagan—Shuswap, Ref.): Thank you, Mr. Chair.

In your statement here, Mr. Belletrutti, you state:

The petroleum products industry has improved its energy intensity by over 12% since 1990, and our refineries emitted between 3% and 6% less CO₂ in 1996 than they did in 1990.

Do we have any idea of what the other countries have done, how their performance has been, in this regard as compared to Canada?

Mr. Robert Clapp: Maybe I can answer that one.

The energy intensity of the refining industry is benchmarked against worldwide refineries. All of our members are measuring their energy performance against everybody else in the world, with a hundred being the norm. On average, Canadian refiners today would be at about 105% against the norm. I believe U.S. refineries are just below that, at about 99%. So stacked up against everyone else, we're in pretty good shape. We do better than people in Latin America and the Far East. Versus the U.S. and European refineries, we're all about in the same ballpark. So everybody is continuing to improve their performance.

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Mr. Darrel Stinson: So you don't really see any disadvantage to Canada in trying to compete at this level that we're talking about here compared to the other countries that, say, are not as efficient as we are in this area?

Mr. Robert Clapp: Energy is a significant cost component in running refineries, so there's a very strong economic drive to use energy as efficiently as possible and there'll be a drive to continue to reduce energy efficiency to maintain the competitiveness of the Canadian industry. That's the economic drive.

Mr. Darrel Stinson: Also, do you have any studies comparing what it would cost the petroleum industry to reduce emissions to the 1990 levels over the short term, say by the year 2007, ten years from now, as opposed to the cost to reach that same target over a longer term, say over twenty years from today?

Mr. Jack Belletrutti: As I mentioned, our refineries currently have achieved a stabilization. In fact, we are currently below 1990 levels, and in all likelihood we will be there as well by the year 2000. But if the economy grows at its projected rate of something like 2.2% a year, which I think is the number that Natural Resources Canada uses in its projections, we will eventually be overtaken.

A study was done, I think a little over a year ago, to look at the cost impact on the refining and the oil-producing industry. That's the upstream and downstream. I don't remember the exact numbers that came out of that, but it was fairly significant. It looked at a scenario that was a little bit more severe than stabilization by 2010. I can provide you with that information, if you wish to have it.

Mr. Darrel Stinson: I would appreciate that.

Further up on this, do you know if there are any other petroleum-producing countries that are not going to sign the Kyoto treaty?

Mr. Jack Belletrutti: The OPEC countries.

Mr. Darrel Stinson: How will that impact on the ability of our industry to perform in the world markets compared to them? What kind of an advantage, in other words, would we be giving away here?

Mr. Jack Belletrutti: Our costs would go up dramatically. To begin with, we would be limited in the amount of oil and gas that can be produced. If we have a target, we essentially have a cap on the amount of CO₂ emissions that are permitted out of that industry, so that can be translated into a maximum allowable production rate in order to achieve that. In order to produce more, it would become much more expensive. So we would be competing against countries that would not have a similar cost.

Mr. Darrel Stinson: Just to go further up on this, would it be fair to say then that we would be looking at lay-offs in our industry in order to support a system that is not being adhered to by competitor countries?

Mr. Robert Clapp: That's entirely possible, because you end up with lower net-backs to Canada and higher costs. I think that's the right direction.

I understand that you will have the Canadian Association of Petroleum Producers coming in next week. They're probably better qualified than we are to deal with that, because you're into the upstream production aspects of the game. That's really where it's at.

There is a significant impact.

We'll get that study over to you today or tomorrow. I think you'll find that to be very interesting, because there are significant impacts, primarily on the upstream industry, when you get into that kind of scenario.

Mr. Darrel Stinson: Thank you.

The Chairman: Mr. Reed.

Mr. Julian Reed (Halton, Lib.): In 1979 Sheik Yamani, who was the oil minister for Saudi Arabia at the time, said that petroleum is too precious a commodity to combust.

I also would like to put on the record that old Chinese proverb that a journey of 1,000 miles begins with the first step.

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When I read your statement about slowing down and about how there are no readily available acceptable economic alternatives, I want to tell you that 15 years ago, if we had started with the alternatives, we would be an awful lot farther ahead than we are today.

At some point, a decision to move has to be made. I would suggest to you that even if we start today, you can't expect that this will all magically change overnight, nor will it pose a threat to the petroleum industry because petroleum is going to continue to play a major role, probably an increasing role in non-combustible areas, more so than at the present time. It has changed dramatically since I was first exposed to the energy scene in Canada.

I suggest that had we started down the road on ethanol ten years earlier there would probably be 10% ethanol in most automobiles by now, since half a billion dollars have been invested to this point just recently in the last four years.

I also didn't see any statement about some new technologies that Canada has invented, like the pre-combustion technology that has been invented in Quebec. I don't know whether you saw a television program not too many weeks ago...if it's true and if it's what the doctor says it is, it will have a major impact on CO₂ emissions.

It seems to me that rather than saying slow down, drastic action is premature and unnecessary...I'm not sure what you mean by drastic action. It seems to me that if the focus is not changed, we'll never get anywhere, because we're all hooked on petroleum. Let's face it, I burn as much as anybody. But it seems to me that unless government changes its focus—and I'm not talking about carbon taxes or anything like that—

The Chairman: Julian, can I ask you to get to the question? We're going to be really tight for time.

Mr. Julian Reed: I would simply ask that your vision include some of these alternatives, beginning today. That's all.

Mr. Jack Belletrutti: May I make a quick comment about that?

The Chairman: Yes.

Mr. Jack Belletrutti: We don't disagree with what Mr. Reed has suggested. In fact, one of the things we are promoting is that we do focus on technology and technological solutions. That of course means looking at more efficient ways of using fossil fuels as well as using alternatives. We certainly support that kind of direction.

Mr. Richard Paton: I think you're right. We do have to rethink our situation. We have to reduce CO₂. It really comes down to how, how fast and under what kind of formulation—just Canada or global—within ten years or twenty years. For most of the technologies you've mentioned...for example, I don't think anyone would have predicted that the fuel cell would be widely used before 2010.

We have a really serious problem here. I think there are technologies out there, maybe in the future, but if we stick ourselves with targets that are not within the technological window, we're going to pay a larger price than we need to pay.

So I think you're right. We have to start on the journey. The question is, how fast are we going to drive to get there? How much CO₂ are we going to burn up getting there?

The Chairman: Mr. Pickard.

Mr. Jerry Pickard (Kent—Essex, Lib.): Mr. Chairman, I would like to direct my question more to Mr. Paton than anyone because he made the statement that it seems Canadian government is sleepwalking toward our conference in Japan, and I take exception to that.

I have to ask, then, why hearings are going on with this committee and why hearings are going on in the environment department and have been going on for quite a long time. What is the Ministry of Environment doing? Are they contacting industry and moving that forward? Is the Ministry of Natural Resources contacting your industry and discussing information with your industry and formulating what would be considered a reasonable approach to this?

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Certainly we know it's a critical problem. The Prime Minister has pointed that out very clearly. The Prime Minister is also concerned that we make sure we can garner the best of the industry and partnership with the industry. There's no question that co-generation and atomic energy movement, all these kinds of things, have a great bearing on the production of CO₂ and what we can do. We've talked about credits and trying to negotiate credits in Kyoto.

There are many aspects I've heard over and over again.

I was interested, I guess, because we haven't said yes, we're going to take the United States and be 5% less, we're going to throw a number on the table without a tremendous amount of work with our own people and without then negotiating with other countries to get the best possible scenario. That's the approach the Canadian government has taken, from my point of view. I'm surprised by your statement. I wondered what your background is to suggest we're sleepwalking toward that conference.

Mr. Richard Paton: Sure, maybe the word was a little inappropriate.

Mr. Jerry Pickard: I thought very inappropriate, but I just wonder why you are saying we're not doing anything.

Mr. Richard Paton: Let me explain it, because it may also have a kernel of truth in it.

Let's compare ourselves with the Australians. The Australians have done all the economic analysis, have done all the economic impact. They had it all done six or eight months ago and have been out around the world pushing their particular position, and doing it very well.

Six months ago, within the Canadian government, this was regarded as an environmental issue only, not an economic issue at all. A lot of change has taken place since then. A lot of work has been done with departments. I think the engagement is there, and I'm very glad to see parliamentary committees are engaged on this, but the fact is that we're really very late in the game.

The debate now has become whether or not we're going to follow the American position, whether we should make a statement or not make a statement. Frankly, I'm quite happy we're not making a statement. I would rather have no statement than a bad statement. I'm not in the camp that says the government has to make a statement. I would rather keep our powder dry and go into the negotiations with a good understanding of our Canadian situation.

However, Canadians are out there right now wondering about this issue and I don't think they feel very informed about it. It's quite possible we'll move into the Kyoto negotiations without a strong understanding among Canadians, parliamentarians, the provinces, on what the real costs of stabilizing at 2010 are for Canadians and the Canadian economy. I don't believe we have a sufficient understanding of the issue or a sufficiently developed approach to this that can protect the interests of Canadians.

So I think we have missed an opportunity on this issue. To have hearings at this time is great, but this is an issue we should have been positioned for months ago, even a year ago.

Mr. Jerry Pickard: It's not something we can come up with in a very short term. I totally agree with you it can't be done in the short term. However, we must make certain we have realistic, achievable goals. Industry is saying it—

Mr. Richard Paton: Absolutely.

Mr. Jerry Pickard: —everybody we've talked to has said it, and that is the basic reason why the Canadian government has taken the position it has to move this issue forward. That's why we have industry involved in all facets of the discussion as well as the environment. I don't think Canada has taken just the environment position, and I'm—

Mr. Richard Paton: I agree.

Mr. Jerry Pickard: —surprised industry would suggest that.

Mr. Richard Paton: Not recently. I'm just saying we are now caught in a political situation where the game out there in the press is are we going to do better than the Americans or not? That shouldn't be the discussion. The discussion should be what kind of economy do we have, what kind of progress have we made, what kind of impact does it have, what kind of position should we take for Canada, not whether Mr. Clinton has taken one position or the other.

Mr. Jerry Pickard: That's where the Canadian government is.

Mr. Richard Paton: We've missed that boat already.

Mr. Jerry Pickard: The opposition might suggest we're out there not doing things and the press may suggest it, but in fact things are being done, I would hope.

Mr. Robert Clapp: I just want to make a very quick comment in support of Richard. I applaud the committee for having this hearing and the engagement. In support of Richard, the engagement should have happened a year ago. That's really in support of Richard.

The Chairman: Darrel Stinson.

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Mr. Darrel Stinson: I also want to come out in support of what Mr. Paton said. Since 1992 we've known this was going to come down and we've waited until now to try to come up with some kind of decision to make ourselves look good, and it's going to be an impossibility, as far as I am concerned on this.

I have a quick question. Do you know roughly how much this Canadian government has spent in R and D with regard to this issue?

Mr. Richard Paton: No, I have no idea.

Mr. Darrel Stinson: No idea?

Mr. Richard Paton: No.

Mr. Darrel Stinson: Thank you.

The Chairman: Mr. Cullen.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chair.

I'd like to welcome the witnesses today.

I agree with you that this is a hugely important issue, both environmentally and economically. I'm very pleased that you're here to shed some light on particularly some of the economic issues that go hand in hand with this.

Improving our environmental performance on carbon dioxide emissions is where we're at, I guess. How you get there is really the issue. We can talk about targets, etc., but I'd like to move off that just for a moment, recognizing that it's hugely important.

I'd like to talk a bit about some of the ways of improving environmental performance. On the voluntary measures, there are two companies in my riding, for example—BASF and Bayer—that have hugely responsible environmental programs. Voluntary measures will be very good in their case, but there are some companies in the industry that perhaps won't be as good with voluntary measures.

Can you be half pregnant on this? Can you have voluntary measures as part of a tool kit in improving environmental performance, or is it all or nothing? Do you have to either set targets or have voluntary measures, or can you have a bit of both?

Mr. Robert Clapp: I'll go ahead and answer. I think you can have a bit of both in doing this. I'd remind you too—

Mr. Roy Cullen: How would you do that?

Mr. Robert Clapp: Let me just make a comment here.

Mr. Roy Cullen: Sure.

Mr. Robert Clapp: We focused on industry, and in support of Jack, you really have to look at.... Industry is not going to solve this problem by itself. You have to engage Canadians. Industry is responsible for about 17% to 20% of carbon dioxide emissions. The rest of it is all of us around the table in our everyday lives. We heat our homes, we drive cars, we do all that stuff. That to me is the biggest issue in Canada today.

Industry has the voluntary challenge, and we can broaden it, deepen it, and we need to do that and work hard at it. But we need to engage a much broader segment of the Canadian population. I don't know how we get from here to there without doing that.

Mr. Jack Belletrutti: We can do that through the VCR as well, to a certain extent. The VCR program is being revisited and redesigned. I think it's currently being privatized, or it's about to be.

One of the things they're trying to develop is what's called a tier 2 level of commitment for people who sign on to the VCR. That is in the process of being defined. One of the aspects of that is dealing with outreach programs to the community as well as to employees on how to use energy efficiently and how to conserve energy. It is those kinds of voluntary things that can pay big dividends, because they touch everybody.

Mr. Roy Cullen: I hear what you're saying. I think it's been painted to some extent as an “Alberta versus the rest” issue, and it's really not that. Transportation, as someone noted, is a huge contributor to carbon dioxide.

I'd like to move off voluntary just for a moment, if I could have a short supplementary, Mr. Chair.

Could you talk a bit about market or economic instruments as a way of helping our economy move forward? What sorts of measures should we as the government put into play as we go down this path to try to improve our environmental performance? I'm thinking of things such as emissions trading, tax incentives in respect to R and D, and so on. Then are there other incentives such as flow-through shares? There's a whole bag of what we call market instruments or economic instruments. What are the preferred approaches from your point of view?

Mr. Jack Belletrutti: Perhaps I can start a little bit on that.

First of all, let's talk about emissions trading. That is basically an approach where you try to optimize the cost of emission reductions by buying and selling credits, or permits, rather. For Canada to increase its energy use above its target, for example, it would have to buy permits from someone else. But that means that someone else has to reduce, has to go below their target. So it's a trade-off.

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In terms of economic optimization, emissions trading is a good thing, because it tends to lower the cost. But it doesn't really get emissions lower. It's just a way of optimizing how we get to the same target point.

Also, another point that has been made considerably is trying to get credit for the embedded energy in our exports. For example, we should be getting credit for our natural gas exports to the U.S., because they don't have to burn coal to generate electricity, they burn our natural gas.

I've taken the liberty of doing a back-of-the-envelope calculation on this. How big are we talking about? How big is this thing? The kind of number that I came up with—and again it's very rough, so please don't accept it as gospel—is that it looks as if about 25 million or 26 million tonnes are on the table here. That is about 25% of our gap by the year 2010, so it's not an insignificant number. But for us to make any headway there, we have to convince the United States that our gap should be reduced by 25 million tonnes and their gap has to go up by 25 million tonnes. I don't think our chances of convincing them to do that are very good. Although the concept is certainly a sound one and does have a valid argument behind it, our chances are pretty slim.

Mr. Richard Paton: Maybe I could make just one comment on this. It goes to the heart of your question: how do you think about this issue?

Unfortunately, the way the issue has been characterized for the last few months is as an emissions of CO₂ issue. We already know that it's not an emissions of CO₂ issue; it's an emission of greenhouse gases issue. There are other gases involved. It comes back to lifestyle and various other things.

Let's take an example. The chemical industry uses petroleum, natural gas, and transforms a product, which eventually ends up as something like a plastic bag, a milk bag, a plastic part for an automobile. Let's just take the plastic part for an automobile.

Automobiles are significantly lighter than they used to be. One of the reasons why they're lighter is the use of chemical products. If they're lighter, they burn less fuel. So let's say we develop a plant that produces more chemicals that produce better plastics that produce lighter cars. But to do that we actually have to produce CO₂ emissions. But throughout the whole cycle emissions are being reduced. There's no formulation in the current thinking that deals with that reality.

So it's very important that we frame the problem in the right way and we frame it in such a way that you can harness—and back to your point now—the market forces to work towards eco-efficiency. If we're not careful, we will frame the problem in the wrong way and we will actually discourage the very things that will produce the eco-efficiency in the economy.

Our industry can make a big contribution, but it may not show up in the emissions.

The Chairman: Mr. Asselin.

[Translation]

Mr. Gérard Asselin (Charlevoix, BQ): On the first point in its document, the Canadian Chemical Producers' Association suggests that Canada should set long term goals to respond to climate change, beyond the year 2020, based on the fact that climate change is a long term global issue.

We all remember that, during the 1993 election campaign, the Liberals had promised in their Red Book to reduce greenhouse gas emissions by 20% by the year 2005. And today, you are telling us that the target date has been postponed much further, that the situation is not that dangerous or that serious. I think we are only seeing the tip of the iceberg and it is unfortunate because, even if there was a promise in the Red Book in 1993, we are now at the end of 1997 and we are the only G-7 country which doesn't have an action plan.

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We will be in Kyoto in three weeks to one month, and we don't even have a short, medium or long term action plan to reduce greenhouse gas emissions.

I understand the petroleum and chemical producers point of view. You might be afraid to see the government react too quickly since you would have to modernize your equipment and your product, which could entail disastrous costs for your industries. So you are telling us this morning to take it easy because it would give you time to modernize and to adapt to the action plan requirements.

But I think we must act. It was already a problem in 1900, and it is even worse in 1997. All the other witnesses have convinced us of the need to act quickly because of global warming, the glaciers in the North, the floods, etc. Here, in Canada, we are certainly lucky. Comparisons are often comforting, but they can also be discomforting; it depends who we compare ourselves with. If it is with Korea or Mexico, it is certainly comforting. But compared with other countries where environment has priority over production, I must admit we are far from the second place. And, what's worse, the Canadian government doesn't even have an action plan to present to Kyoto, even if they promised in their 1993 Red Book to reduce emissions by 20% between now and the year 2005.

Did you think it was a realistic target or was it simply an easy promise, like the one you made on GST or different other things that were included in the Red Book? We have had countless examples of that since 1993. My question goes to whoever wishes to answer.

[English]

The Chairman: Thank you.

Mr. Paton.

Mr. Richard Paton: Just a very quick answer. I think I've heard a number of people mention, if Mr. Martin and Christine Stewart were quoted properly in the last few weeks, that when the Rio targets were developed there wasn't a sufficient understanding of the impact and the requirements for plans or actions to achieve those targets. So some people are questioning whether those numbers were originally developed in the full light of the implications—and not just for industry, Mr. Asselin, because there's a very important point here. Industry is already taking action. We are involved in the VCR, we are reducing, and we are producing a more efficient energy intensity. But think about it for Canadians. An action plan is not an industry action plan. It would involve every single Canadian, including immigration targets, household fuels, cars, what you buy at the store, etc.

So obviously it would have been good if we had had an action plan, and a more developed action plan, but it also would have been good if the Rio formulation had been a bit more realistic and understood better the differences between different economies and accounted for growth and accounted for various innovations.

It's a complex issue.

The Chairman: Darrel.

Mr. Darrel Stinson: Mr. Paton, is there any likelihood the chemical-producing companies would move out of Canada into non-signatory countries if this were to go ahead as it stands now?

Mr. Richard Paton: That would be very hard to answer, because most of the competitive...a lot of factors go into the decision to locate an industry. Canada has some significant advantages in feedstock in Alberta, for example.

But think about this. The $4 billion of growth in Alberta is about 90% for export. Most of that export is to the Far East. Many of the countries in the Far East that would be consuming these products would not be covered by Kyoto. We are involved in NAFTA, and Mexico isn't even covered.

So yes, if there were significant costs it could significantly affect location decisions and jobs.

The Chairman: Colleagues, let me thank our witnesses for their presentations. We'll certainly be coming back at this in the new year, post-Kyoto, at some point, and maybe we would call upon you again.

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Perhaps I can attempt to summarize what I heard from the witnesses—a word of caution to the government on proceeding: if there are going to be goals, tell us how. I think one of the points that I heard most, or that hit me the most, was that industry constitutes something like less than 20% of the total greenhouse gas emissions in the country. If we don't engage Canadians at large in the achieving of targets, can we expect industry to carry the full load? I think that's a fair comment.

With that, thank you, gentlemen.

I now invite to the table our guests for the next round.

We are expecting presentations from the Pembina Institute and the Sierra Club. The Pembina Institute delegate witness is here and the Sierra Club witness is not here yet. So we'll start with the Pembina Institute presentation and then include the Sierra Club when they arrive.

I invite Robert Hornung, director of climate change with the institute, to make a presentation of 8 to 10 minutes.

I'm sure you'll say a few words about this, Mr. Hornung, but the institute is a non-profit organization involved in environmental education, research, public policy development, and corporate environmental management services.

Mr. Hornung, please begin your presentation. Thank you for being here.

Mr. Robert Hornung (Director, Climate Change, Pembina Institute for Appropriate Development): Thank you very much, Mr. Chair, and thank you all for agreeing to study this issue and to spend some time looking at it.

As Mr. Chairman said, I am from the Pembina Institute. It is a non-profit environmental research and advocacy organization based in Drayton Valley, Alberta, a small town that sits on the edge of the biggest oilfield in the country, the Pembina oilfield.

Our work focuses largely on the environmental impacts of energy production and use, of which climate change is clearly one. We also focus on the use of economic instruments to address environmental problems.

I would like to talk with you today about a couple of things, really—economics and action. I want to start by talking about economics, I think by noting that the climate change debate in the last five years has seen a shift away from a lot of questioning about the science toward a broad acceptance of the science being there and indicating that we have to take action—you'll even see full-page ads now from the Canadian Association of Petroleum Producers, recognizing that we know enough that we have to act—and a movement into a debate about economics and how much it's going to cost to deal with this problem.

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The first thing I want to focus on is, well, let's look at that question and what we know about it. We've heard a lot of stuff in the media in the last couple of weeks about action to reduce greenhouse gas emissions being enormously costly for the Canadian economy. We've heard the words “billions and trillions of dollars”, “economic Armageddon” and things like that. I want to question that for you a little and raise some points you should take into account when you hear those numbers.

First off, you've probably heard some numbers being thrown around such as that stabilizing greenhouse gas emissions at 1990 levels by the year 2010 will reduce GDP by 0.5% or 2% or 3%. That sounds scary, because those are big numbers. What is often not reported is that those numbers are cumulative GDP; what happens between now and the year 2010. What it's really saying is that instead of our seeing the economy grow by 30% between now and the year 2010, actions to reduce greenhouse gas emissions would mean we would grow only about 28%. Now, that may be an economic disaster. I don't think so. Frankly, it's within the error bar on most of these economic models.

Secondly, I want to point out that a whole range of economic models have been used to assess the impact of taking action to reduce greenhouse gas emissions and they come up with a wide range of results. Some say it will have a negative impact on GDP, some say it will have a positive impact on GDP. An organization called the World Resources Institute in the United States looked at 162 different models that had been run on the potential impact of taking actions. There was a wide range of results, some very positive, some very negative.

They tried to explain the difference. They found they could explain the difference in the results, about 80% of the difference, on the basis of seven assumptions made by the modellers in their own best judgment. What they tended to find was, well, if you tended to make positive assumptions you got positive results and if you made negative assumptions you got negative results.

The reason I bring this up is to highlight the question of uncertainty. When you hear about the issue of climate change science in the media, you can't ever hear it being spoken without mention of the word “uncertainty”. When we hear discussion about climate change economics in the media it sounds as if these numbers we're talking about are real and we actually know what we're talking about. Frankly, that's baloney. The economic models we're using to look forward to 2010 are just as uncertain as the climatological models we're using to look forward. In fact, I would argue they are more uncertain, because they are not based on physical relationships you have in climate and in the atmosphere, they are based on our understanding of human beings and how we react to different things, such as price signals. There's a lot of uncertainty there we don't talk about.

The other thing I want to say about economic modelling and this sort of discussion we've heard in the media, particularly in the last couple of weeks, is that no matter what economic model you're using, whether you're getting positive results or negative results, I think we can draw two conclusions about all these models. The first one is that they all tend to underestimate the benefits. The reasons for that are that if we do nothing and climate change proceeds there will be costs; presumably the cost of adapting to climate change, the cost of trying to mitigate the impacts of climate change. Presumably if we take action we avoid those costs. But we never consider those benefits in our economic model.

If we take action to reduce greenhouse gas emissions, we deal with more than one environmental problem. We reduce emissions that lead to acid deposition. We reduce emissions that lead to urban smog. That produces multiple benefits. We never account for those in our modelling either.

So I think we tend to underestimate the benefits. I think we also tend to overestimate the costs. I think that's primarily because we have a very poor understanding of how technological innovation works.

I'll give an example from another environmental issue. When the Montreal Protocol was signed to deal with the substances that deplete the ozone layer we had the same sort of discussion as we're having right now, and all the discussion said it would be the end of the chemical industry. All the models showed it was going to be a disaster. Well, that didn't happen. In the end what happened was we agreed to some targets, the chemical industry sat down and asked, how can we deal with this. They said, we'll try to build the alternatives we can use to the chemicals we're now producing. They succeeded in doing that. They sold the alternatives for twice as much and they made quite a bit of profit.

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In the United States they're trying to deal with sulphur emissions. They set up an emissions trading system to deal with that. When that system was set up it looked like it was going to be economic disaster. People were saying it would cost $600 a tonne to buy one of these emission permits. You can buy them now for $60 a tonne. It's because we again underestimated our ability to be technologically innovative.

Frankly, the point I'm trying to make here is that when we're talking about the economics of climate change, the impacts on the economy are dependent on how we respond, on what actions we take, and on how we design them.

We have a real problem in Canada in that we spent the last two months—and even before that, the last five years—talking about whether we should be doing something instead of how we should be doing it. How we should be doing it is an important question, because we can design things that are really stupid and are going to cause really serious economic problems or we can be a little creative and design them smart and produce things that will have economic benefits.

Environmentalists have called for a long time for the Kyoto protocol to include a commitment for industrialized countries to reduce emissions by 20% from 1990 levels. Is that going to happen? I would say the odds are extremely slim. In fact, I would say it's almost certain that the Kyoto protocol, from an environmental perspective, will be inadequate. However, it will be a useful protocol if it forces us to come back from Kyoto and start engaging and being seriously involved in this discussion about how we deal with the problem and what actions we need to take.

There are two elements to it that I think this committee, the government, and all of us have to think about as we move forward, post-Kyoto.

First, how do we allocate responsibility for meeting this commitment within Canada?

It's not going to be enough to come back from Kyoto and say we have a national target. Frankly, everyone has to be involved in trying to deal with this problem. It's not just industry's problem and it's not just Alberta's problem. It's everybody's problem. We have to figure out how we're going to share responsibility to deal with it. Are we going to try to set up targets on a provincial basis? Are we going to set up targets by industry sector? Are we going to use an economic instrument that passes signals on to consumers or producers? We've never had that discussion in Canada. We need to do that.

Second, we need to start talking about the specific actions we can take. In one of the documents I've passed to you we've outlined 15 actions, which we would suggest the federal government should actually make a commitment to moving on before Kyoto and then start implementing after Kyoto as the first step in a sort of step-by-step approach to deal with this problem. A range of initiatives is listed there.

For example, we have some recommendations regarding strengthening the voluntary challenge program—and I came in for just the last bit of the presentation from your previous speaker—and I can tell you that we at the Pembina Institute have for two years conducted a review of all the corporate submissions to the voluntary challenge program. Our view is that the program is not working at all. I'll give you an example.

The Minister of Natural Resources likes to say that we have more than 600 companies participating in the voluntary challenge. We looked at all those submissions. Frankly, we're probably one of only two or three people in the country who did it.

When you look at them, you find out that 300 of those submissions are letters that say, “We think the voluntary challenge is a good idea and we're going to get around to it.” The remainder are called action plans by Natural Resources Canada, but action plans aren't defined, so we took what we felt was a very generous definition. We said we would define an action plan as something where you had to have identified what your greenhouse gas emissions are so that you know what the problem is, and you had to have made a commitment to do one thing in the future, to take one action, to deal with that. The 280 action plans that the minister talks about became 73 when you applied those criteria. When you look at those 73 action plans as we did...we applied 45 criteria to them. We ranked them all out of 100 and passed 11.

Companies are using the voluntary challenge as an opportunity to take credit for actions taken in the past that happened to reduce greenhouse gas emissions. It does not reflect any change in thinking or any higher priority for action to reduce greenhouse gas emissions in corporate decision-making.

To quickly close, because I know the time is short, among our other 15 measures you'll see that there are also initiatives in regard to taxation, tax incentives, and tax credits. When the U.S. announced its plan or its target a couple of weeks ago, you'll note that President Clinton indicated that the United States would be looking at $5 billion in tax credits and tax incentives to spur investment in energy efficiency and renewable energy technologies. We think these are strategic investments. You're seeing countries like Japan form private and public sector partnerships to investigate research and development in these areas. We think we should be doing the same. You also see some reference to regulation for things like automobiles and building codes. You also see references to public education.

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There's no silver bullet here. There's no one single action that's going to lead us to solve this problem. We need a suite of actions, a suite of tools, and a suite of instruments.

Frankly, the federal government needs to send a signal before Kyoto that it is willing to take that sort of action as a first step that will then allow us to get into discussions about subsequent steps after Kyoto.

I'll stop there.

The Chairman: I welcome Louise Comeau from the Sierra Club.

Have you caught your breath enough to maybe provide us with just a quick five- or six-minute summary of the Sierra Club's position so that we'll have lots of time for members to ask questions?

Ms. Louise Comeau (Campaign Director for Climate Change, Sierra Club of Canada): Thank you very much. I'm so sorry I'm late. I was at the Ottawa Citizen editorial board and, shall we say, it was a heated exchange. It went on a little bit longer than I had expected.

Yes, Sierra Club has been involved in the climate change issue since 1991 and has been a participant in all of the domestic consultation processes, as well as all of the international negotiations. Certainly, as the director for the energy and atmospheric program, I have a good sense of the state of play with respect to the international negotiations.

I would like to take three approaches to this.

One is I'd like to focus the committee members' attention on this paper that I've provided that says “Intergovernmental Panel on Climate Change”. I'd like to read from that and provide for you some of the summary that has come from a recent technical report by the IPCC that I think will provide guidance to committee members as they're considering how Canada could and should move forward on this issue.

The first thing I'd like to point to is that the IPCC has said:

Standard measures, such as consequences for per capita domestic product (GDP), are widely agreed to be inadequate for weighing the potential consequences of climate change, because although some effects are amenable to monetary valuation, others are not easily valued in monetary terms.

If I wanted to say one thing, it's that we need to be very careful of the very certain pronouncements we seem to see by people that any actions to mitigate greenhouse gas emissions will have a devastating impact on Canada's economy and in fact the only measure for that is GDP. In fact, most of the model results that we're working with—the DRI study is just one—can be challenged very easily in terms of the conclusions they reach.

The one point members need to realize is that these models do not include any benefits and they do not take into account any of the fuel switching opportunities we have, the technological opportunities we have, and so on, and that they definitely and most conclusively underestimate the benefits of taking action.

So not only should we be cautious about looking only at GDP, but even in the studies that do look at GDP the results are questionable and should be dealt with with extreme caution.

The other point the IPCC makes is that as a strategy—and I think this is a very important strategy for Canada.... I'm sure you have often heard that capital stock takes a long time to turn over and that if we wait for 20 years and we delay emissions reductions for 20 years, technology will automatically be cheaper in 20 years, and therefore we should just wait. In fact, the IPCC has argued against that strategy, and they say very clearly:

To reduce the cost of any stabilization target...[you need] to focus on new investments and replacements at the end of the economic life of plant and equipment.... The focus on new investment does not imply “doing nothing”.

This is where I'd like to see the federal government focus. If we ensure that at the margin new equipment, new motors, new buildings, new cars are built more efficiently than the present models, we will be making significant progress in terms of reducing emissions.

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The other point the scientists make here is that delaying greenhouse gas reductions will have an impact on the rate of climate change, and this is particularly important for us to take into account. What we are proposing is an insurance policy approach to this issue, and significant reductions in the early years create atmospheric space. The scientific community is saying that higher earlier emissions and implied higher concentrations and rates of concentration increase may disrupt the physical and bio-geochemical processes governing the flow of carbon.

I want to make it very clear that no one is really taking into account the potential impact on the atmosphere of a positive feedback from a rapid rate of warming, increased forest fires, pest outbreaks or melting, particularly in the tundra in the Arctic, all of which would contribute significant additional amounts of carbon dioxide to the atmosphere.

Many individuals, industries, and so on, argue that only the concentration level in the atmosphere matters and we can go up to 550 parts per million. Today's level is 360 parts per million, and they assume the difference between 360 and 550 is for human use. I would caution members to take into account very carefully the impact of the biosphere. The scientific community, the intergovernmental panel, has concluded there is a potential of 200 billion tonnes of carbon going into the atmosphere from the positive feedback from the environment itself. This speaks to the need for Canada to participate with the global community in reducing emissions early rather than later.

I want to make a very quick point on the negotiations and then I'll speak to what I think we can do at home. I am quite pleased to see the federal government now taking a more active role on this issue. Robert and I have been working on climate change for a very long time. I never thought I'd actually see the day when we were at least seeing full political engagement.

However, in the international negotiations governments like Canada are proposing relatively weak targets. While that is not the environmental outcome we would like to see, we are extremely concerned about the outcome of the most recent negotiations, where a number of proposals have been put on the table that would lead to such loopholes that a stabilization target potentially could lead to a 30% increase in emissions. I won't get into the details of what they are, but I just wanted to raise those points.

I will leave with the commission a copy of our Rational Energy Program: Analysis of the Impact of Rational Measures to the Year 2010, which the Sierra Club co-ordinated on behalf of the Climate Action Network. It used Natural Resources Canada's own economic modelling and I hired Informetrica to do the full economic impact.

It is possible to reduce greenhouse gas emissions in Canada. The study found we could create 1.5 million person years of work in doing so.

I would urge members to, if possible, tone down the panic around the issues of carbon taxes, gasoline taxes, and so on. There should be a combination of improved regulatory standards and tax incentives over time with some shift in pricing. If that shift takes place, and we believe it should, it should be accompanied by revenue recycling. In this study we looked at a very small carbon tax after 2000, which was used to reduce the GST.

We are not proposing increases in taxes that would lead to significant increases in revenue for government. We are looking for ecological tax reform where you offset payroll and other taxes that we believe discriminate against employment in the economy. I'll leave it at that.

Thank you.

The Chairman: Thank you, Ms. Comeau.

We'll proceed to questions. Mr. Stinson, then Mr. Cullen.

Mr. Darrel Stinson: I have a couple of questions. Ms. Comeau, could you tell me roughly how many members you have here in Canada and whether you get any funding from the government? I'd also like to state right now that in the late 1960s, early 1970s, a big fear was that the earth was cooling and a new ice age was coming. As of today we have scientists on both sides of this problem in disagreement. As a matter of fact, support among scientists about climate change actually appears to be declining right now. Only 17% of the members of the American Meteorological Society and the American Geophysical Union, polled in September, believe global warming is largely human-caused or that it will be catastrophic. This is down almost 40% since 1992. I'd like to get your comments on that.

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Ms. Louise Comeau: Sierra Club has been operating in Canada since 1989. We're a small environment group. We have about 5,000 members across Canada. We get our money from a combination of membership dues, foundation grants, and yes, I do get money from various Environment Canada Action 21 type programs. We feel that is completely appropriate. I don't take money from corporate donors.

In terms of the science and this issue of an ice age, in fact we are, if we weren't doing something different to the climate system, in an interglacial period. We are coming toward the end of that interglacial period. One could say that given historic shifts between a glacial and interglacial, in some few thousand years from now we could be facing an ice age. The reality, however, is that we are significantly altering the atmospheric chemistry, which is increasing temperatures in the atmosphere and is expected to significantly lead to changes in the climatic system.

The Intergovernmental Panel on Climate Change is a panel of climate experts—not meteorologists, not weather people, not physicists, but climatologists. The climatological community is the community I'm relying on for its assessment of the risks we are incurring if we continue to add heat-trapping gases to the atmosphere. There is a range of uncertainties around the exact timing and the exact regional impacts, but there is no disputing the actual impact of a certain amount of greenhouse gases leading to a very definable radiative forcing, which leads to a very definable impact on temperature.

Other impacts with respect to precipitation cycle are also reasonably well quantified. In my view, I am happy to rely on the results of the intergovernmental panel. It is, under the convention, the panel required to advise governments.

I trust my government. The Canadian government accepted in 1996 the results of the second scientific assessment. Through Sergio Marchi in Geneva, Canada as a government said it accepted the results of the scientific assessment, and based on that we're prepared to move forward. That's good enough for me.

Mr. Darrel Stinson: I'm glad to think that's good enough for you. After all, this problem has been around. We knew we were going to have to face it since 1992 and yet here we sit today, six weeks before the Kyoto conference, basically due to inaction by the government. If you're happy with that, fine.

Ms. Louise Comeau: No, I'm not happy with that. In fact, I would argue that the reason we're in the state of play we are in today is because of federal-provincial difficulties, and particularly because of the inability of Alberta to come to the table and have a rational discussion about the state of the problem.

I've been involved in this issue since 1992. In 1993 we established the climate change task group. It had federal and provincial representatives on it as well as stakeholders, including environmentalists and industry groups, and they pushed at that session, or it was in that group, that no decisions could be made without consensus. The industry representatives and Alberta insisted that there would be no consensus and they determined there would only be a voluntary strategy.

In 1995 Pat Black ensured in New Brunswick that the federal and provincial governments came to no agreement that Canada would do more than voluntary...on this issue. It is not just a federal government problem, although I will concede that the federal government, having seen the lack of interest on the part of the provincial governments, should have moved forward much more quickly. In fact, we expect they will not repeat the same mistake again and will come back from Kyoto and show they're willing to take the lead, since it's clear they will not receive provincial support at this time.

Mr. Darrel Stinson: You singled out Alberta in your speech.

Ms. Louise Comeau: Yes.

Mr. Darrel Stinson: In other words, you're saying Alberta is the only province that refused to come on-board here. Is this what you're saying?

Ms. Louise Comeau: What I'm saying is that Alberta has been the strongest opponent to action on climate change in Canada. It has been supported by Saskatchewan, and Nova Scotia would be the.... I must say, having been there for as long as I can, quite frankly, Alberta has been the strongest and most difficult province to deal with on this issue. It's unfortunate, because many people in Alberta will also face the impacts of climate change. I believe their position is based on rhetoric and not facts. There will be strong demand for natural gas in this country, and there are opportunities with this agenda that we were never able to discuss because of the hysteria from the Alberta government.

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Saskatchewan and Nova Scotia have also not been very strong supporters because they're concerned about their coal-based electricity sector. Ontario and British Columbia were good supporters under previous governments. Obviously under new governments there has been a change. That's unfortunate, because with respect to Ontario, the agenda could be very beneficial for Ontario. The strongest growing exports in Ontario and Quebec are in telecommunications and manufactured goods. These products need to be made more energy-efficiently, they need to consume less energy, and in fact they have a competitive opportunity here and they're not paying attention to those opportunities. At the moment they're being driven by concerns over Ontario Hydro and that's unfortunate.

The Chairman: Thank you.

Ms. Louise Comeau: New Brunswick has been relatively supportive—

Mr. Darrel Stinson: How active is the Sierra Club in the countries that are refusing to sign this?

Ms. Louise Comeau: The Sierra Club is very active within the Climate Action Network, and I've been to every—

Mr. Darrel Stinson: Are they active in China?

Ms. Louise Comeau: May I continue? I've been very active within the Climate Action Network, which is comprised of NGOs from around the world. I am in fact the NGO within the Climate Action Network that pushed for a consensus statement from NGOs that we want to see developing country involvement on this issue. We've been very active in getting consensus that the way forward for all development and all economies is a low-carbon future, and we do have that consensus within the environmental community.

The debate is around timing. The convention says there is a differentiated responsibility. Climate changes as a result of the emissions into the atmosphere from the beginning of the Industrial Revolution—

Mr. Darrel Stinson: That's not my question. I asked you a specific question.

Ms. Louise Comeau: Yes, but what I'm saying is that we have to concede the politics of the issue. The convention requires a differentiated responsibility. The Berlin mandate says no new commitments for developing countries. Within that mandate the environmental community has worked very hard to get consensus that the environmental groups in the south as well as the north agree that developing countries need to take on commitments—but not in Kyoto; post-Kyoto. That was the deal our governments agreed to in April 1995.

The Chairman: Darrel, maybe we can come back if we have time.

We'll go to Roy Cullen.

Mr. Roy Cullen: Thank you, Mr. Chairman. Thank you, Ms. Comeau and Mr. Hornung.

I haven't had a chance to go through Ms. Comeau's material, but your brief, Mr. Hornung, I think is very constructive and very detailed, and I know it's going to help me as we try to sift through these issues over the next while. I hear what you're saying in terms of the cost of inaction. I hear what you're saying in terms of underestimating benefits and overestimating costs. I think there's some truth there. There are some specific tools you propose, which I think we are going to need, and I think we should be, and we are, sending out signals that the response is going to require a number of initiatives in the tool bag. I congratulate you for bringing forward some very constructive ideas.

I'd like to pose a question to both of you that has to do with this issue around technology. In the modelling you've done, or that you've been supervising, I have an intuitive sense, as we all do, that technology and innovation is going to deal with some of these problems as we move into the future. The only caution and concern I have is the kind of weighting.

The debate goes something like this. If we just push on the basis of technology, the technology innovation will come and it will solve all these problems. I'm oversimplifying it and overstating it, but I have a concern. It's fine if you're talking about it in an academic sense; it's another thing if you're going to roll the dice in terms of making decisions that have huge consequences environmentally and economically.

I've seen in industry the negative effect of this technology push argument, that magically and mysteriously technology will solve everything. I wonder if you could comment on the kind of weighting you put on that in terms of your models and maybe just discuss how you see that as being part of the overall picture.

Mr. Robert Hornung: I think we're actually in a fortunate situation in the sense that certainly for dealing with any commitment that comes out of Kyoto we're looking at taking technologies that already exist. The issue, in the short term anyway, with any agreement we're going to get out of Kyoto and the level of commitment we're going to get there, is not the development of new technologies. It's getting existing technologies into the marketplace.

For example, with home construction, we already know how to build homes that use one-third the energy of the average home that's built today. Why aren't these getting into the marketplace? Well, you can argue that there are some concerns over cost, but we know that while making these homes more energy-efficient will increase the upfront cost, actually the homeowner gets enough energy savings from that improved efficiency to pay that off. So what's the barrier that prevents that from happening?

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We know that in most commercial buildings we have the opportunity to improve energy efficiency by 20% to 30%. Why is that not happening? Well, in a lot of these buildings, energy is not the big-ticket cost item. So when businesses are looking for cost savings, they look first at how they can slash their labour cost—that's a bigger chunk—and how they can slash some of their other capital costs, even though there's a tremendous amount of potential there in terms of energy.

We do a lot of work with companies in the petroleum industry that say yes, they have tremendous opportunities to improve energy efficiency, but it's just a bit more profitable for them to put this money over there, so they put it over there instead. So we have to think of what kinds of incentives we can create to get what now seem to be marginal investments to move forward. They do pay off. They're beneficial.

In other areas, we already know how to build more fuel-efficient automobiles. We already have a range out there. It wouldn't be hard to push that forward.

In terms of renewable energy technologies, it's not that wind power is a myth. Wind power is working in a lot of countries in the world. How do we get it to move forward in Canada? We have a tremendous opportunity, actually, in Canada to do that now, because we're looking at deregulation of electricity systems across the country. We have a chance to reset the rules of the game. In some countries they've chosen to reset the rules to provide incentives for renewable energy technologies to come in. We could do the same.

Mr. Roy Cullen: So in the model you're playing around with, you're talking about existing and proven technologies; you're not factoring in a “wouldn't it be nice?” scenario.

Mr. Robert Hornung: That's right.

Mr. Roy Cullen: Okay, that's useful.

Could I have another supplemental?

There has been much discussion about the balancing between renewable and non-renewable. We have some incentives in our tax system, such as flow-through shares, R and D, etc., that may need some rebalancing in terms of the renewable sources. Is that something you've looked at or have some views on?

Mr. Robert Hornung: Yes. In the package I've provided for you, a number of initiatives address that question of levelling the playing field.

Two years ago, the Department of Finance and the Department of Natural Resources released their level playing field study, which concluded that the system of tax incentives that we currently have does not treat all energy sources equally. In fact it found that oil-sands get the most favourable treatment, and it found that energy efficiency investments are actually penalized compared to a neutral tax system.

The government has taken some small steps to adjust that, but frankly, more can be done. There are some specific examples in there.

There are changes in incentives. There's also the question of government support for research and development spending. If you look at a history of government support for research and development spending in the energy sector over the last 20 years, you'll see the biggest chunk of the money has gone to nuclear energy, the second-biggest chunk of money has gone towards fossil fuels, and the third chunk has gone towards energy efficiency and renewable energy. It tends to be a much smaller chunk.

To the credit of the last Minister of Natural Resources, Ms. McLellan, she did make an effort to readjust the pie a little bit and put a larger percentage of resources into energy efficiency and renewable energy. But she was working with a smaller pie, so even though they get a bigger chunk of the money now, they actually have less money than they had before.

We have a government here that has talked a lot about the need to focus on moving Canada into the 21st century, to make strategic investments, and to invest in technologies that will prepare us for the economy of the 21st century. The energy economy of the 21st century is going to look pretty different from the energy economy today. Right now Canada is not at all prepared and hasn't sent the right signals to help us prepare to be a participant in that economy.

The Chairman: Roy, is that okay for now?

Mr. Roy Cullen: I have some more, but I'll come back.

The Chairman: Okay.

Do you want a quick word, Louise, or are you okay?

Ms. Louise Comeau: I just wanted to follow up and expand.

There are a multitude of existing technologies, but we also need to be strategic about where we want to be in five, ten, or fifteen years. We really see a very strong role for Industry Canada to become more aggressively involved, particularly around new technology and vehicles.

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The two areas Canada needs to focus on if it wants to reduce emissions are coal in the electricity sector and the vehicle itself. We are looking more at complete elimination, essentially, of the internal combustion engine, looking more at what Toyota is just introducing, the hybrid vehicle, Ballard fuel cells in fuel cell cars. There is a car called the hyper-car; and so on.

There are new technologies Canada needs to get involved in. We need to secure and maintain our jobs in the auto sector by ensuring our manufacturing base is continually moving along with the advances in these technologies.

On the electricity side, coal will eventually be phased out of electricity, but we simply have no choice but to accelerate that. We think we need to look for opportunities to do that.

The Chairman: Jerry Pickard.

Mr. Jerry Pickard: You have touched on the topic I was going to ask about. We can't reach an ideal solution at this point, and we all know that, but there is a role Canada has to carry into Kyoto. There is no question they have to be realistic, achievable goals. What are those realistic, achievable goals you would put forward to the Canadian government and say “Do this in Kyoto”?

Ms. Louise Comeau: If you will allow me, I will split that.

From an economic and technical point of view, I believe a 20% reduction is realistic and credible. From a political point of view, given where Canada is today, 20% reductions by 2005, 2010, simply are not viable.

So I always come back with the question, what is your definition of “realistic”? Is it politically realistic or is it scientifically, environmentally, economically realistic?

Our view is that in Kyoto what I am hoping Canada will do is support the strongest possible target it believes is politically achievable today, but with no loopholes...that this be a strong target in the sense that it's going to lead to real changed behaviour in Canada. We think the real issue is not the number. The real issue is whether there is going to be a strong and undeniable signal coming from Kyoto that says to the business and investment community business as usual is not on.

For Canada, given our growth projections and so on, we believe a reduction target of at least 5% is viable by 2005 and reductions further than that are viable and realistic in Canada and would send the signal that is needed to move the business community from a business-as-usual scenario. Stabilization, in our view, is a weak target, not the kind of target we believe would initiate the kinds of activity at home that we believe Canada needs to move forward on.

The political reality, however, is we will come back with a target somewhat weaker than that.

Mr. Robert Hornung: I could respond to that as well.

Although we have not seen an official statement of a target yet, we do have a statement from the Prime Minister that indicates a couple of things: wanting to be stronger than the United States and wanting to be able to serve as building a bridge in the negotiations between differing points of view, with the United States and the European Union. To me that implies Canada would have to do at least two things.

The first thing is it would have to talk about reductions sooner than 2010 as opposed to later than 2010. The European Union, the developing countries, have all called for reductions by the year 2005. No one has called for reductions past 2012. If Canada comes out with a proposal like that, it will be the only country that has done that. It is not clear to me they are building a bridge between anybody and anybody in that case.

The second thing is they have to be talking about reductions. The U.S. has come out...and the U.S. has the weakest position on the table. So we have a situation where we are talking about stabilization on one side. You have the Europeans on the other side at 15%. If Canada wants to build a bridge between those two and wants to do something that indicates it is ahead of the U.S. and moving to protect the environment, it has to be somewhere in between there, and I think moving to a 1% reduction is not going to do it. You have to look at a 5% reduction. You have to look at a 10% reduction.

I do not have a lot of faith that is going to happen, frankly, which makes me wonder. It raises the question of how credible those sorts of statements are when they are coming from the government in terms of setting a target at this point, before we head into Kyoto.

The Chairman: Mr. Stinson.

Mr. Darrel Stinson: Actually, that answered one of my questions. One of my fears too was we'll go and make promises over there and then come back and say it's unachievable; what we did in 1992, in reality.

Ms. Comeau, I would like to quote something by Elizabeth May and have you tell me if this is accurate. This is taken out of the paper. She's quoted as saying about Canada's role at Kyoto that:

We are still playing the role of spoiler in these negotiations. It will undermine the effects of the treaty and delay its entry into force. The role Canada is playing in these negotiations is embarrassing. It's shameful.... It's a pure and simple delaying tactic.

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Ms. Louise Comeau: The recent Bonn negotiations were unique in terms of Canada's performance. For the last three years Canada has not been a very aggressive player in the negotiations. In fact, generally speaking, Canada has been quite quiet about its real position on issues and very rarely makes interventions, one way or another.

There was a marked difference in Canada's approach at the most recent negotiations. My view is that it was in direct contradiction to the green rhetoric of the Prime Minister in the House. In fact, Canada has supported, and continues to support, without fail, positions that we believe would result in the weakest target and the maximum number of loopholes. I'll give you a couple of examples.

Canada has always supported a reduction of greenhouse gases on a net basis. That essentially would allow for the use of trees, in terms of sequestration, to be deducted from fossil fuel emissions. There is a lot of scientific difficulty with the methodologies for that kind of quantification, and there is a lot of political debate about how best to use that.

Our view is that if governments want to use what we call “sinks”, it should not be allowed, and credits should never be calculated, until there is a scientific assessment and the IPCC decides how best to go forward.

Canada is a strong proponent of going for a proposal now on the table by New Zealand, which we believe could increase emissions up to 10% because of the way it would be calculated. This is a paper gain. In terms of accounting it would look well, but the atmosphere would see an increase in emissions.

The other thing Canada did at this meeting that...in fact, I can honestly say there was a sucking-in of breath in the room. One of the final interventions by Canada was during a discussion of ratification issues. How would the protocol enter into force? There were suggestions that there be a double trigger for ratification; 50 countries ratify as well as a certain percentage of emissions be represented by those countries that have ratified.

The current chairman's text includes 50 ratifications and three gigatonnes of carbon represented by those parties, which is just under 50%. This obviously gives a veto to the U.S., but would generally include all of annex 1 countries.

Canada proposed that the trigger be 75% of global emissions, essentially requiring that developing countries would have to ratify the convention before any commitments would come into play for Canada and other developed countries.

This was unfortunate at this time. There's always been a view that Canada wanted developing countries in the negotiations, but we are now in the final hours of the negotiations where Chairman Strada has been asking governments to show flexibility.

My view is that Canada was very rigid at the negotiations. I think the quote by my executive director is an accurate one. I am concerned that Canada continues to be associated with governments like the U.S. and Australia, who are the least progressive on this issue. That has been a consistent pattern on the part of Canada for several years.

The Chairman: Roy, a quick question, and then we'll conclude.

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

I have a question primarily directed to Ms. Comeau, but perhaps, Mr. Hornung, you could comment as well in terms of economic impact.

I think co-generation is something that is part of a response package. Let me look at it in the context of Ontario.

You mentioned Ontario and hydro, and this nuclear capacity that is down. When I was in the natural resources sector we pushed co-generation. Ontario Hydro and other hydros would say yes and would give good lip service to it, but because there was too much capacity it never happened or it was very site specific. Particularly in the use of biomass I think there's huge potential.

If you were sitting in Ontario right now, deciding energy policy, would you ramp up again the nuclear capacity or would you look at options around co-generation to replace some of that electrical capacity?

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Ms. Louise Comeau: Absolutely. In fact, we are strong proponents of co-generation. Our study looked at 25% of all load growth coming from co-generation. We believe, in fact, that it is a very cost-effective way for industry to not only become more efficient but to generate electricity and reduce costs.

We're hoping that the move to our more competitive electricity market opens the market for all industry to move toward co-generation. We believe it would significantly decrease emissions from that sector. In fact, co-generation and moves on motor drive systems would be the two main initiatives we would see in the industrial sector—coal out of electricity and redesign of the vehicle and you've basically covered building retrofits. Those would be the four forming categories. But co-generation is a fundamental part of the solution. We would not invest in more nuclear operates.

Mr. Robert Hornung: I'll just add to that and say you've highlighted very well the fact that this is a tremendous opportunity we have now in Ontario in terms of how we're going to.... We talked earlier about how everything depends on design. We can move forward in Ontario in a way that will be extremely harmful from a greenhouse gas emissions perspective and will hinder Canada's ability to deal with this, or we can move forward in other ways.

Ontario Hydro has signed contracts with a number of renewable energy providers that have now been cancelled. In fact, Ontario Hydro is being sued by the renewable energy industry because those contracts did not move forward. Ontario Hydro, as a first step, could simply allow those projects to occur—

Ms. Louise Comeau: Yes.

Mr. Robert Hornung: —and that would make a significant dent in terms of trying to deal with this problem.

If I have any message to leave here, it is that there's a need for a lot of creative thinking, something we haven't done in this country yet because we've spent so much time lobbing rhetoric at each other from one side of the country to the other.

Mr. Roy Cullen: One final question. Have you presented that view or lobbied the Ontario government with respect to co-generation? If you have, could you copy this committee, through the chair, those points of view? If you haven't, would you, and copy us so that perhaps we can follow the progress?

Ms. Louise Comeau: The Sierra Club has been part of something called the Green Energy Coalition, which has intervened in Ontario Hydro energy board hearings and all natural gas energy board hearings since 1992. We have been pushing for not only an opening of the electricity market—we're quite excited about the possibilities under open competition—but we've also been pushing for much more work in terms of integrated resource planning and investment in demand-side management. I'd probably overwhelm you with the number of interventions we've made with respect to Ontario Hydro.

The Sierra Club, in fact, is going to be very involved in the debate on electricity competition and we'll be very aggressively pushing for an environmentally responsible market.

The Chairman: Thank you, Mr. Cullen.

On behalf of the committee, I thank both of our witnesses today. You've added a lot to the debate. This committee will no doubt be continuing this study, post-Kyoto, in the new year, and we reserve the right to invite you back at some future time. Thank you.

Ms. Louise Comeau: Thank you.

Mr. Robert Hornung: Thank you, Chairman.

The Chairman: We'll adjourn until the Tuesday following the break, November 18.