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]

Tuesday, June 1, 1999

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[English]

The Chairman (Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)): Good morning, colleagues. Good morning, all. I'd like to call to order this Tuesday, June 1 meeting of the Standing Committee on Natural Resources and Government Operations.

We're pleased to have with us today, from Natural Resources Canada, Mike Cleland, Assistant Deputy Minister, Energy Sector; and Allan Dolenko, Deputy Director, CANMET. They are here to assist us as we pursue an examination of new technologies and alternative fuels in the energy sector. This is in the main related to our climate change work. In fact I think we can thank Tony for the idea of pursuing the subject of alternative energy systems, which was brought up the last time the ministry was here.

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With that, we thank you for being here, and we invite you to start us off with a presentation of ten minutes, give or take.

Mr. Mike Cleland (Assistant Deputy Minister, Energy Sector, Natural Resources Canada): Thank you, Mr. Chairman. I'll try to keep it as close as possible to ten minutes, because I know you want to get on with a more general discussion.

We've made copies of a deck available to members of the committee, so if you'd like, I'll just walk you through that. Do you want me to wait just a second?

The Chairman: We're just making sure that all members have a copy of the deck. There we go. Thank you, Mr. Cleland.

Mr. Mike Cleland: The focus here is on alternative transportation fuels, renewable energy, and community energy systems, which I think was the focus of the question that came up when the minister was here. We can talk about other aspects more broadly if you want, but for the moment that's where we're proposing to focus.

The first substantive page gives an outline of the presentation, a little bit on the purpose and then on how we're organized within the federal government with regard to responding to the development of new technologies. We move on from there to some examples of the kinds of technologies we're working on, and we can talk in a little bit more depth about what we think those will actually achieve and what their economics are. There are the key programs, and then future directions, which come primarily from the climate change process.

The next slide shows in a couple of little bell curves the NRCan roles in energy technology and programs. The importance of this one is that it basically tells you how we put our technology programs together with the other programs we have, whether it's regulatory programs, mainly on the efficiency side, or information, suasion, or incentive programs. In a sense what we're trying to do is use all of our programs, including our technology development activities, to move the market. So that bell curve there is simply a representation of what the suite of buyers is purchasing in the marketplace. Our objective here is to keep moving that bell curve along to constantly higher levels of performance.

The next slide, which is a bit complicated but worth taking a couple of minutes on, is entitled “NRCan Energy S&T in Context of Federal Innovation System”. No doubt you've seen various presentations on the federal innovation system. It has a lot of elements, and we in the energy sector at NRCan see ourselves as fitting in that framework.

Let me just flag a couple of things in particular. The bottom line of this graph goes from fundamental research over to increased market awareness and acceptance. Basically, what we have in the federal government writ large is a series of programs or instruments some of which are aimed at the upstream, at the base, at fundamental research, such as the Natural Sciences and Engineering Research Council, and then on the way down, further downstream to the point where you're actually out supporting new businesses.

For the most part our job on the technology side tends to be toward the middle of that spectrum and to involve not so much fundamental research as research going toward commercialization and also demonstration projects. Of course, our business is energy, whereas several of the other lines on this graph are much broader than energy. So what we're about is a program on energy R and D, which is a broad interdepartmental program through which we coordinate the activities of about, I believe, nine different departments and agencies.

There's the energy technology branch, and Dr. Dolenko is one of the senior members of that branch, which is actually an R and D performer, and then, just above that a little bit, the technology early action measures. Mr. Goodale will have referred to that in his presentation to you in speaking about the commercialization activities we have going on. Then finally, near the top, there is the Office of Energy Efficiency. I might also add our renewable energy division, whose job is actually facilitating the uptake of these technologies in the marketplace.

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The next slide is actually, if anything, a little bit more complicated than the last one. One could spend a lot of time on this, but it says something about the way we organize the technology branch activities. At the bottom, basically, are the resources we get, voted by Parliament, provided through the cabinet, responding to the government's priorities.

I might note that about 70% or more of our research and development activities in NRCan relate one way or the other to climate change. They're either with respect to energy efficiency, renewable energy, or alternative transportation fuels. So we're driven, in the first instance, by the priorities of the government, but in the second we're responding to, on the one hand, technology suppliers, and on the other, technology users, to ensure that the work we're doing is relevant in the marketplace.

We bring resources to the table. As a government department, we respond to the needs of suppliers and users, and we work that up through the sequence of scientific research, information, knowledge, and technology, for a number of users. That could be the developers of government regulations, where the scientific information we produce is relevant to companies. Again, the minister will have referred to companies such as CryoGen and Ballard, where we work directly with them to facilitate the technology development process.

The next slide talks about the policy context. I don't need to belabour this one, except to make a couple of points. The important thing here is that all of what we do is within the context of a sustainable development framework, where we're worried about balancing several objectives—economic, environment, but also social objectives, and security or reliability of energy supply.

In other words, while most of what we do at this point is driven primarily by the needs of climate change, we're also very much looking to ensure that we're maximizing the economic benefits to Canada in the work that we do, as well as responding to the needs of communities, including rural and remote communities, and thinking about what the implications might be for security of energy supply to Canadians.

The next slide is on climate change technology strategies. Essentially, this is the framework that seems to be emerging from the technology table under the climate change process. Some of you, or most of you, will be familiar with this series of tables. The technology table is focusing on technology development—in other words, the push side of technology.

We basically identified four strategies that we think add up to what we hope will ultimately be a solution to the climate change problem: improving the efficiency of energy use and conversion; switching to lower-carbon fuels, which includes renewables and alternative transportation fuels but also includes things like large hydro and nuclear; the capture and sequestration of carbon dioxide, which is a relatively new idea on the horizon but one that we believe is prospective, certainly in the next decade or so; and then non-energy parts of the file, reducing emissions from industrial processes, agricultural processes, and the like.

I think you've asked us to focus on the second box there, which is the alternative transportation fuels and renewable energy. So that's where I will focus the rest of the presentation.

Switching gears here a little bit, on the next slide I'll turn to transportation fuels. From here on in, what we're doing is focusing in on particular areas of technological opportunity, as well as looking at some of the programs we have in place to deal with those opportunities. First of all, with alternative transportation fuels, this slide gives you a sense of the kinds of gains that can be made, at least insofar as carbon dioxide emissions are concerned, from different fuels.

As you go down the chart, there has been a lot of work over the past few years on natural gas; a lot of work going on, not so much in government, but certainly in the U.S. automobile industry in particular, with advanced vehicles; hybrid vehicles, and many of you will be familiar with the Prius, which is one of the earliest of the hybrid vehicles, which involves both the gasoline engine and electric; ethanol, and that's ethanol from biomass, which, on a full-cycle basis, provides for some very significant reductions in net carbon dioxide; and hydrogen used in fuel cells, which, depending on where the hydrogen comes from, can provide a zero-emission vehicle.

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So we have activity across the spectrum, some areas where we focus or have focused more intensively than others, and others where, frankly, I think the scale of the investment involved is one that is most appropriately left to, for example, the automobile industry.

The next slide gives you a sense of where we've been. In alternative transportation fuels there are several areas of activity, including some recent success stories with respect to the use of natural gas. With ethanol production from cellulosic biomass—and of course I'm sure you're all familiar with the Iogen project—and other ethanol from agricultural product plants that have emerged in the last few years, I think there is an emerging Canadian success story.

On hydrogen, as you may know, you can have fuel cells, but if you're going to have fuel cells powered by hydrogen, you need the infrastructure to support that. For example, we've had recent announcements with Stuart Energy Systems, with whom we have worked for several years to develop that infrastructure. And finally, fuel cells themselves are a very important Canadian success story and one that reflects, as does the Iogen and the Stuart Energy projects, a longstanding relationship between the private sector and government and one from which we're attempting to draw lessons as we go forward from here.

In the interest of time, because I'm mindful of the fact that I'm running out of it, we can come back to the alternative transportation fuels deployment initiatives. Suffice it to say for the moment that there are several of those initiatives out there, and we're going to be evolving those over the coming years.

I'll skip over the next slide, and we can come back to it in the questioning so that I don't use up all the time, but several areas of renewable energy technologies within which we're working are biomass, small hydro, wind, and solar, which are all areas that are prospective, not in a big sense in terms of the impact they can have on the Canadian energy mix, but prospective nonetheless, and prospective in world markets. We're seeing some of those successes, for example, with small hydro in China.

I might add that there's a great debate over whether or not small or large hydro is considered renewable. As a matter for the record, we do consider large hydro renewable. The question is whether there's a need for a program focus on large hydro or whether it should be limited to small hydro.

Again, the next slide deals with the deployment initiatives with respect to renewable energy technology. I won't belabour that; we can come back to it if you want. Suffice it to say that we have several initiatives, including a couple that have been introduced in the last couple of years. One in particular that I want to flag is the renewables for rural and remote communities and the RET screen, one of our recent success stories in which we're getting renewable energies increasingly into remote communities, a place where at this point they are definitely economic if you're off the grid and where there are some real opportunities to demonstrate their advantages, with several advantages accruing to the communities in question.

The next slide deals with community energy systems. I believe you've probably talked about community energy systems in this committee on occasion. It's an area that we continue to see as prospective, both with respect to energy efficiency and with respect to the use of renewable energy. Although community energy systems don't have to use renewables, they often do. They don't have to be more efficient, but they often are. There are some very real opportunities there that we are promoting.

To sum up where we are going with this, in the climate change context we have several processes. The technology table is in the process of coming up with a series of options for us to advance the climate change technology file more generally. In the meantime, we have TEAM, the “technology early action measures” component, which is getting technologies into the marketplace now.

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We also don't want to lose sight of what we've called the energy technology futures project, which is an effort to look a little further into the future—30 years or more—to try to get a fix on what the long-term technology opportunities might be for Canada, to give some guidance to where we might be investing in the near term.

With that, Mr. Chairman, I know I've gone over my time, so I'll cut it off.

The Chairman: Mr. Cleland, thank you very much for that. It gives us a nice overview from which we can launch into questions.

Dave, we can start with you, and then Tony will be next.

Mr. David Chatters (Athabasca, Ref.): Thank you, Mr. Chairman.

I'd like to thank the guests for coming to talk about this very important subject. It's a huge issue, particularly to someone from an energy-producing province like mine.

There are a couple of things I'd like you to comment on. We certainly seem to be spending a lot of time and money in the development of these alternative clean energies. When I meet with people involved in solar power, wind power, and geothermal power, they quite clearly say there isn't a real possibility that they will ever contribute in a major way to Canada's energy supplies. In the best-case scenario, they would be just a small portion of the mix; they never could be part of the baseload energy. Yet we seem to be spending so much time and tax dollars helping to develop and promote these kinds of energy.

I just wonder if our time and money wouldn't be better spent in exploration and development of energy sources that have a real possibility of replacing some of the fossil fuel energies on the baseload side, rather than some of these others. They're pretty flashy and exciting, but they really can never be there.

The other one I have to come back to again and again, because it keeps coming up, no matter where I go and no matter who's talking, is this increase in excise tax. The political side of the government keeps saying that's not part of their considerations, yet from the bureaucracy side, such as yourself, it's here in your presentation again. I have to ask you about that.

That's good enough for now. We'll let you comment on that, and then let the other people have a chance.

Mr. Mike Cleland: With respect to the second part of your question, that is actually a reduction in the excise tax. It certainly shouldn't be inconsistent with what you're hearing from ministers. It's something that was introduced three or four years ago, and is actually relief from the fuel excise tax for ethanol.

Mr. David Chatters: Okay, I understand that now. But comment on the proposed increases from Maurice Strong and whoever the bureaucrat was in the Department of Transport, and all the rest of it.

Mr. Mike Cleland: I don't think I'll comment on Maurice Strong's comments, if you don't mind. I think Mr. Goodale has spoken to the issue and made it clear where we stand.

Under the climate change process, as you may be aware, the rules of engagement for the process were that all possibilities would be on the table for consideration and no one could, a priori, pull any one proposal off the table. That's what's happening at the transportation table.

The automobile people believe you should look at fuel taxes, and the fuel people believe you should look at fuel efficiency standards. In a sense there's a bit of a standoff there, but in order to make sure we're covering the full range of possibilities, that's the way we've proceeded. But as the minister made clear, the government at this point is simply letting the process play itself out.

Let me get to your first question, which is a very important one, on how much we think the renewables will actually potentially contribute. It varies. I think you're right. A lot of what people think of as renewables are limited in terms of what they will achieve. But they have very real potential in certain niches. They have very real potential, particularly in some export markets, where there are opportunities for Canadian companies to pursue economic opportunities. I cite small hydro in China as an example.

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In the case of things like cellulosic biomass for producing ethanol, it's potentially quite significant. Dr. Dolenko might have the facts at hand on what would happen, for example, if you introduced cellulosic ethanol into the marketplace to the maximum. It's not trivial.

Certainly once you start getting into hydrogen and fuel cells, although they won't really have an impact in the next five to ten years, beyond ten years they're potentially huge in terms of the transportation economy. As I say, there's quite a bit of variation.

That said, we're also, as a department, still very much in the business of ensuring that Canada's hydrocarbon economy is well supported. If we had the complete picture of our R and D effort here, I could also show you what we're doing, for example, to support activity to improve the efficiency and effectiveness of the exploitation of the oil sands.

So we have the whole picture in mind. It's always a difficult call as to precisely what the balance should be, but we think it's not too bad.

Mr. David Chatters: I have one more question and then I'll let it go.

Just to change the direction a little, the climate change tables are due to start reporting to the minister any time, I understand. What is the process and how and when will we, as parliamentarians, have access to those reports? I know we're planning to have presentations at committee, but will we have access to that information over the summer?

Mr. Mike Cleland: That's certainly the intent. Once the tables actually report—which is really supposed to be starting now, but everything is a little delayed, so it'll be over the course of June and July—and those options reports are in, they'll be put on the climate change website. At that point, they'll be in the public domain and parliamentarians will want to discuss them. Naturally, David Oulton or any of us would be quite prepared to come to speak to you about them.

The Chairman: Thank you.

Tony and then Pierre.

Mr. Tony Ianno (Trinity—Spadina, Lib.): Thank you very much, Mr. Chairman, for having the guests appear, and thanks to the guests for coming on such short notice.

I'm curious, to start off with, what the revenue is—or whatever term you use—for measuring the industry in terms of oil and gas. What is the number they generate in terms of either revenues or work in the field? Do you have that?

Mr. Mike Cleland: Sorry, maybe you could just clarify the question. How do you measure...

Mr. Tony Ianno: Oil and gas. Is it $20 billion, $40 billion, $10 billion in the industry? I'm talking about domestic, as compared to importing.

Mr. Mike Cleland: Sorry, I just don't have the facts right off the top of my head, but Canada produces a little over two million barrels of oil a day, and a barrel of oil in Canadian terms these days in the market into which we sell is pretty close to $17 Canadian. So $17 times two million gives you a sense of $30-odd million.

That's the oil industry. In the gas industry it's over five trillion cubic feet at a couple of dollars a cubic foot. The energy industry as a whole contributes... Sorry, I'm not going to guess, but it's in the tens of billions of dollars. We can follow up with the numbers.

There are several ways of looking at it, though. You can look at the total investment, which is somewhere between $15 billion and $20 billion a year in any given year. You can look at total exports—contribution to balance of payments. We would be more than happy to give you some of those numbers.

Mr. Tony Ianno: On the other side, with the alternate fuels—and I mean all of them, including the solar and the biomass—where is that at today, and where do you see it going in the next ten years, as you said?

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Mr. Mike Cleland: Allan, I might get you to jump in on this, but as a share of our total energy production, including biomass but excluding large hydro, renewables are about 6%, I think—something like that. The biggest part of that is biomass in the pulp and paper industry. The other renewables are probably in the 1% to 2% range.

Mr. Tony Ianno: Small hydro is less than that?

Mr. Mike Cleland: Yes, less than 1%.

Mr. Tony Ianno: Right.

Mr. Mike Cleland: Large hydro, of course, is much larger.

Mr. Tony Ianno: Right. And when you get on terms of the transportation sector, what's the total amount in terms of the transportation sector versus the other sectors?

Dr. Allan Dolenko (Deputy Director, CANMET, Energy Technology Branch, Energy Sector, Natural Resources Canada): In terms of its contribution, it's still very small, less than 1%. The 27% figure there is the emissions contribution.

Mr. Tony Ianno: What I'm trying to get, and part of the reason for my interest, is I'm trying to see what the potential is in terms of where is the industry at large, and of course you have it broken down. And if you talk about homes or office buildings, where people could eventually see a savings or see a carbon dioxide emission reduction, industry in terms of small business and other large businesses that can flow from that to the point of export markets, do you have any idea in terms of how we get from the theoretical stage to... We know there are pilot projects and things taking place right now, but what's required to actually change from that to the next stage where people can consider actually spending $10,000, or whatever the number is, and actually start to see a saving or a return of up to three years to the point of breaking even, so that people can start to do those kinds of investments and the companies can start to flow?

It seems like in last twenty years we've seen some changes, but nowhere near... What is the problem?

Mr. Mike Cleland: The problem is that we are blessed with a lot of very cheap energy, and cheap energy for the most part coming from fossil fuels, if you call that a problem. And you're right: for all the pushing we've done, even going back to the late seventies and the early eighties, it's proved very difficult to make big and enduring changes in the way people purchase and consume energy.

Some of you may recall that we saw a downturn from about 1979 to 1984, or at least a disconnect, between energy use or carbon dioxide emissions and the growth in the economy. After 1984 it pretty much hooked back up again.

We've had some success, I believe, with the programs we've had in NRCan, which have mostly taken the form of information programs. What we find is that there are at least some opportunities out there that are definitely economic to consumers and to businesses, provided they have information about those opportunities. That's a small step. I think we've gone a long way with that.

The next step requires some change in the economics, a change in the incentive structure that people face. In the last round in the 1997 budget, we introduced a number of pilot incentive programs, and it was really for the first time in well over a decade that we were getting back into incentive programs. But I do believe you have to actually start changing the economics, and even then it's tough.

Dr. Allan Dolenko: Following onto that, if I may, part of our program recently has been putting more emphasis on looking at international markets and helping some of our companies and clients penetrate those markets where energy prices are more expensive and where there are greater economic opportunities.

Mr. Tony Ianno: I see. What are we doing in terms of when money is given for one form or another where the government has a royalty base so that they get a return if something hits? I'm referring to when you don't just put $6 million in and they get all the benefit and you just benefit because they're working and expanding new jobs, but you actually get a return on it so that you can use that money once again for another venture.

Mr. Mike Cleland: Normally that's the kind of structure we have in programs today, as opposed to say a decade ago. For example, a number of the TEAM projects are being delivered through Technology Partnerships Canada, which has built into it an explicit arrangement for a payback, effectively a royalty. Within NRCan, we have a program called Industrial Energy R and D, which is structured very similarly, with effectively a royalty back to the government when the project pays off. That's pretty much the way of doing business.

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You can't do that in every case. There are some projects that are less commercial and where you're really pushing the envelope a little bit more.

Mr. Tony Ianno: So you're saying on that basis you can't set up a structure whereby if ever they get lucky, unbeknownst to them, and they develop something commercial, you can get a return even though you put the money in. Is that what I'm hearing?

Mr. Mike Cleland: No. I wouldn't say you can't. I'm saying that depending on the kind of incentive you want to create, you might want to relax that requirement in some cases.

Mr. Tony Ianno: So when we are funding the universities through NSERC and everything else, the new system they put in place to develop for basic research some royalty factors, it can't work there as it is or we can't change Natural Resources Canada to do it the same way they are doing it?

Mr. Mike Cleland: Allan, do you want to anwer that?

Dr. Allan Dolenko: It's almost a case-by-case negotiation, depending on the company involved, the level of risk, and the technology that's involved. But we have all these options open to us, and in some cases we do ask for royalty payments down the road if the technology and intellectual property is something the government is investing in and we feel there should be a return to the taxpayer if they should get lucky, as you said.

Mr. Tony Ianno: Who makes that decision as to why you shouldn't do it as a matter of course?

Dr. Allan Dolenko: As I said, it's almost a case-by-case negotiation. There's no hard and fast rule in terms of how you do this.

Mr. Tony Ianno: I understand that's what you follow, because that's what they said, so I'm wondering who sets the policy so that you don't do it as a matter of course.

Dr. Allan Dolenko: There are Treasury Board regulations in terms of intellectual property and what is negotiable in terms of what we can do in recovering intellectual property. So we try to follow those regulations.

Mr. Tony Ianno: Can I have one more question? I'm just trying to get to the crux of it. You're saying that Treasury Board would allow NSERC or some of the others to do that as a matter of course, but not Natural Resources Canada.

Dr. Allan Dolenko: No, the same rules apply.

Mr. Tony Ianno: Okay. When I asked the industry minister if they're doing that, he indicated, in my understanding, that they're doing it en masse. I'm asking you that, and you're saying you're not doing it en masse. You then say it's the Treasury Board that doesn't write it in, so now there's some flexibility. So I'm wondering why for Natural Resources Canada it's not a matter of course.

Mr. Mike Cleland: Just for clarification, I certainly wouldn't want to contradict the industry minister, but I'd be interested in knowing exactly which programs he was referring to. For example, much of what the National Research Council does is analogous to what we do in the energy technology branch at NRCan. They do in-house R and D, which has ultimately commercial application, and they work with industrial partners, as do we, without necessarily recovering all of those moneys, although for the most part, as do we, they work in some sort of cost-sharing arrangement. A substantial part of our activity involves some sort of cost-sharing arrangement, which isn't the same as a royalty arrangement for getting all of our money back.

In a commercialization project, which is farther downstream, and I think that's one of the key criteria, if you're closer to commercialization, our expectation is that we should be able to recover our money.

Mr. Tony Ianno: But I think you'd agree with me that with basic research sometimes you don't know what can happen. Something good could happen, and if you're not in a position to do it as a matter of course, then you may miss out, because someone in your department has not made the right gamble. Why are the Canadian taxpayers left on that basis, as compared to doing it as a matter of course that you get if someone succeeds from basic research to commercialization on a one-two step? Why is that you are not doing it so that Canadian taxpayers are in effect benefiting and protected in the process?

Mr. Mike Cleland: It's a big question, and it's one that goes to the overall way the government structures its approach to research and development. It will vary necessarily, as I say, depending on where you are in the technology spectrum, and the farther upstream you are the less likely it is you're going to be in a position to do that. Could you in theory structure it so that you could recapture some sort of royalty? Probably yes.

I think we could spend some time talking about this. I think you could show that it gets harder and harder the farther you are upstream, and it will also vary by sector and by the size of firm you're dealing with in the sector.

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In one of the earlier slides what we've shown is in terms of our activity. I can't remember exactly which slide it is, but it's the one with the complicated diagram. It has some arrows going up one side showing decreasing risk and increasing or getting closer to commercialization. The farther up you get in that diagram the more probable it is you will be able to get cost recovery or royalty arrangements. But I think that's pretty common across the government.

The Chairman: Thank you. I think it's certainly an area worthy of further discussion.

Tony, if there's time I'll come back to you.

Mr. Tony Ianno: Thank you.

The Chairman: Pierre, then Roy, then Rob.

[Translation]

Mr. Pierre de Savoye (Portneuf, BQ): I would like to refer to your strategies table. It's an interesting table; it separates possible actions into four areas. However, it doesn't show what kinds of actions might be given priority, are being researched and are available. So, I'm going to ask you some questions.

In the right column, the one dealing with the reduction of other greenhouse effect gases, it talks about replacing cement. Cement production is a process that consumes a lot of energy. We all agree on that. There are, however, more modern processes that reduce the amount of energy consumed in producing cement.

Moreover, in certain circumstances, energy savings can be achieved by using concrete, which is cement based. I can't see here how the link is made. Cement production involves a one-time energy expenditure, while the energy savings resulting from using concrete in certain applications gives ongoing savings. So, there's a balance to be achieved here. Among other things, and I'm coming back to the left column now, there is the improvement in energy efficiency and use, in terms of energy environmentalism. That means houses, office buildings, etc.

In regards to houses, I believe that using concrete with built-in insulation could produce significant savings. The Building Code doesn't provide for that. Did you do any research on the impacts of widespread use of concrete in home construction in terms of energy savings and, in particular, on reductions in greenhouse gas effects?

As for transportation systems, I believe that cars burn considerably more gas on asphalt roads than on concrete roads because asphalt gives way under the tires and concrete doesn't. When you drive on asphalt, it's a bit like a boat that has to plow through waves rather than like a wheel that runs on something solid.

Did you compare the costs of cement production, which is a one-time cost, with ongoing energy savings if roads were made entirely from concrete? Would it be desirable to pass a law saying that all roads have to be made of concrete?

We know that trucks travelling on our highways carry large quantities of goods needed by our citizens. Obviously, these trucks, when they're in good condition and run at optimum speeds, use a minimum amount of energy. However, when they're stuck in traffic jams, whether in Quebec City, in Montreal or on the 401, they waste absolutely horrendous amounts of energy. If those goods were carried by rail, wouldn't there be considerable savings?

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Did you compare the different means of transport? There again, might we not want to pass laws or regulations to promote optimal use of means of transport?

I have a last question to ask you. In the second column, you talk about going to low-carbon or no-carbon fuels. You mention nuclear energy and, of course, you mention fission energy. There is research on thermonuclear fusion and your ministry has stopped investing in that area. I'm thinking about Tokamak at Varennes. Can you tell me why you stopped financing that project? I know that budgets are tight, but the cost was of the order of 6 or 7 million dollars and you will admit that, these days, even if budgets are tight, that's not a good enough reason.

We know that, on the rest of the planet, there has been a slowdown in such research, but it's research that, in 20 or 30 years, could lead to a sustainable solution to our energy problems, a solution that has to be found, given the fact that our oil reserves are running out.

[English]

The Chairman: Thank you, Pierre.

Mr. Mike Cleland: Thank you. Let me first try to deal with the first question, have we looked in detail at the potential costs or gains in terms of CO₂ emissions from substituting cement for other products. The answer is no. That raises one of the big analytical dilemmas in dealing with this issue, and that is if you look at any one part of the system, in order to really get a good handle on it you've got to look at what we call the full cycle. For example, if you look at ethanol, what comes from there, but what also comes from the process of producing it, or hydrocarbons for that matter, you just run out of data and analytical capability when you try to get into the whole economy.

I am aware of the point you made about the effect on transportation fuel usage on cement highways. I can't say that I'm familiar with the exact difference it makes. It would be possible to do some analysis of that.

Have we done it?

Dr. Allan Dolenko: NRC has.

Mr. Mike Cleland: We could supply you with that in that case, if you'd like. I might add that the transportation table is doing a lot of analysis with respect to the relative CO₂ implications of road versus rail transport, and we'll be coming forward with that analysis, as well as options governments might consider for changing the mix. With specific respect to how roads are constructed, of course, that is a provincial responsibility, and I'm not convinced it would be easy to convince them to substitute cement for asphalt. But we can certainly provide you with the information.

Mr. Pierre de Savoye: Of course, it would be simpler to take decisions if the proper data were available, and that depends on you.

Mr. Mike Cleland: It does indeed. I couldn't agree with you more.

One of the things we did with our energy efficiency program going back about a decade is to devote a fair amount of our resources to developing data on this subject. Canada actually is probably one of the world leaders, probably in the top five, in terms of having good data on our energy use, but we need more, and it needs to be improved for exactly the reason you've just described.

With respect to nuclear energy, yes, indeed, one of the consequences of the program review cuts was the elimination of the fusion program, along with a lot of other programs, including a lot of other activities that were run through Atomic Energy of Canada Limited. I guess I'd have to say that was a choice that was made in light of the fact that fusion, over the last two decades or so, appeared to hold out very good promise for almost a free lunch in terms of energy production. That promise keeps receding into the future in terms of any impact on Canada's Kyoto commitments, or even, I think, over the next two to four decades.

• 1150

Our analysis showed that fusion wasn't on the screen. It wouldn't achieve those kinds of impacts. I think a number of other countries have arrived at similar conclusions. So it was a judgment as to whether that's where we should be putting scarce research and development dollars. The judgment was that we should focus on technologies that might have more promise in the near term.

[Translation]

Mr. Pierre de Savoye: For your information, I had the pleasure of being in Paris with Mr. Goodale at the 25th meeting of the International Energy Agency. There seems to be a consensus on the fact that the targets set at the Kyoto meeting will not be reached by 2010, and perhaps not even by 2020 or 2030.

So, the targeted objectives won't change, but the timetables will. These should be adjusted because some countries can't keep up. I respectfully submit that, even if results aren't expected for 20 or 30 years, fusion might come on line at just the right time because, to get out of the atmospheric disturbances we are experiencing now, we are going to have to reduce the amount of CO₂ in the air considerably.

So, I would suggest that you perhaps revise the timetables and take another look at the fusion problem. That could be useful.

[English]

Mr. Mike Cleland: You make a good point about the long term. We do need to look at it. We're looking at the whole range of technologies.

[Translation]

Mr. Pierre de Savoye: Thank you.

[English]

The Chairman: Thank you, Pierre.

Roy, then Rob, then Reg.

Mr. Roy Cullen (Etobicoke North, Lib.): Thank you, Mr. Chairman, Mr. Cleland, Mr. Dolenko.

The transportation sector, as you pointed out, accounts for roughly 27% of Canada's greenhouse gas emissions. By your arithmetic, I think 20% of Canada's greenhouse gases come through road transportation. So it seems to me this is going to be a significant challenge. When we look at your chart here, it seems to me—and I know you're waiting for advice from the issues tables, but are we not going to be having to convert some of our vehicles to alternative energies?

I think Mr. Ianno alluded to it earlier. How are we going to get there? What sorts of economic instruments, what sorts of tax incentives are we going to need to get there? Is there a way that in Canada we can lever some of our comparative advantage in certain types of energies, like natural gas, perhaps electrical energy, to make the transition and create some comparative advantage here at home?

Mr. Mike Cleland: With respect to natural gas in particular, it's something we've been at for some time, going back to programs that probably have a couple of decades of history. I'd have to say that I think we've pushed quite hard on that, with relatively modest success. Similarly, programs to try to encourage propane have had very modest success. If anything, it's tended to more recently go the other way.

I guess you're pushing against a couple of things. One is the relative efficiency of gasoline as a package, if you will, of fuel and its very low cost. There is also the vehicle technology context in which you're working, which is obviously a consequence of the North American marketplace, very strongly dominated by the U.S. So if you're looking at significant changes in vehicle technology, there's only so much leverage that Canada has in that context.

That said, as we said, we still see several opportunities. We still see continuing opportunities in natural gas, particularly in some niche applications, and growing opportunities in ethanol.

Mr. Roy Cullen: It's going to be a significant commitment by all Canadians if we are going to meet those goals, it seems.

Maybe I'll switch gears for a moment. When I look at the chart where you show the NRCan energy, science, and technology in the context of the federal innovation system, and CANMET... I believe they're doing some great work, from what I hear from industry—partnering with industry. It tends to be more of those technologies that industry can band together in some generic sense before it becomes an applied or proprietary type of technology. That's good.

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But I'm just wondering, are we spending enough in Canada on the fundamental research, the basic research? I'll use the analogy I've heard often, that if you have to keep filling up the tank and the well... if people go back to the well and there's nothing there, you won't have much to commercialize. I know it's a big debate in Canada, but I wonder what your perspectives are. Are we doing enough in terms of basic science, basic research?

Mr. Mike Cleland: Let me take a bit of a run at that and then I'll ask Allan to jump in.

To be honest with you, I don't know. It's a hard judgment to make, but it is one of the things that... Again, going back to the climate change process, our hope is that the technology table will give us some advice in that regard. Clearly, there are a couple of key questions for that table. One is, what are the prospective areas that we should be working in? Is it fuel cells? Is it other transportation technologies? Is it building technologies? Where are the opportunities? But also, how do you get at the opportunities? Is it research? Is it funding engineering schools, making sure we're getting more Canadian engineers, or is it downstream at the technology end? There is no final answer to that, but as I say, we're hoping to get some advice.

Allan, you might want to add something.

Dr. Allan Dolenko: As you say, it's a very interesting debate, and it has been ongoing for many years, certainly over the course of my career, which is a few years now.

I think it is being recognized that we do have to keep replenishing that tank. I think we've drifted perhaps over the last 10 years more towards the marketplace, that end of the technology spectrum. But I think now with the increases we're seeing in NSERC budgets and refunding at the NRC level, that has been recognized and the government is trying to address that through increased funding.

But I agree with you. From my point of view it's an important element. I know within our own programs, although we are more toward the market end of the research spectrum, we do try to maintain a certain percentage of our budget directed to what we consider to be fundamental activities. It's one of our program objectives.

Mr. Roy Cullen: Thank you. In your presentation, I didn't see any mention of co-generation, and I'm wondering if you could describe to the committee what co-generation is and what opportunities it presents to Canadians, to Canada, in terms of our overall energy efficiency policy and in terms of our Kyoto targets? Does it play any role at all, in your view?

Mr. Mike Cleland: It definitely plays a role, and it should play a growing role in the future. What co-generation is, just to respond to the first question, is essentially maximizing the use you get out of the heat from whatever is your energy source. The highest grade heat is used to turn turbines to produce electricity, and as you get lower-grade heat, it can be used, for example, for district heating purposes or for heating hot water, or whatever else. It is used, and where it is very prospective is in the area of district energy systems, and I did mention that in the presentation. What I didn't flag was that in fact the best opportunities in the district energy system field are ones where you're exploiting co-gen possibilities.

Allan, you may want to comment.

Dr. Allan Dolenko: It certainly does present a major opportunity for increased efficiency in terms of energy use. We have an example. One of our projects in Cornwall is a combined co-generation system whereby they're using natural gas to generate power for the grid and using the hot water as a district heating system for a local shopping centre. Those kinds of projects are being developed because of their efficiency and their economics.

Mr. Mike Cleland: One thing is quite clear, just to add to that. The efficiency ratings you get out of co-gen—for example, if you're in a combined cycle gas turbine in a co-gen application, the efficiencies are enormous compared to any conventional system. They depend, though, on local circumstances and the particular industries, the particular need for power. They will depend a lot on what happens with the deregulation of the electricity market. Once we see that, I think you'll see more and more application of it.

• 1200

Mr. Roy Cullen: Do I have time for a quick question?

The Chairman: Yes.

Mr. Roy Cullen: Thank you.

The energy efficiency of buildings is a big project in Canada. You have commercial buildings and residential buildings. I know it's a multifaceted issue from the point of view of solar, energy systems, and recycling. I don't know all the various options. If you're looking at let's say wood-based buildings, what is your department doing with regard to encouraging the use of building systems and engineered wood products? It seems to me that they have a role to play in greater energy efficiency in buildings. What is your department doing to encourage the development of building systems and engineered wood products?

Mr. Mike Cleland: Again, let me start off, and then I'll ask Allan to add a few things. I think we have to describe the buildings area as one of our real success stories both as a government and as a country. As a government, Natural Resources Canada worked closely with the National Research Council and CMHC in advancing building technology, including building systems, as you describe it.

Going back a long time, we have the R-2000 program, which is really a series of technologies you bring together in a system. We are moving that forward with the advanced house, which is essentially adding on to the technologies.

We have a corresponding program on the commercial side, C-2000, which again is really not about any one technology, because technologies, when you look at them by themselves, seem kind of prosaic. It's about the design process. It's about bringing the user in early in the design process and ensuring that the architect and the engineer actually talk to each other. Typically what happens in commercial buildings is that the architect will come up with something that looks really nice, the engineer will come in and fix all the problems the architect created, and the users will come in and have somebody else come in and fix all the problems the architect and the engineer created. That's a very typical process in commercial buildings. C-2000 is about bringing all that together at the front end. It's an area where Canada has been very successful in terms of promoting its experience worldwide.

The Chairman: Thank you, Roy and Mr. Cleland.

I have Reg, John, and Yvon on my list. Reg, please.

Mr. Rob Anders (Calgary West, Ref.): No, Rob.

The Chairman: Rob, Reg, John, Yvon. I'm sorry, Rob.

Mr. Rob Anders: That's all right.

The Chairman: I had already written you down.

Mr. Rob Anders: Okay.

How much money is being spent by the OEE on market suasion? If you want, you can elaborate on the acronym. You have that in your chart entitled “NRCan Energy S&T in Context of Federal Innovation System”.

Mr. Mike Cleland: I'll have to follow up with the exact numbers. I do apologize for not bringing that along. I can give you the order of magnitude, and then we'll follow up with the details.

When we say market suasion, effectively what we mean is information programs aimed at individual consumers, mainly in the home and with regard to vehicles, and then the support to voluntary programs within the industry and the commercial sector. Up until recently the OEE budget was around $18 million a year. Of that, the great majority would be in what we would call suasion programs, information or support to the voluntary programs.

Mr. Rob Anders: Okay. When you talk about information programs for users in the home, would those be commercials on TV to encourage people to change their energy consumption choices? What exactly is that?

Mr. Mike Cleland: It's that, among other things. For example, there's the energuide program. If you've bought an appliance recently, I hope you've noticed the energuide program. It's a labelling program that effectively ensures that when you buy an appliance—and in the future a house or an automobile—you will be able to know what the fuel consumption of that appliance, house, or automobile will be. Also, you will be provided with other information that tells you some things about how you can use it or operate it in a way that will reduce your consumption. That's a pretty widespread program and one we're pushing further.

• 1205

We also do ads and other things to get consumers' attention. But I think it's more important to give them more in-depth information, and that's where we've been focusing the program.

Mr. Rob Anders: Okay. I also have a question about money being spent on foreign governments for energy innovation. You have something down there with regard to CIDA and foreign aid. Do you have an idea of how much money is being spent on that?

Mr. Mike Cleland: I wouldn't want to give you something off the top, but we'll follow up on that. It's sometimes difficult to figure out. For example, CIDA will have programs in a variety of countries, and carving out exactly how much of it goes to energy efficiency or climate change is sometimes difficult. But we will follow up with information on that. It's certainly a growing area.

Mr. Rob Anders: Would you be able to estimate that it would be more than $10 million or less than $100 million?

Mr. Mike Cleland: I'm talking about the programs of another department, and I'm not sure. I would rather not give you a guesstimate.

Mr. Rob Anders: All right. Fair enough. You mentioned in parts of the documents here the promotion of wind power. Do you know how much money is being spent to promote wind power?

Mr. Mike Cleland: I'll ask Allan to respond to that.

Dr. Allan Dolenko: Right now our program is being funded at about $400,000 per year. With that we leverage considerable funds from our clients and our partners, so you could probably triple that number in terms of how much our program would generate.

Mr. Rob Anders: Are you hoping to triple it?

Dr. Allan Dolenko: It's not a hard and fast rule. That's about what we're at now in terms of that particular program, and it varies from program to program depending on the client base out there.

Mr. Rob Anders: You also mention solar power. Do you have any idea how much money is being spent to promote solar power?

Dr. Allan Dolenko: For solar power our departmental budget is about $480,000 per year. There again we're leveraging that with our partners. Both of them are fairly small programs. That's the current level of funding, and most of that funding comes through the program of energy research and development, which is managed through the energy sector in our department.

Mr. Rob Anders: You indicated that there was a wish to increase the research that's being done on wind power. Is that type of thing being pursued with solar power as well?

Dr. Allan Dolenko: Sorry, could you repeat that?

Mr. Rob Anders: Do you hope to increase your activities for pursuing research in solar power as well?

Dr. Allan Dolenko: There again it depends on the receptiveness of the client base. If there's a real market pull, if there is a client base out there hoping to leverage their money with ours, we're certainly interested in increasing it, sure.

Mr. Mike Cleland: If I can just add to that, some of the advice we're hoping to get out of the climate change process will go to that kind of issue of where we should be increasing our activity. There will be some difficult choices to be made there, but hopefully it can be done on the basis of more information.

Mr. Rob Anders: It mentions here that a sum of $150 million is being spent on community energy projects. What exactly are community energy projects?

Dr. Allan Dolenko: These are specific projects we have been involved in. Our role has been to help fund feasibility studies and to try to get the various parties involved in developing projects in community energy systems. Our involvement in terms of dollars is very small, and we try to recover those costs where we can.

In terms of the actual projects themselves, they can be quite large. For example, we were involved in the project in Cornwall that I mentioned earlier in helping them put together a feasibility study. We're involved with other communities across the country in trying to put together various projects. I have a list here of some of the projects we have been involved in over the years, and I can give you that later, if you like.

Mr. Rob Anders: That would be interesting.

You say that you try to recover the costs where you can. How exactly would you go about recovering costs for a feasibility study?

Dr. Allan Dolenko: In that particular program, if there are moneys committed to that project to make it go ahead, we ask that the money we contribute toward the feasibility study come back so that we can then fund other studies in other communities.

• 1210

Mr. Rob Anders: Okay.

I'm trying to get a ballpark figure for how much money is being spent from the taxes of revenue-producing oil and gas companies, which employ Canadians, on less viable fuel alternatives. You have money that's spent on wind power, solar power, information programs and suasion programs and all the rest of it. Judging from the answers you've given me so far, it's at least $20 million per year, and probably a lot more than that. Do you have an idea of how big the scope is?

Mr. Mike Cleland: If you mean the total scope of activities in support of energy efficiency, renewable energy, and alternative transportation fuels, it's approximately $70 million a year. Most of that is in the area of energy efficiency. Second would be renewables, and then alternative transportation fuels. What that would translate into as a percentage of the tax bill from Canada's oil and gas industry, I'm not sure. I'm sure it would be pretty small, if you distribute this across the total tax base of the economy.

I might add, though, that we find the oil and gas industry among one of our most supportive partners in working in these areas. For example, I think they find that some of the work we do with them in areas of energy efficiency has proved extremely helpful. You're undoubtedly aware of the success Canada has had in reducing the cost of oil sands development. A lot of that is about increasing the energy efficiency of that development, and we've been a part of that, a small part of it. So I think there's a double win here.

The Chairman: Would you wrap up?

Mr. Rob Anders: I'll just wrap up on this and say I hope you can understand the frustration of oil and gas producers in Alberta who see government money going to support windmill projects in Alberta that everybody knows are not going to contribute substantially to our economic viability as a country or as a province and to know that their taxes are going to pay for those types of things. You know, of course, there are suasion programs and commercials and information programs to try to convince people that oil and gas is somehow less beneficial to them and that they should avoid that in favour of solar power. It's very frustrating.

The Chairman: Thank you, Rob.

Reg, please.

Mr. Réginald Bélair (Timmins—James Bay, Lib.): Good morning, sir.

I would like to concentrate my questions on electrolysis. We have known for years that this process was successful to propel motorized vehicles, yet it has never been implemented. Is your department still doing some research on this procedure?

Mr. Mike Cleland: When you say electrolysis, just for clarity, are we talking about fuel cells here? Is that—

Mr. Réginald Bélair: No, water.

Mr. Mike Cleland: This is the use of hydrogen, hydrogen from water.

Mr. Réginald Bélair: Yes.

Mr. Mike Cleland: The answer is yes. Really, it's a question of relative economics. You're absolutely right. The technology of producing hydrogen from a variety of sources, as well as, for that matter, the technology of fuel cells, really isn't new. It goes back for decades. What we have done, working with, for example, Stuart Energy Systems, is help develop systems that are more efficient and more economical to produce than hydrogen.

Mr. Réginald Bélair: Are you saying that at this point in time it would be more costly to implement this system in a vehicle than the gas system we have today?

Mr. Mike Cleland: Oh, absolutely! It would be greatly more. We're still a fair way from a viable hydrogen fuel cell vehicle. It's there, it's possible, but the economics aren't there yet.

Mr. Réginald Bélair: I see. Is more research being done? Is it continued research, I should say?

Mr. Mike Cleland: It's an area of continuing research for a lot of players, including Ballard, obviously, in Canada, in collaboration with several automobile manufacturers and one where the federal government is continuing to work with Ballard and with others.

• 1215

Mr. Réginald Bélair: That was my next question. To what extent is the automobile industry cooperating or collaborating with your department in order to achieve this? Because it would be the answer to many, many, problems that we have today. Are they cooperating with you? Are they doing any research on this?

Mr. Mike Cleland: I don't know what we're actually doing ourselves with the industry. I will say, though, that the automobile industry is putting a lot of R and D money into the development of fuel cell vehicles, as well as others such as hybrids. The numbers are in the hundreds of millions of dollars worldwide, mostly coming from the automobile industry.

Dr. Allan Dolenko: Most of our activities have been involved with the suppliers to the big three, for example. Those who develop and supply the new technologies have sort of been the target of our activity.

Mr. Réginald Bélair: What about nuclear fission in vehicles?

Mr. Mike Cleland: I guess we would still regard it as a very real opportunity for the future. Clearly, it's fallen on stoney ground as a technology over the last couple of decades. But if you look forward, I think you're seeing a bit of a turnaround.

I suspect you'll see a turnaround in Ontario Hydro before too long—certainly that's true in the U.S.—as an opportunity for being virtually pollution-free as well as having pretty good economics. Right now, the economics don't look very good.

Mr. Réginald Bélair: Is it also because of the crazies out there who could use this thing with technology to make bombs?

Mr. Mike Cleland: I'm sorry, I didn't understand that question. And I wouldn't comment on crazies.

Mr. Réginald Bélair: If you do have nuclear fission, then there's a possibility to produce a bomb somehow. I'm no expert in bomb-making, but would that be one more reason not to research it extensively?

Mr. Mike Cleland: I don't think, so and I'll tell you why. The reactors that are used to produce fissile materials for bombs are different from commercial power reactors, different physics. So if you build a typical power reactor, whether using CANDU technology or any other, those reactors per se cannot be used to produce fissile material for making bombs.

In any event, the reactor programs worldwide have all sorts of safeguards built in. So I don't think, personally, on the face of it that's a very valid argument.

Mr. Réginald Bélair: Thank you.

The Chairman: Thank you, Rég.

Yvon, please.

[Translation]

Mr. Yvon Godin (Acadia—Bathurst, NDP): First, I would like to welcome the witnesses.

This is a happy coincidence because yesterday, in the House, I asked the Minister a question on that subject. I would like to congratulate him for his comments in the Atlantic Progress. So you can follow me, I'm going to give you copies of the article. Here's what it says:

[English]

The east coast oil and gas sector is on the threshold of search and development and growth. I am excited by the new high-quality economic opportunity this development will bring to the Atlantic.

Then he talked about the most environmentally friendly—I mean, that's in the third paragraph. I say this is wrong. Northeastern New Brunswick is not getting it. To you, as the assistant deputy minister, what is the responsibility of the federal government in this area? It's nice to make good advertising like that for your minister—somebody did it, and I don't think it was him, he only signed it—but if we believe in it and if it's true that it is very friendly sur l'environnement, if it's all true, why not the northeast of New Brunswick? This is a place where we have mining, where we have smelters, where we have three pulp mills in the region. Just on the environmental part of it, it would be the best thing to happen.

• 1220

I don't want to go into the details of his announcement, but he's saying job creation is the future; it's everything. There again we're left behind. I want to use the environmental part of it, and at the same time the new areas, something new coming up. Why can't we be attached to it? I'd like to get some answers to that.

Mr. Mike Cleland: Let me talk about the responsibility of the federal government in this area, or what approach is taken by the federal government.

First of all, clearly there are environmental and economic advantages to any area that has access to gas. I think that's one of the really positive things about the development of Sable Islands gas. But it has been the policy of the Government of Canada, and remains so, that the extension of energy infrastructure should be done on the basis of the economics of the infrastructure. For many years we haven't supported the development of energy projects. We have discussed this with colleagues in New Brunswick and talked to them about what they think it would take to create an economic option in northeast New Brunswick, but we've also made clear to them that at this point we don't see that there's a great deal that we could contribute.

There are several communities remaining in Canada or areas of Canada that don't yet have access to gas. From recent conversations with people from Gaz Métropolitain, my sense is that over time the economics will support certainly the extension eastward from Quebec City on the south shore of the St. Lawrence and eventually into northeastern New Brunswick. But at this point, our view is that it should be done on the basis of the inherent economics of the project.

[Translation]

Mr. Yvon Godin: Yes, but on that point, I don't agree with you, for the good and simple reason that I presented a brief on that subject in which I said that New Brunswick has to be viable. That is what the government is aiming at now.

Let's suppose you have a business in New Brunswick. If you flew over the province in a helicopter, wondering where you should invest your money, you would always decide to go to the South of the province, but the gas isn't there and it would never be viable.

In the northeastern New Brunswick, we have suffered enormous losses in the fisheries. It's about time for the government to start looking at the possibility of making long-term investments in the area of fuels. That would surely be a good way to save money instead of sending millions every year for people to pick up bottles in the ditches. That's an insult to people.

Finally, it would be a good long-term investment. If you look at the report, you will see that natural gas is at the top of the list for all kinds of things. It has a low fuel content and is non-carbon.

That might be the best investment. For example, we might go into some joint ventures with APECA. We can find the money somewhere and say we're going to invest it there and give northeastern New Brunswick a chance to improve its economy.

As Mr. Chrétien said in 1993, the problem is the economy and not people. We have to revive the economy. I think this would be great a chance to do that. I think the message here is wrong.

I'm not going to give you all the details, but they say that the Atlantic provinces will benefit, that that would allow young people to stay home, in their own area, but the northeastern New Brunswick is not included in that.

You talk about Gaz Métropolitain. They want to invest in the South, coming down through the North-West. Quebec wants to invest in Edmundston for an electricity plan. That will stick somewhere in Quebec but again, northeastern New Brunswick will be left out, even though we've already lost the fisheries. We are told that in 12 years, there might be Brunswick Mine, which would be really important for us if we want to develop the region. We have to prepare in advance if we want to attract companies to our region.

Those are the comments I wanted to make. I wanted to get that off my chest. I wanted to point that out to the Deputy Minister's assistants because I know that decisions are made at that level. The Minister has signed for the site but he hasn't studied it in detail. I think that somebody at the Ministry made a mistake when he wrote that document. It's insulting, because the North-East isn't included.

I would like to go on to another subject with you, and that energy costs.

• 1225

Is it true that three railway locomotives can replace about 250 highway vehicles, which could help us on the environment level by helping reduce greenhouse effect gases in the country?

[English]

The Chairman: Thank you, Yvon.

Dr. Allan Dolenko: I can't really answer that question, but I think it's a question of cost-benefit. I think you're right on the emission side, but in terms of the cost side, I don't know. It's something you would have to look at in terms of the cost-benefit ratio.

The Chairman: I guess the railways tell us that, right, Yvon?

Mr. Yvon Godin: Yes. When I see what three cars haul and I see the transports driving around our country... I see where the block in the wheel is.

In New Brunswick, for example, everybody knows that the Irving family runs New Brunswick. The premier gets up in the morning and calls the Irvings and says “What do I do today?” They give him the agenda of the day, and then we go for the day. We all know that.

But I think it's important that the federal government does certain things for Canadians and our future. Our future is our families, our kids, and we have a responsibility, and not just economically. I think it makes sense for our future, which is our kids.

The Chairman: Thank you, Yvon. As usual, you get your points on the record, relevant or not, but today they were mostly relevant.

John, it's cleanup hitting for you, and then we'll be done.

Mr. John Duncan (Vancouver Island North, Ref.): Thank you very much. I'll follow up a little bit on Tony Ianno's comments, but not too much.

If you have a way to collect revenues or royalties that are specific to activities that fall within the context of your department, do those royalties or revenues flow into general revenue, or do they flow specifically back to the department budget?

Mr. Mike Cleland: There's a very complicated answer to that. It has to do with a system called “vote netting.” Actually, the royalty system is different from the cost-recovery system. The normal cost-recovery system is subject to the vote-netting procedure. I could get Allan to explain it to you; I think it's beyond me. The royalties work a little differently.

Mr. John Duncan: Before you answer, could I ask you, would it be different for your department from other government departments?

Mr. Mike Cleland: The basic structure is the same.

Mr. John Duncan: So if it's called a user fee, it would be directly attributable to your department. If it's called a royalty, it would be somewhat different, I would presume.

Dr. Allan Dolenko: In terms of most cost-recovery kinds of projects—in most science departments, TPC, for example, there are cost-recovery projects—that money flows back to the consolidated revenue fund, as I understand it. In terms of royalties, they fall back to the department.

In terms of TPC, that was a bad example. I think they have an exemption whereby it does come back to the program.

For our cost-recovery programs, it goes back to the consolidated revenue fund. It's very confusing. The rules keep changing, and at our level we have trouble keeping up with those rules.

Mr. John Duncan: For the record, it would appear to an outside observer that the incentive for the bureaucracy would be greater if the department within which they're operating were to be the beneficiary. I guess that virtually goes without saying, but I thought I would say it anyway. What you're telling us is that it's not that clear.

Dr. Allan Dolenko: We've been having those discussions with Treasury Board over several years now, about trying to recover those costs back into our programs.

Mr. John Duncan: Do you know whether this an area the Auditor General has addressed at any point?

Dr. Allan Dolenko: Not that I know of. I'm not certain.

Mr. John Duncan: That might be an avenue for someone like myself, to pursue that with the Auditor General.

I want to let you know I'm looking for a royalty here, okay?

• 1230

On one of your slides you have the various greenhouse gas contributors. Of course gasoline is at the top of the list. Whenever I go to a water fountain that's cold water on demand, or think about home plumbing systems—I'm sure there are industrial applications where you get hot water on demand, without a storage tank that's completely heated with hot water—it occurs to me that a lot of the gasoline that vaporizes... the volatility goes up with temperature. So on a hot summer day, obviously you get a lot more dissipating than you do in the middle of the winter. I was wondering if your department, or anyone you're aware of, has looked at some on-demand delivery refrigeration mechanism that would keep those emissions down.

Mr. Mike Cleland: Not that I know of, but I will ask my colleague here. That's an area we haven't done much work in, but—

Mr. John Duncan: But it would be fairly high up on the list of obvious things to scrutinize.

Mr. David Chatters: It was in the media this morning.

Dr. Allan Dolenko: Yes, it was in the media this morning about using low-flow refilling pumps.

Mr. John Duncan: Yes, that's only a small answer, isn't it?

Dr. Allan Dolenko: Yes.

Mr. John Duncan: You can achieve that through other ways too. I'm sure there are mechanisms to... I can't understand why automobiles are designed in such a way that allows you to fill right up to the cap. It doesn't make any sense at all.

Dr. Allan Dolenko: No, it does contribute, you're right. Again, in these cost-benefit issues, when you look at environment versus cost, where's the trade-off?

Mr. John Duncan: So I expect your department will put first priority on that. Is that a fair statement?

I'd just like to mention too that my home is where the $220 million co-generation project is going on—in Campbell River with the Fletcher Challenge mill. It's a very interesting project indeed.

On the issue of security of supply, one of your slides talks about sustainable development. It lists economic, environmental, and social, and I think we can all understand those three. It also says security of supply. I guess I'm looking for a definition. What do you mean by “security of supply”? Is that strategic national security, or is this some other aspect that I haven't thought of?

Mr. Mike Cleland: That's one that's actually tended to evolve over time, and probably a better way of characterizing it would be reliability of supply. Fifteen or twenty years ago, security of supply at a strategic national level was a major preoccupation of all western governments. What we've since discovered is that given a free-functioning international oil market, it seems to pretty much look after itself. I think we're finding that increasingly in other energy markets as well.

There remain some reliability issues, particularly with respect to electricity, that are a concern of government. But the general point is that as a broad objective, energy policy always includes the concern that you have secure and reliable sources of energy. As it happens, most of that objective is achieved by letting the markets work.

Mr. John Duncan: Okay. Your slides describe, I think, that 6% of current transportation fuels fall under the alternative category. Am I correct?

Mr. Mike Cleland: About 6% of all the energy used in Canada is renewable.

Mr. John Duncan: Okay. Does our national government have a target for alternative...

Mr. Mike Cleland: Not for the economy as a whole. We do have a legislated target for the use of alternative transportation fuels in the federal fleet, but we have no such target for the economy as a whole.

Mr. John Duncan: Is that something that will likely have to occur as a consequence of some of the discussions going on revolving around Kyoto?

Mr. Mike Cleland: It will almost certainly arise as an issue. It does arise as a question, whether or not we should adopt such targets. Some countries have. It's for consideration whether or not that's an appropriate kind of public policy instrument. It focuses the mind, but then it begs the question of what you are actually going to do to achieve it. That's really the more important question.

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Mr. John Duncan: Anytime you discuss an issue like that, it's very difficult to draw a line around Canada and contain the debate and discussion within Canada. I would assume that holds true for an awful lot of the work you're doing.

Mr. Mike Cleland: Absolutely. One of the things we increasingly find is that we function in a world, and more importantly North American, energy market, so with anything we do in this area, we need to ensure we're talking to key partners, including the U.S. We can't isolate ourselves in terms of the way our energy markets function.

Mr. John Duncan: When the ministers go out to British Columbia and want a good-news announcement, they usually hand money to Ballard Power Systems. Does that come out of your budget?

Mr. Mike Cleland: Some of it, yes. Under the program on energy research and development, we have a specific component that's involved with Ballard. Prior to that, and on an ongoing basis through the energy technology branch, we do other work with Ballard. But there are other parts of it that have come through Technology Partnerships Canada. In fact the largest part recently has come through Technology Partnerships Canada.

Mr. John Duncan: When you get into agreements with science and technology, or research agreements, where there are some possible downstream financial ramifications, are the agreements created in-house, within the department, or do they have to be run through the Department of Justice or other government departments?

Mr. Mike Cleland: Well, first of all, the form of the agreements is something that... We have Department of Justice lawyers working in-house with the department, as do all departments. Anytime we're getting into a legal agreement, first of all, in creating the general form of the agreement we would get their advice. But also in terms of the specifics, we involve them as a matter of course. But that's effectively our in-house legal counsel.

Mr. John Duncan: As a short follow-up to that, I would assume that a lot of these things would be very difficult to create when... It may be easier to talk about an example.

The Canadian Forest Service funded a huge study on alternative harvesting systems for logging, and I think the taxpayer basically paid most of that. Now that study has had major ramifications in a positive way for the forest industry. They've been able to look at that project and come up with ways to harvest that are more socially acceptable. So if the Canadian Forest Service had been looking for royalties or some kind of payback, I would think it wouldn't have been forthcoming at the time, and it probably wouldn't have been in Canada's best interests to not do the project because the royalties weren't forthcoming.

So I can understand why we have a national imperative to do research and development that is not tied to cost recovery very often, such as with these longer-term projects. I just wanted to sympathize with you in that regard. It's a very difficult thing to pin down.

Thank you very much, Mr. Chair.

The Chairman: Thank you, John.

Are there any concluding comments?

Mr. Mike Cleland: No, Mr. Chairman, thank you. I think we've covered the ground pretty thoroughly, except to just say thank you for inviting us. We appreciate the opportunity to debate this with you.

The Chairman: Well, thank you two people on behalf of our committee for helping us better understand alternative energy technologies in the context of climate change.

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With that, we're adjourned. Colleagues, we're notionally meeting Monday afternoon to look at the draft of the report from the first phase of our B.C. trip.

Thank you.