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37th PARLIAMENT, 2nd SESSION

Standing Committee on Industry, Science and Technology

EVIDENCE

CONTENTS

Thursday, December 5, 2002

1530

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

Mr. John Dillon (Vice-President, Policy and Legal Counsel, Canadian Council of Chief Executives)

The Chair

Mr. Jayson Myers (Chief Economist, Canadian Manufacturers and Exporters)

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.)

Mr. Jayson Myers

1535

1540

Mr. Joseph Volpe

Mr. Jayson Myers

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

Mr. Jayson Myers

1545

The Chair

Mr. David Bennett (National Director, Health, Safety and Environment, Canadian Labour Congress)

1550

The Chair

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance)

Mr. Jayson Myers

1555

Mr. James Rajotte

Mr. Jayson Myers

Mr. John Dillon

1600

Mr. James Rajotte

Mr. Jayson Myers

Mr. James Rajotte

The Chair

Mr. James Rajotte

Mr. David Bennett

1605

Mr. James Rajotte

The Chair

Mr. James Rajotte

The Chair

Mr. David Bennett

Mr. James Rajotte

Mr. David Bennett

Mr. James Rajotte

Mr. David Bennett

The Chair

Mr. Joseph Volpe

Mr. David Bennett

1610

Mr. Joseph Volpe

The Chair

Mr. John Dillon

Mr. Joseph Volpe

Mr. John Dillon

Mr. Joseph Volpe

Mr. David Bennett

1615

The Chair

Mr. Joseph Volpe

The Chair

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

Mr. Jayson Myers

Mr. Paul Crête

Mr. Jayson Myers

Mr. Paul Crête

Mr. Jayson Myers

1620

Mr. Paul Crête

Mr. John Dillon

Mr. Paul Crête

Mr. John Dillon

The Chair

Mr. Jayson Myers

The Chair

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.)

1625

Mr. John Dillon

1630

Mr. Jayson Myers

The Chair

Mr. Dick Proctor (Palliser, NDP)

Mr. Jayson Myers

1635

Mr. Dick Proctor

Mr. Jayson Myers

Mr. Dick Proctor

Mr. David Bennett

1640

The Chair

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

Mr. John Dillon

Mr. Andy Savoy

Mr. Jayson Myers

1645

Mr. Andy Savoy

Mr. David Bennett

1650

The Chair

Mr. Andy Savoy

Mr. John Dillon

Mr. Andy Savoy

Mr. John Dillon

The Chair

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance)

1655

The Chair

Mr. Jayson Myers

Mr. Brian Fitzpatrick

Mr. John Dillon

The Chair

Mr. David Bennett

The Chair

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.)

1700

Mr. Jayson Myers

Mr. Brent St. Denis

Mr. Jayson Myers

Mr. Brent St. Denis

Mr. John Dillon

Mr. Brent St. Denis

Mr. Nick Discepola

Mr. Brent St. Denis

Mr. John Dillon

Mr. Brent St. Denis

The Chair

Mr. Brent St. Denis

Mr. Jayson Myers

Mr. Brent St. Denis

Mr. John Dillon

1705

Mr. Brent St. Denis

Mr. John Dillon

Mr. Jayson Myers

The Chair

Mr. David Bennett

The Chair

Mr. Jayson Myers

The Chair

1710

Mr. Nick Discepola

Mr. Jayson Myers

Mr. Nick Discepola

Mr. Jayson Myers

Mr. Nick Discepola

Mr. Jayson Myers

1715

The Chair

Mr. David Bennett

Mr. Nick Discepola

Mr. David Bennett

The Chair

Mr. John Dillon

The Chair

Mr. James Rajotte

Mr. John Dillon

1720

Mr. James Rajotte

Mr. John Dillon

The Chair

Mr. Larry Bagnell (Yukon, Lib.)

Mr. Jayson Myers

The Chair

CANADA

Standing Committee on Industry, Science and Technology

NUMBER 009

2nd SESSION

37th PARLIAMENT

EVIDENCE

Thursday, December 5, 2002

[Recorded by Electronic Apparatus]

¹ (1530)

[English]

The Chair (Mr. Walt Lastewka (St. Catharines, Lib.)): I call this meeting to order.

The order of the day, pursuant to Standing Order 108(2), is briefings on the potential economic impact on Canadian industry of implementing the Kyoto Protocol. It should read 3:15 to 5 o'clock. We are expecting bells, so I want to start now and proceed to the witnesses.

I am pleased to have the Canadian Council of Chief Executives, Mr. John Dillon, vice-president of policy and legal counsel; Canadian Manufacturers and Exporters, Mr. Jayson Myers, chief economist; the Canadian Labour Congress, Mr. David Bennett, national director of health, safety, and environment.

Unless the witnesses have changed the schedule, we'll start with Mr. Dillon, if you please.

Mr. John Dillon (Vice-President, Policy and Legal Counsel, Canadian Council of Chief Executives): Thank you very much, Mr. Chairman. I have a longer paper that's available, so I'll try to keep my opening comments fairly short.

I'd like to begin by stressing that the business community is fully supportive of aggressive action to reduce emissions, not only greenhouse gases but also other pollutants such as the ones that cause urban smog. The structure of the Kyoto Protocol, however, is both an ineffective way to address the challenge of climate change and is unsuited, we believe, to Canada's particular circumstances.

I would like to take a few minutes today to review our key concerns with the Kyoto Protocol from a Canadian perspective and our questions about the government's case for ratification. Then I will outline what Canadian business leaders see as a more productive approach, one that would do more both for Canada and for the world.

In the five years since the protocol was signed, the federal government has yet to come up with a credible plan showing Canadians how and at what cost Canada's target might possibly be achieved. Notwithstanding this uncertainty and lacking a true national consensus amongst the federal and provincial governments on the best strategy for Canada, this House will be asked to vote on the ratification of the Kyoto Protocol in a matter of days.

There are a number of important reasons why achieving the Kyoto Protocol will be difficult at best for Canada. Meeting this target would require Canadians to cut their emissions by 30% within the next six to ten years. Such a target and timeframe cannot be achieved without major transformations in personal lifestyles. On a purely practical level, the reaction to recent market-driven spikes in natural gas and electricity costs suggest that neither voters nor political leaders are prepared to support price changes that would be significant enough to change consumer behaviour to this degree.

Canada's emissions continue to grow because of our exports, particularly our exports of energy and resource-intensive goods. These exports and their spinoff benefits provide an important source of Canadian income and jobs in all regions of the country as well as contribute to tax revenues that support other social priorities in Canada. Our emissions are growing because of immigration as well. More people use more energy, and Canada is the only remaining country with a reduction target under the Kyoto Protocol that also has a growing population, but the protocol sets a cap on emissions regardless of population.

The most immediate impact of a decision to ratify the Kyoto Protocol would be on business investment, and not just in the oil patch. The federal government has acknowledged that investment is critical to boosting Canadian productivity and incomes, yet Canada would be the only country in the western hemisphere to accept a target, and that alone is likely to push investment to other countries with no targets. Canadians will pay the price but the global climate will see little gain.

A move to ratify the Kyoto Protocol without a clear and detailed implementation plan would, we believe, compound this damage. Unless Canadian and international investors are given a clear picture of what new rules will affect business costs in the years ahead, they have to assume that these new costs will be significant. Any uncertainty in the implementation plan adds to the risks of making investments in Canada and is likely to affect not only new investments but also the credit ratings of existing businesses.

Notwithstanding its many flaws, Kyoto might be acceptable to Canadians if it offered a real solution to the threat of irreversible climate change. Sadly, this is not the case. With the United States' non-participation and no reductions goals for developing countries, less than one-third of global emissions will be covered. Emissions from the rest of the world, especially from developing countries such as China, India, and Mexico, would continue to rise faster than all the countries with targets would cut them. Of those countries with targets, many, including a number in Europe, are not on track to meet their commitments.

Business leaders agree that all countries, all companies, and all individuals do need to take action to reduce emissions. Even Canada's environment minister, David Anderson, appears to admit that the Kyoto Protocol is not needed to stimulate some action. In a number of speeches recently he has cited actions by the federal and state governments in the United States to deal with greenhouse gas emissions despite the decision by the Bush administration not to ratify the Kyoto Protocol. It does lead one to question, therefore, whether ratifying the Kyoto Protocol is either necessary or the best way to stimulate smart action to reduce emissions of greenhouse gasses and other pollutants.

The federal government has produced a draft plan for the implementation of the Kyoto Protocol. Unfortunately, it's still far short of what is required. In several important respects it is more of a wish list than a set of carefully specified future policies. It suggests laudable goals such as having Canadians reduce emissions by one tonne each, but it gives no clear indication of how such goals would be accomplished and leaves a full quarter of Canada's goal, some 60 million tonnes of reductions, up in the air.

In short, the government has failed to answer the questions of how much it would cost to implement the protocol and who would pay.

Before I conclude, Mr. Chairman, I do want to spend just a moment outlining some of the principles a number of us in the business community have suggested as to how an alternative strategy could be developed. I realize that it's late in the day to consider this, and it certainly is unfortunate that during the discussion and the debates, both in this House and across the country, there wasn't more opportunity to talk about alternative strategies.

I want to start by emphasizing that Canada need not take a back seat to anyone when it comes to evaluating its track record on improving the environment and in dealing with these kinds of issues. Last year, of course, the World Economic Forum's environmental sustainability index ranked Canada fourth among the nations of the world. Not only have we performed well as a country, but our business community has taken leading action in dealing with greenhouse gases. Literally hundreds of millions of dollars have been invested in new developments such as fuel cells, carbon capture and storage, and renewable energy, and this is only the beginning.

For some very cursory remarks on an alternative, let me say first of all that we do believe our goal as a nation should be to make Canada one of the most energy-efficient economies in the world and a global leader in the development of environmentally friendly technologies while generating growth and jobs for Canadians. In the pursuit of this goal, we support the negotiation of emission performance agreements between governments and key industry sectors. These agreements would contain a compliance and reporting regime and be based on improvements in emission intensity per unit of output.

Within the context of these performance agreements, industry and governments would examine the most promising technology options and the timeframe that would maximize each sector's contribution to overall reductions. They could also deal with other emissions that contribute to air pollution, as well as identify technologies that could be exported to assist other countries in reducing their emissions.

The development and commercialization of new low- and zero-emission technology is the only effective long-term method of addressing climate change on a national and on a global basis. We therefore would also like to see the development of a national strategy to design, test, and implement clean energy technology and innovation. Given the priority the United States has also given to the issue of long-term technology development, it is clear that we need to work in close cooperation with our leading economic partner in this area.

The business community certainly recognizes that this is part of a broader strategy encompassing the need to deal with air pollution, urban design and transportation systems, forestry and agricultural practices, and improving energy use by consumers. It suggests that the most important contribution Canadians can make to enhancing the global commons is to demonstrate through our will, our skills, and our technologies that it is possible to combine growth and opportunity with the highest environmental standards.

Thank you, Mr. Chairman, and I look forward to your questions.

The Chair: Thank you very much. I appreciate that.

Next, from the Canadian Manufacturers and Exporters, Mr. Jayson Myers.

Mr. Myers.

Mr. Jayson Myers (Chief Economist, Canadian Manufacturers and Exporters): Thank you very much, Mr. Chairman.

I'd like to start off by saying that we at Canadian Manufacturers and Exporters are in full agreement with the objectives Mr. Dillon has expressed.

The objective here is to achieve real greenhouse gas reductions in Canada. We're very much in agreement about the concerns industry has about the current debate and the current status of the federal government's implementation plan around the Kyoto Protocol. We're also very much in agreement about how we should be going about achieving real greenhouse gas emission reduction through the implementation of technological solutions, where Canadian industry is frankly playing the lead in the development of many of these technologies.

I think each of you has a copy of my slide, and I've also tabled our report on the Kyoto Protocol that was published last February, when we had a kind of first glimpse of the way the government was going to approach this issue. I've also tabled for you the Industry Canada study on carbon abatement policy that was carried out. It has not yet been published, so you may not have seen this.

Mr. Joseph Volpe (Eglinton—Lawrence, Lib.): Do you think you can get it to us? We've been having trouble getting hold of it.

Sorry for the interruption.

Mr. Jayson Myers: There are some sources that are easier to get than others, but this is a very interesting analysis from Industry Canada.

I'd just like to say, there is a win-win for industry and for Canadians in reducing greenhouse gases, and that win-win is through the development of technological solutions.

The deck I've provided lays out some pretty basic information. I'm not going to spend too much time on that, because I'm sure you've all seen it. The first is just the sources of GHG emissions in Canada, and if anything it's to point out to you the magnitude of the challenge ahead of us if we are actually to meet the Kyoto target, which is to reduce emissions by 30%. When you consider that you could eliminate all of Canadian manufacturing, and the entire oil and gas sector, and still not reach the Kyoto target, I think you see there some of the magnitude of actually getting to this target within a period of eight years. I think we take the word of the ministers, and the word of the Prime Minister, that this is not the intent here, but it's just to show you the magnitude of the challenge ahead of us.

I also wanted to show you where the progress has been made in reducing greenhouse gases, and the manufacturing use of energy or GHG emissions from that source is a major source of emissions reduction over the past 10 years. So businesses have been making real progress in achieving greater rates of energy efficiency and switching away from fossil fuels leading to real greenhouse gas emission reductions in Canada.

From our point of view, what we should be trying to do is encourage companies to do more of that, and they've done it because it makes good business sense to do it. How do you encourage these investments, these savings of energy? How do you encourage companies to go further?

It all comes down to a lot of economic predictions, and of course emissions are closely tied to energy use and closely tied to emissions. “Business as usual”--the basis of the modelling group's analysis here--predicts that the economy is going to grow by about 2.2% to 2.5% over the next eight years. What we've seen over the past 20 years is frankly a half of a per cent per year reduction in emissions from that economic growth rate. An added reduction has been achieved because of energy savings and because of the switching away from fossil fuels. And that's what's led to the 2% reduction of emissions in manufacturing and it's what has improved energy efficiency in manufacturing by 23% over the last several years.

But the business as usual projection takes all of these changes into account. It takes into account that the oil sands have gained 60% energy efficiency improvement over the past 10 years; that aluminum has gained 50%; and that the chemical industry has reduced its emissions intensity by 37%. You see the other gains in emissions intensity improvement, the other gains in energy savings, that manufacturers have been able to achieve over the last 10 years.

I think when we're looking at the economic assessment of this, it's extremely important to know what it exactly it is that we're assessing. Are we assessing the impact of achieving our Kyoto targets over the next eight to 10 years, because that's what a lot of the analysis has been focused on? Or are we looking at assessing what the federal implementation plan is, and what the impact of that might be? Or are we actually assessing what the strategy should be to lower greenhouse gas emissions?

I think that's very much where the debate should be today. What is necessary to lower greenhouse gas emissions to keep on the achievements that businesses have been making?

You know the framework, the target, the timeline of the Kyoto Protocol, but I want to show you this graph here on the relationship between economic growth, greenhouse gas emissions, and what it takes to get to the Kyoto target within eight years.

Economic growth is estimated at 2.2% per year from now to 2010 on average. No economist is right, I can tell you that, but this is the estimate, the average, that the government is working on.

Emissions are estimated to grow at about 1.7% per year taking into account that 0.5% per year gain in technological progress in energy savings and fuel switching. To get to the Kyoto target, therefore, we need to accelerate that rate of growth, that technological progress, really by a factor of nine to take it down to minus 2.5% growth in emissions per year. That would get us to the Kyoto target, and that's the only thing that would without destroying the economy.

The only other alternative to accelerating technological progress by a factor of 800% per year is reducing economic activity, driving less, heating our homes less, and cutting back on industrial production. That's the only other alternative to technological progress, and we're looking at accelerating what industry has done here by a factor of 800% per year in order to drive to Kyoto.

¹ (1535)

The question is, is that a realistic target within the next eight years? That's our concern, because even though the technologies and the alternatives may exist, even though we know we have to invest in infrastructure and transportation, even though we know many of these technologies are out there, they may not be commercially viable and they're probably not going to lead to these reductions within the next eight years. In fact, many companies, many infrastructure projects, wouldn't even get regulatory approval to be put in place within the next eight years. So I think we have to take a very realistic view of what is achievable here.

I've included my assessment of a number of studies. You've talked to Mark Jaccard. These are studies looking at what the implication would be of actually meeting the Kyoto target through real greenhouse gas emission reductions in Canada. They all assume, maybe optimistically, that we would actually be doing something in Canada, not just buying our way out of this or trying to exempt our way out of getting to the Kyoto target.

The Industry Canada study is the best one I've seen on a macroeconomic basis. It's peer-reviewed, whereas the government study is not. It's the only model I've seen that takes rates of return and impacts on investment into account. It's a very, very good model and--

An hon. member: Which model is that?

Mr. Jayson Myers: It's the Industry Canada study that I've tabled.

It assumes that Canada would have to reach Kyoto through domestic emission reductions alone, but on page 14, table 5, you see the impacts: reductions in investment in iron and steel of 20%; in the petrochemical industry, 34%; and the aluminum industry, 41%. You see employment cuts ranging from 12% to 21%; household consumption falling by anywhere from 64% to 34% for refined petroleum products, and so forth. You see the energy costs there that Industry Canada is looking at as well.

Again, this simply assumes that we're going to do something to reach our Kyoto target, and it takes into account that we're probably not going to be able to do that within eight years. That's why these cuts in economic activity are estimated here.

Our report on Kyoto simply says, look, even taking into account what the federal government is saying it's going to be doing by buying emissions credits, we're still going to be left with a 15% gap. If we close that simply by cutting economic production, that's what leads to 450,000 job losses in manufacturing.

Just as a litmus test, 1989 to 1991, manufacturing production fell by 15% and we actually saw 480,000 net job losses in the manufacturing sector. So I don't think that assumption is too far out of line.

There's a list of competitiveness concerns. I'm not going to talk about those, because John has already covered them.

I've included two graphs that I use in every presentation I give, which show, first of all, how cashflow, after-tax profits, drive investment activity in Canada--simply to make the point that if we're trying to encourage investment in new technology, don't make it more expensive for businesses to actually do business in Canada. Don't lower the rates of return on investment. Don't transfer investment in production outside this country. Offer incentives. Offer encouragement for further investments to be made.

If anybody thinks companies are not looking at their bottom line right now...it's the single way that many companies have of staying in business, particularly over the last couple of years as energy costs in Ontario, Alberta, and British Columbia have skyrocketed.

The other one is just simply a pretty good relationship between profits and unemployment, which I would show you anyway, regardless of the presentation that I was making, because I think it's a pretty good one.

¹ (1540)

Mr. Joseph Volpe: They're both in the same colour here. Which one is which?

Mr. Jayson Myers: I'm sorry about that. On the profit and job creation side, the after-tax profit margin is the one that has gone up recently and then has fallen.

Mr. Nick Discepola (Vaudreuil—Soulanges, Lib.): Let's start with the left-hand bar. Which one is the...?

Mr. Jayson Myers: On the left-hand side, the top one is the after-tax profit margin as a percent of GDP. The one starting at slightly under 8% is the unemployment rate.

So if anybody is looking at earnings on the TSE—called the TSX these days—take a look at the unemployment rate. You get a pretty good idea of what earnings expectations are for Canadian industry. It's a pretty close relationship. As you look at this every year, it's surprising how closely unemployment tracks profitability. The message here again is that it takes profitable companies to create jobs. This is why we should be looking at making it easier to do business in this country and making it easier for companies to expand and grow.

John has covered the federal plan. The large emitters approach, which certainly gives a lot of concern and uncertainty to industry, is a plan that seems to change on a daily basis when you're talking to officials at NRCan and Industry Canada. You never talk to anybody at Finance Canada, because they simply haven't been in the debate. But the plan seems to change regularly. There are huge questions and a lot of uncertainty about how much would actually be covered by this large emitters plan. There's a huge risk around the anticipated cost of buying international emissions permits. It's hugely complex. Nobody has looked at cost of compliance or the cost of putting in technology to track emissions. All of this is a part of a design. If you design something inefficiently, you're going to get ineffective outcomes.

What it really appears to be, as we've been frankly told by many officials in NRCan, is, “Don't worry if you can't go further in making investments in reducing greenhouse gas emissions, because you can buy your way out of it at $10 a tonne.” Frankly, if you can buy your way out of it at $10 a tonne in six to eight years, why would any company ever make any investment right now? The investment would probably be more than that if you were going to actually do something, going the 15% further to reduce greenhouse gas emissions the government is expecting industry to make.

First of all, as far as I can see, the federal economic assessment of all of this doesn't have any credibility. It assumes these measures will be implemented and assumes they will be effective. It's not too clear what these measures actually are, particularly on the consumer side. It says they're negligible costs and will therefore have negligible impacts on GDP. I don't think anybody accepts this. There isn't any account for compliance costs. There's no account for impacts on investment decisions. There's no account of where this money is coming from, and how it's going to be balanced against other objectives the government has, such as health care objectives. There's no estimate of costs for targeted measures, of how consumers are going to drive 10% less, or how we're going to get around by having 20% of households energy retrofitted.

As I say, it really doesn't have a lot of credibility among the groups who have fed in assessments of what the impact will be. What has come out of this kind of black box of the analysis of a modelling group is a economic model with nothing to say on these concerns of industry.

Just to sum up, supporting very much what John has already said, if the point here is to actually achieve real greenhouse gas emission reductions in Canada, then let's provide businesses and consumers with the incentives to do this. Let's talk first of all to consumers and engage them in saving energy. Let's provide the types of incentives we're looking at under the innovation strategy. Let's eliminate the capital tax. Let's accelerate depreciation of capital, because you have a lot of stranded assets there if you're trying to bring in new technology. So let's get these off the books. Let's take a look at investing in the commercialization of fuel cells, the Ballard fuel cells.

Where is all of the money going into the R and D here being commercialized? It's in Chicago and Japan, because their governments have actually invested in the commercialization part of it. So we are going to lose two ways. We're going to lose because our business costs are sky-high here, and we're going to lose out because the U.S. and Japan have already made significant investments in technology. They're going to be way ahead of us at the end of the game. What we're talking about—putting in place a strategy where we're buying emissions credits from Russia—makes absolutely no sense at all.

So I think there are lots of things we can do. Let's get a plan for transportation infrastructure—not only for urban infrastructure, but also for better roads. I drive from Guelph to Toronto every day, and I'm stuck idling in the parking lot called the 401. This makes no sense at all.

¹ (1545)

We need a strategy for transportation infrastructure in this country and we need dollars tied to real action to do something. There are many ways we can move ahead--we can inform consumers, we can provide tax credits for consumer investments in new appliances and so forth--but first of all, we need that debate. We need the consultation. We need to talk about what we can do and we need to do it constructively. The first thing we have to do, I think, is re-establish the trust that has been lost in this whole process of consultation.

Thank you.

The Chair: Thank you very much, Mr. Myers.

We'll now go over to Mr. Dave Bennett from the Canadian Labour Congress.

Mr. Bennett, if you please.

Mr. David Bennett (National Director, Health, Safety and Environment, Canadian Labour Congress): First of all, I have to apologize for the absence of the Canadian Labour Congress president, Ken Georgetti. As the committee will appreciate, there are two public issues of enormous importance going on right now. One is the Romanow report and the second is the Kyoto Protocol, so you'll understand that our president's time is very much taken up by both of the two issues.

I also have to apologize for the fact that in the CLC's submission, the acronym “LIEs” is used for “large industrial emitters”. To suggest that the basic position on Kyoto held by the business community is a lie is, of course, a slight exaggeration.

The Canadian Labour Congress strongly supports the early ratification and the implementation of Kyoto with just transition as an integral part of the implementation plan. We are pleased to be invited by the committee to address the issue of the impact of Kyoto on industry. For the purposes of this presentation we will deal briefly with three main topics: the relation of Kyoto to large industrial emitters, to small and medium-sized enterprises, and with employment impacts, including just transition for workers displaced by climate change measures. We'll also deal with emissions trading insofar as it relates to these three issues.

With regard to large industrial emitters, under the climate change plan for Canada the large industrial emitters covered are the coal, oil, and gas industries; mining, pulp and paper; the chemical industry; iron and steel; smelting and refining; and the cement, lime, and glass industries. These LIEs are to be responsible for 55 metric tonnes of the total of 240 metric tonnes of greenhouse gas emission reductions required of Canada through covenants with a regulatory backstop, plus emissions trading and cost-shared strategic investments. This part of the plan is reasonable.

Businesses are given total flexibility over their investment strategies for emission reductions, and where they decline to invest, they can trade. The relationship between the covenants and the domestic emissions trading scheme is, however, problematical. If the covenants result in something less than a strong, binding commitment, and if the cap on the emissions trading scheme is not restrictive enough, the emission targets will not be met. The least efficient and the most polluting industries will buy their way out of their commitments. An even worse idea would be for the government to buy international emission permits, because even if the permits were in turn sold rather than given away to Canadian business, this again is to buy the right to pollute to the detriment of productive investment.

The intractable nature of carbon dioxide as a pollutant means that emissions cannot be controlled at the end of the waste pipe or the smokestack. Greenhouse gases cannot be scrubbed out like acid gases. The only way they can be reduced by the LIEs is to change the ratio of product to emissions--i.e., to increase industrial efficiency by means of technology and process changes, the limiting case being the elimination of CO₂ by an entirely new process such as the alternative energy industries. Some CO₂ can be captured and sequestered, although this is an inefficient way of reducing emissions. The climate change plan for Canada proposes this for clean coal energy production, but this is hardly practical.

There is indirect evidence that this pollution prevention approach to greenhouse gas emissions is always a cost-effective, productive investment. This is the experience with the Massachusetts Toxics Use Reduction Act, 1989, where control, as opposed to prevention, measures are not allowed to count as toxics use reduction.

Extensive use by the New York pro-business NGO, INFORM, found that in all cases of pollution prevention ventures, the economic benefits of such efficiency measures outweighed the costs. Only the size of the investment and the payback time varied from case to case with lasting financial and environmental benefit. There is no reason to believe that the investments required to reduce emissions are a burden on industry. As usual, business has to be required to do the things that are in their own best interests with a barrage of business propaganda against the very things that benefit the industries concerned, as well as the economy and the environment.

WIth regard to small and medium-sized industries, as defined in the climate change plan, small and medium-sized enterprises will account for a relatively small part of the emissions reduction target. However, similar arguments apply as much to SMEs as to the LIEs. Part of the plan for SMEs involves practices to reduce flaring and venting of waste gases. All the other measures to be undertaken by SMEs concern energy efficiency and conservation. There is no case for saying that such measures are cost-ineffective or counter-productive, provided the investments are strategically planned and properly executed.

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On employment and just transition, the forecasts for GDP point to a 0.4% drop in GDP in 2010. In view of the economic activity to be generated by Kyoto through productive investments, energy efficiency measures, and the creation of entirely new industries, a forecast drop in GDP seems preposterous.

To the economic activities of the LIEs and the SMEs, we have to add the benefits of building retrofitting programs, the expansion of mass transit systems--which no doubt Jayson will make use of--and much more. So there is, on the contrary, a huge potential for the creation of new green jobs, for the benefit of both workers and industry.

Better modelling needs to be done before the government's forecast can be taken seriously, and the quality and composition of GDP has not been addressed. All the economic activity over Kyoto is constructive. No more end-of-pipe solutions, for example, nor people driving thirsty vehicles to work and freezing in the dark while at home.

The same applies to the employment projection of 60,000 net jobs forgone by 2010. The question of actual jobs gained and lost is not addressed at all. One projection by the labour movement forecasts 16,000 jobs gained in the wider energy sector, and 12,800 lost. That is why the labour movement has advocated a program of just transition for workers displaced by Kyoto, starting with the energy sector. It would involve alternative or continuing employment, maintenance of wages and benefits during the transition, and help with the costs of training and relocation.

In the House of Commons, the Minister of the Environment, the Honourable David Anderson, indicated he was prepared to work with labour on such a program through a joint labour-government committee to address the issues of transition and employment projections, to report in 90 days. This general idea is confirmed in the climate change plan for Canada, but it is disappointing when it says the full range of work or adjustments in skills training programs would apply. This is not the input of what the Honourable David Anderson stated in the House.

Both the labour movement and the minister took it that the Kyoto implementation would require mechanisms over and above existing adjustment and training programs. The statements over employment and just transition in the climate change plan are inadequate and not acceptable to the labour movement. Nonetheless, we take the minister at his word that he will come to grips with just transition, as a central part of the implementation of Kyoto.

The Chair: Thank you very much. We will now proceed to questioning.

I will begin with Mr. Rajotte.

Mr. James Rajotte (Edmonton Southwest, Canadian Alliance): Thank you, Mr. Chairman, and thank you, gentlemen, for coming in today for your presentations.

First of all, Mr. Myers, you mentioned that the government climate change plan has not been peer-reviewed. As you know, the government, or at least the Minister of the Environment, has completely rejected your modelling and your plan. So I'd just like you to comment on the modelling that is the background of the government plan, and what you think of that from an economist's point of view.

Mr. Jayson Myers: Well, as an economist, I know that you can construct economic models in any set of assumptions you want, and you can generate the type of outcome that you want. Therefore, it's extremely important to have economic models peer-reviewed.

That was certainly what Industry Canada did, just because that's what they always do in their publications. They send it out for peer review. This was written by academics, and it was peer-reviewed by leading econometricians.

For the analysis and modelling group, the economic modelling is largely based on a consultant's model. It's used quite often by groups that basically say, well, you can switch spending over here and allocate it over here, and it's absolutely not going to have any impact at all to the economy. Frankly, I think that's the type of assumption that should be questioned. Nevertheless, that's the model they use.

Our numbers have been criticized, but we based those numbers on a couple of things. We didn't base them on a model; we based them on, first of all, what our employers were telling us. Some of those employers were actually using the same consultant to come up with their figures. It's a little strange that the overall report doesn't take those other numbers into account.

Frankly, that 450,000 job loss is simply based on that relationship between economic growth and emissions and the need for technological change to close the gap between our current emissions level and what we would need in Kyoto. If you have a 15% gap...the federal government right now is looking at this emissions trading scheme for industry to close a 55-megatonne gap, but there's still 25% in a 60-megatonne gap left out there that nobody knows how to close.

We're just assuming that was a 15% gap, and if you're serious about reaching the Kyoto target, the only way you can do that is by cutting economic activity. If you cut industrial output by 15%, you end up with 450,000 job losses. That's a pretty straightforward calculation.

So that's where our numbers came from, and frankly, I'm not so sure we need more economic modelling. I think you can really come up with almost any number you want. I think we need some common-sense thinking about how business is done.

¹ (1555)

Mr. James Rajotte: The second thing I want to touch on is the whole issue of the investment climate. This was brought up with the issue of the report--whether it was sent to the Prime Minister or not--of the Investment Dealers Association of Canada. But it raises the general issue, though, of the investment climate.

I want you to comment on the fact of what the investment climate will be with the effects of Kyoto, but also on what I hear more and more from businesses and industry, the fact that there's no real implementation plan, and there's such uncertainty out there, which even the member from the Pembina Institute said yesterday, and this is what is causing the main concern with investors. So I'd like you to address that.

Have you seen any evidence, even up until now, of an investment climate chill caused by the fact that there is no real implementation plan?

Mr. Jayson Myers: Let me start off by saying--and I think John is pretty well versed on this as well--that, yes, uncertainty is a big issue, and it's not just around the implementation plan but also around the ratification decision. Because as soon as you ratify and commit Canada to reaching a particular target, then any company has to take on some contingencies and potential liabilities, and liabilities for stranded assets that could potentially rise from that.

So potentially, on a financial reporting level, you're already having an impact that might hit share prices because of expectations, but also this issue about uncertainty, just not knowing what is going to be done. Are we serious about doing this?

Frankly, it's fairly unrealistic to think that Canada will actually achieve its Kyoto target in eight years, so all of that really raises some questions about public policy as well as the expectations of what businesses will have to meet. Take a look at the oil patch right now, the oil sands. If you want to see a chill on investment, I think that's probably the best area to look at right now.

John, to you.

Mr. John Dillon: I guess the only other point I would add is that it's both the question of the uncertainty around the specific policy measures that are going to be brought forward and the costs associated with them. As Jayson has indicated, a lot of the assessments are based on questionable assumptions, a $10-a-tonne price for carbon when Environment Minister David Anderson is now saying we won't be buying any cheap Russian tonnes at that price. So what is the price that industry might have to pay?

I guess the other point is that when it comes to investment decisions and analysis, a lot of that is done outside the country, both the decisions and the analysis. Those people in New York, London, Tokyo, and elsewhere are not really capable of or interested in understanding the Canadian policy process. What they see is us making what they think to be a legally binding decision about ratification of the protocol and assuming that we intend to meet that target. Knowing how big a gap that is, they have to make some negative assumptions about what the impact is going to be on major energy-intensive industries.

º (1600)

Mr. James Rajotte: In terms of the impact on our export capabilities, have you done or seen any internal estimates as to what the impact of Kyoto has been or will be?

Mr. Jayson Myers: Again, the Industry Canada report does cover that. On page 14, table 5, you're looking at reductions. The Industry Canada report is unique in its analysis because they have actually gone out and talked to businesses, or at least listened to businesses, and they have said that when it comes to exports, we're price takers, we don't have the luxury of putting up prices if our costs go up, whereas maybe we can do that here in the domestic market a little bit more. I've taken that into account, but even then you're looking at reduction in exports of 21% in the iron and steel industry; 24% in the oil and gas industry; 25% in the aluminum industry in Canada; 55% from refined petroleum products; 16% in the chemical sector. These are pretty big reductions in the volume of exports from Canada.

Again, I would put more faith in the Industry Canada analysis than in any other analysis I've seen. Some will say, well, they're not using the up-to-date figures, but this is.... Unfortunately, they made the assumption that we would actually be serious about meeting the Kyoto target through domestic emissions reduction. That was their basic assumption here.

Mr. James Rajotte: I have one more question.

The Chair: A short one, please.

Mr. James Rajotte: Actually, Mr. Bennett, you may want to address this first.

We are taking it as a given that this will pass on Monday. The issue of ratification has almost been decided. This is more about implementation.

Yesterday we had a finance department economist who could not tell me whether the upcoming budget in February would deal with any of these issues and in what sense they were prioritizing these issues. In terms of retrofitting homes, are they going to apply a tax credit, a subsidy? How are they going to encourage people to drive a hybrid car? Are they going to have a tax credit or a subsidy? He gave us no answers, as a committee, on an implementation plan as to what they are doing in the upcoming budget, which is called for very much by those people who are in favour of Kyoto, which your organization is. I'd like you to comment on that. Does this concern you at all? The fact is the finance department, which will have to implement most of these fiscal measures, certainly as soon as possible, has no idea how it is going to do this.

Mr. David Bennett: I can't speak for the finance department, but in my experience the finance department has stood in the way of every progressive or alternative financial model--for example, what's called in environmental circles ecological fiscal reform. It's so deeply conservative and reactionary that if I were asking for financial change in this country, I would not even bother to consult with the Department of Finance, because they reject out of hand any and every proposal that's made to change the taxation regime to make it more efficacious and also more environmentally friendly.

On the matter of tax credits and subsidies, I'd like to point out very strongly that it has never been the position of the social democratic left or the environmental movement to say that it's up to the public or the government to pay for environmental change. You do get the suggestion that Kyoto will cost billions of dollars, with the assumption that the taxpayer has to pay. But if you look, for example, at the Toronto Atmospheric Fund, which is a small venture but the sort of venture that was quite rightly supported by Paul Martin in one of his budgets three or four years ago, you'll see that this fund is not a subsidy to consumers or the public. It's an investment fund whereby the investment made in environmental change, and in this case climate change measures, is expected to be paid back within a given time, depending on the nature and size of the investment. There is no evidence at all that this has been wasted investment or that it has been inefficient and so on.

How do you pay for retrofitting? This isn't a bewilderingly new idea. In the northern U.S., which is far, far ahead in its energy policy than Canada, what do you see? You see energy utilities advocating lower consumption of energy and still making a profit, with the executives in charge of the utilities being accused of being socialists, which is like being called a communist in the U.S.

But how do they do it? They make a calculation of what the energy need is for this household. Then that's costed. Then the cost of the energy retrofits is determined. So you get a relationship between projected energy costs and the cost of retrofitting. The energy bill stays at a given level, very often exactly the same level as before. Then the household progressively pays off the cost of retrofitting and insulation by the credits that are given on the tax bill.

º (1605)

Mr. James Rajotte: So the utility company pays the initial capital.

The Chair: Mr. Rajotte, I must start to cut you off.

Mr. James Rajotte: I'm just clarifying the answer.

The Chair: We need a short answer, then.

Mr. David Bennett: I'm not arguing about who pays for it. I'm saying that there is no net cost--

Mr. James Rajotte: I'm asking who does.

Mr. David Bennett: There's no net cost to anyone over the retrofitting program.

Mr. James Rajotte: Who pays the initial cost of retrofitting, the upfront capital cost?

Mr. David Bennett: The utility or the government.

The Chair: Mr. Volpe.

Mr. Joseph Volpe: Thank you very much, Mr. Chairman.

Gentlemen, thank you very much.

Let me apologize, Mr. Dillon, because I'm going to direct my questions to the other two, not having been here to hear the first part of your presentation. I don't mean to appear discourteous by ignoring you.

For Mr. Bennett, your answer reminded me of something we've heard over the course of the last several discussions on Kyoto, and I want to be put back on the right track. I had this impression that the Americans were bad guys. I really did. Yet you're not the first witness to appear before the committee who has spoken about the American initiatives in glowing terms. The Americans were required, if they were to sign on to Kyoto, to reduce their emissions by 7%. Yet it would appear that the Americans are unwilling to ratify Kyoto. In fact, they've said, we don't want to have anything to do with this. We're not going to ratify Kyoto. They've given a whole series of reasons. Whether or not they're legitimate, it's not my place to say. But I'm a little confused about why we point to the Americans as being progressive and innovators and leaders in the climate change movement but say that they're not the ones we want to emulate. We want to go beyond them. We need to sign on to Kyoto. I'm sure I'm missing something there, Mr. Bennett. What is it?

Mr. David Bennett: Does the chair mind an overtly political answer to this?

Mr. Joseph Volpe: Please.

The Chair: We make one once a month.

Mr. David Bennett: Okay.

The reason is that Canadians have a fundamental misapprehension about the United States. It's one thing to look at the Republican administration in Washington and the herd of major corporations who have pillaged not only their shareholders but the public interest, and who stand behind this move to say that Kyoto is an anathema to the U.S. and the U.S. public.

On the other hand, if you look at the state, local, and municipal levels and what Americans actually do and how they run their affairs, they are in many ways equal to, if not better than, their Canadian counterparts at the provincial and municipal levels. The sheer amount of energy, innovation, enterprise, and in some cases egalitarianism, is quite astonishing.

But if you get the picture of the U.S. that is painted in the media, the response of those Canadians who are gullible enough to believe it is that everything the United States does is terrible: it's anti-Canadian, anti-democratic, and anti-egalitarian. It's not socially just and so on. The reality is very different.

º (1610)

Mr. Joseph Volpe: Thank you, but I was really just referring to the perceptions relative to environmental issues, not to anything else.

The Chair: Mr. Dillon would like to add a comment on that, Mr. Volpe.

Mr. John Dillon: I appreciate the question, Mr. Volpe. I actually did address this briefly in my opening comments.

Mr. Joseph Volpe: I'll slap my wrists for not being here for that.

Mr. John Dillon: That's quite understandable. I just want to make the point that certainly in my organization, we don't think it's terribly productive either to demonize the United States on this. As I pointed out in my opening presentation, Environment Minister David Anderson has been suggesting exactly that in recent days: that the U.S., particularly at the state level, but certainly in some federal programs, is a leading player in taking climate change action. That's exactly our point: it is possible to do both. It is possible to find the best strategies, as Mr. Myers has suggested, to build economic success and technology improvement.

The U.S. at the federal level is investing massively in technology development and commercialization, as Jayson was saying. That's the direction we want to go. We think we need to because of our economic relationship with the United States, and because they will clearly be developing a lot of the technologies that will be critical to solving this issue over the longer term.

So it's very misleading to look only at a position at one time. The reality is there is real improvement there, and as we have been saying, it's possible to devise the best policies. Whether or not we ratify Kyoto is a different issue. Building the best climate change strategy for the country is the issue.

Mr. Joseph Volpe: Thank you, Mr. Dillon.

I have a very brief comment, and perhaps you can respond, but I don't mean to play on a small-P political basis.

Your presentation, listening to it and reading it, makes a particular assumption that those guys are basically wrong, and we could address any concerns about job losses by addressing a series of other assumptions. I refer here, for example, to a forecast that there would be wider gains, as opposed to losses. If we went into a just transition program for workers who were displaced, we would be okay.

Legislators have been down this road before. Here in Canada, for example, we have heard this argument, especially from Atlantic Canadians and Canadians in the more remote parts of the country. The question is, transition to which jobs, and where?

Mr. David Bennett: The particular projection is not a macro-projection about jobs foregone--i.e., jobs that would have been there but for Kyoto. The projections that we're talking about are actual gains and losses in jobs in the broader energy sector. The projections are that there is going to be a gain of about 16,000 jobs over 10 years and a loss of 12,800. The jobs, again, we are taking it, are going to be in the broader industry sector and what we are asking for is a just transition program that actually moves people to new jobs. Some of these jobs will not be in the same trades and activity. Some of them won't be with the same employer and some of them, as you say, will be in different parts of the country.

Let me give you one example that was a fantasy 10 years ago, when we were laughed at. We said, look, you can take coal miners out of the declining industry in Nova Scotia and have them building windmills. Ten years ago that was laughed at. Now we have a serious proposal that the workers in the Saint John dockyards could be employed in constructing the frames for windmills because they have both the trades and the equipment to be able to do that. In my view, it requires a different mentality, a different outlook, in human resource planning than we've had before. What it needs to do is address the friction between the fact that your job losses are here in this sort of job and the job gains are elsewhere in a different sort of job.

º (1615)

The Chair: Thank you, Mr. Volpe.

Mr. Joseph Volpe: You are cutting me off. I didn't mean to give an indication that I only wanted to ask questions of Mr. Bennett, but I guess you'll give me another round.

The Chair: I will.

Monsieur Crête.

[Translation]

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

First, I want to ask you a question that my son, who is in secondary IV, recently asked me. I would prefer a general answer. He asked me why we did not put as much effort into fixing the environment as we did crushing Adolf Hitler.

Do you not believe that environmental problems deserve as much attention as the fight for freedom got during World War II?

[English]

Mr. Jayson Myers: You're asking about the--

[Translation]

Mr. Paul Crête: I wonder if the effort required by the entire population, and namely industry, who is responsible for much of the pollution, should not be considered as an overall target. During World War II, if a two-year study of a plan was required to see, if in the end, victory would be ours, we would likely have lost the war.

Do you believe that the current environmental problems are as important as what we experienced during that period?

[English]

Mr. Jayson Myers: Clearly when you're looking at making investments and thriving as a business, you have to look at more than just the bottom line, although there are significant savings in making these investments in environmental technology and energy savings. Most companies do take a global approach. Alcan is one that is outstanding in looking at investments in the environment for all sorts of business-related reasons but that touch on the community as a whole.

That is extremely important. But for many businesses I agree with what Mr. Bennett had to say, that, especially among the smaller businesses, it's very difficult, when you're operating on a day-to-day basis, particularly as a small business when you can hardly afford your payroll, to start thinking, gee, if I took a look at a simple energy reduction scheme, I could be saving money here. The truth is, they could, but it's difficult when you're constrained in terms of resources and time and people as well as in money to do that.

There is a great deal of assistance. That's what we do. We assist small companies to improve their management and look at these. There are tremendous savings on environmental investments as well, and there are tremendous technologies here. Mr. Bennett is absolutely right that we can make sure that these become an important part to this technological solution, doing something for both the environment and the economy.

That's extremely important here. I don't think we should lose sight of it. The point is, how do we come up with a win-win for making progress on both the environment and the economy? It is possible, but I don't think you do that by trying to constrain economic growth. In fact, it's that approach--constraining economic growth--that is probably going to be counterproductive in the end to making progress on the environment.

[Translation]

Mr. Paul Crête: But is our current problem, Mr. Chair, not directly due to the fact that, for the past 50 or 60 years, we have being using a development model that only evaluates economic profitability without considering the impact on the environment and, consequently, on society?

Now, we have the choice of staying as we are and continuing to live in a polluted environment until the planet croaks, or of changing things. This is why I am asking you if, in your opinion, the planet's environmental problems are as important as the situation created by the Nazis was.

[English]

Mr. Jayson Myers: As an economist, I agree with you. I agree we don't know how to measure this. We don't know how to measure the value effect of environmental improvement. We don't do a good job in measuring economic value, either. I think we need to do much more in this field.

º (1620)

[Translation]

Mr. Paul Crête: Are there any other comments on this?

[English]

Mr. John Dillon: First of all, I guess I would say you have to look at this as the climate change problem. Then there are a whole range of other environmental issues. Some of them are very closely related; there's no question about that. The reality we are talking about to deal with climate change, with issues related to air pollution, consumption, and so on, is a significant change over decades. You're absolutely right about this. It is significant, or it is commensurate with the effort launched around the Second World War or with whatever particular national project you want to talk about.

With respect to greenhouse gases, we are talking about a phenomenon that's going to take place over 50 or 100 years. The solution has to come over this time. Whatever we do here in Canada is going to make only a small contribution. The world is only going to deal with this issue with totally new generations of technology, which will give us an enhanced quality of life here in Canada and in developing countries. But they will also significantly reduce the impact of our energy consumption and pollution.

[Translation]

Mr. Paul Crête: Should the most developed countries not be the ones contributing more as an example to the rest of the world? Even if Canada does not have a very sizeable population, it is internationally renowned, and this is one of the areas that Canada could develop.

Pain Without Gain: Canada's Kyoto Challenge is the title of the document I have here. In my opinion, the title is quite shocking because it implies that the status quo is acceptable, which I find rather surprising. On page 14 of the section on electricity, we read the following:

Achieving the Kyoto target would primarily affect coal-fired electricitygeneration. The cost of coal-fired thermalelectricity is expected to increase by 50%.

Should coal-fired electricity generation not be eliminated? In Beijing, I saw that this kills thousands of people. Should we, as a society, not be making these kinds of choices and paying the price?

[English]

Mr. John Dillon: It's not my document, so I don't know what you're referring to in particular. But with respect to emissions in China and developing countries, particularly relating to coal, this is exactly what we're talking about. China and India have huge populations. They need more energy and development of more energy to feed, clothe, and provide work and incomes for their people. As a global community, we have to find a much cleaner way to produce energy around the world.

We think Canada has some strengths in this area related to clean coal technology and carbon capture and storage, which we should be developing. There are a number of ideas coming forward that have to be part of our plan, because ultimately, it's not what Canada does but what we can contribute to what the world does.

The Chair: Mr. Myers, do you want to respond? I have to go to the next questioner.

Mr. Jayson Myers: One of the big uncertainties is whether the developing countries, which are becoming more and more important in terms of emissions, are going to be part of this second commitment period under the Kyoto Protocol. Whether they will is still a matter of uncertainty.

But I agree.... When I travelled to China recently, it took me two days to pick up a pretty bad case of bronchitis after I had run outside in Tianjin. It is one these places where you don't see the sun until noon because of the coal smoke.

This isn't necessarily an issue of air quality and smog, but there are tremendous opportunities to reduce emissions and to improve air quality. We have the technologies. I think this debate would be very, very different if, instead of talking about Kyoto ratification, we were talking about what we could do to promote global solutions from Canadian technology; talking about development financing initiatives that would assist Canadian companies moving into China; and talking about the potential for nuclear power and exports of nuclear energy. We don't talk about this here in Canada, but it is an alternative to fossil fuel production, and I think we need to debate this.

There are all sorts of solutions. I think we would be having a very different debate if we were actually talking about what can we do to promote these rather than about whether we should or shouldn't sign on to something that's probably going to be unrealistic in the long run.

The Chair: Thank you.

Mr. Marcil.

[Translation]

Mr. Serge Marcil (Beauharnois—Salaberry, Lib.): Hello. Thank you very much for appearing before this committee.

I am trying to draw the comparison with certain countries that have already ratified it. Did they ask themselves the same questions that we are asking in Canada, in terms of economic impact? If yes, why did they still sign it? Was it because they decided to go green?

This presumes an investment in new technologies and a change in the way things are done.

I have more of a background in education than in business. I also worked in Africa in the field of education. Today, the major industrialized countries, the World Bank and international development agencies working in education, as much CIDA as others, want to almost force developing countries to invest in education, because education is considered the answer to poverty and the impetus for economic development.

French-speaking Africa, even if the entire budget of each country went to education, will never manage to ensure an education for each child. The reason is simple: it is because the educational system they are attempting to fund is based on the system of the country that colonized them. It is a French system that in no way meets the needs of these African countries and that costs a fortune to maintain. So the solution to the education problem for French-speaking Africa would be to get rid of the French educational system and develop, like the English-speaking African countries have, educational systems that meet the needs of Africans.

These countries developed their own school system because British colonization of that era did not seek cultural assimilation; it was, instead, economic colonization. The British let the people organize themselves and, in most former British colonies, they developed educational systems that met their needs, meaning African educational systems and not European models that others sought to establish in Africa, as we see in francophone Africa now. So, the solution, which would be much cheaper, would be to reorganize education according to the needs of Africans.

I am making a certain analogy with our economic system, with our production system. I had another thought. To reach Kyoto targets, which are quite inflexible, should Canadian industry not totally change its production model? It is obvious that if we want to keep things the way they are, we will not be able to meet the targets.

º (1625)

[English]

Mr. John Dillon: I can give you a perspective on what I think was the first part of your question, about what other countries are doing and whether they are examining their ability to meet the target before they ratify. I'm not qualified, and we wouldn't have time, to go through this on a country-by-country basis, but let me offer you a couple of observations.

Number one, most of the countries that have ratified don't have targets. Of those that have targets, we're mostly talking about Europe and Japan. I would note there are several countries with economies similar to Canada—Australia, Norway, and New Zealand—who actually have better targets than we do. Even within the European Union, of course, they have their own specific arrangement where the burden is shared. Some countries in Europe are actually able to increase their emissions significantly, while taking credit or account of the reductions already achieved, in particular in Germany and the U.K., for historical reasons not really related to climate change.

Most of these countries in Europe have ratified. They have ratified as a community as well. With the possible exceptions of Germany, the U.K., and the Netherlands, I don't think they have gone through the kind of process we have. But at least in these three countries I'm aware of, they have a very complex process of agreements, negotiations, and discussions with their industries.

To read from the outside, you would think it was all hunky-dory. But from talking to people in the industry in these countries, I can tell you these are difficult discussions. They have significant questions about whether these particular countries will be able to meet their quite ambitious targets. Even though Germany has already reduced, because of the closure of inefficient industries in East Germany, with the reunification, the reality is that Germany has a very aggressive target. A number of German industries are worried about it. But they have had some analysis and some discussion. It varies greatly.

Quite frankly, I think other European countries have very generous targets. As far as I can tell, there's not much discussion at all about how they will meet those targets.

º (1630)

Mr. Jayson Myers: Maybe I could speak to the second point you raised, about the model we should be adopting here. I think it is important to realize that Canada comes at this with very special circumstances. A great deal of the emissions reduction in Europe was achieved, first of all, because of closure of outdated industrial production in eastern Germany and elsewhere in eastern Europe, and second, because of a great deal of switching away from thermal electricity to other forms of electricity generation.

In Canada we don't produce a lot of electricity through thermal generation. We're already fairly low, and our ability to make gains in emission reduction because of that is fairly limited. We're a pretty big country here. We don't have a lot of alternatives to driving cars, and we're a pretty cold country as well. There are all these things that would suggest that we should be adopting our own model and making progress--do what makes sense for Canada to actually achieve real greenhouse gas emission reduction--and building on what industry and what consumers are already doing. I think that's extremely important.

We have a lot to learn as well, mainly from the Europeans. My understanding is that the Japanese are not going to meet their Kyoto target either; although they ratified it, they're simply not going to meet the target. I think we have a lot to learn from both Japanese and European industry in terms of best practices and in terms of looking at energy savings, trying to maximize that and trying to generate cash from that to make investments in other productive technologies.

If we were not talking about the issue of Kyoto but about the issue of innovation and benchmarking ourselves against the best performance in the leading industrial economies of the world, including the United States, which tends to be, as Dave was saying, the leader in a lot of investment and productivity improvement, we'd see that Canada tends to rank at the bottom of the pack when it comes to investing in new technology, R and D, and commercialization. I think we have a lot to learn from the best practices in other industries and have a lot to do in trying to encourage the type of productive investment that's going to generate that economic and environmental win-win.

One of the pieces of analysis that was developed for the analysis and modelling group showed that you're really looking at a major investment in technology and that energy savings alone are not going to give you the return on investment any sector would be looking for in order to replace existing technology. The conclusion was that you would have to find some other gain through a productivity improvement elsewhere through an investment in new technology. Again, that's the type of investment we should be looking at here as we go forward. We need a Canadian model; do what's best here. We have a lot to learn from the rest of the world as well as to what works and what generates innovation.

The Chair: Mr. Proctor. Welcome to the industry committee.

Mr. Dick Proctor (Palliser, NDP): Thank you, Mr. Chair. I apologize for being a few minutes late.

I'll just pick up, Mr. Myers, on your last answer. You indicated that Canada was pretty much at the bottom of the pack when it came to innovation and research and development. I look at Kyoto and see some potential upsides for us in terms of technology and our ability to export new technology, so I'm just wondering what Canadian Manufacturers and Exporters has seen. We just indicated we're going to sign on to Kyoto, but Kyoto was signed back in 1997. Have you seen changes over the last five years in the industries that...?

Mr. Jayson Myers: Yes. We have a very vibrant environmental technology industry in Canada, and we have a lot of technology companies that are members of our association. We invest a lot in R and D and environmental technologies here too, and we're facing a real challenge in moving that investment in technology through to actual commercialization of product and getting the product onto the market.

º (1635)

Mr. Dick Proctor: And why is that?

Mr. Jayson Myers: To a large extent, that commercialization occurs where the money is, so you're looking at problems of a lack of venture capital. Why are Ballard fuel cells being commercialized and developed for urban transportation vehicles in Chicago? It's because the City of Chicago invested major dollars in its procurement policies in order to become the world leader in urban transportation vehicles using fuel cells. There's no municipality in Canada that is taking that sort of leadership role. The State of Michigan's objective is to become the world leader in fuel cell development so they can work with the automotive industry.

The development, the commercialization, is going to occur where the money is. We aren't all that good on either the private side or the public side in making some of these strategic investments. There are some regulatory reasons and some tax reasons behind that, and there are reasons in that we don't have the capital pools here.

One of the very good suggestions I've heard is, let's take a look at creating some capital pools that will focus on investment in very lucrative technologies. To make some improvement there, let's take a look at the formation of a capital pool that will assist companies in selling technologies into developing countries such as China. But we don't seem to get our act together there and I think we are falling way behind. We've been talking about this for five years. In fact, CIDA's been talking about a development financing institute now for 25 years, and we still don't have our act together to do it.

There are lots of things. We should, instead of talking about ratifying this international agreement, really be focusing on what it takes to build up the capital pools to help commercialization, to transfer university research to the private sector, and to strengthen the ability of the private sector to take on that technology. Right now what happens is that the technology is developed here, we do all sorts of great R and D and all sorts of investment in universities, and all the benefits go to the Untied States, Japan, or Europe. To me, that's not a very good sign of an innovation strategy at work.

Mr. Dick Proctor: Thanks.

Mr. Bennett, you indicated or alluded to some difficulties around the just transition program you're advocating, and I think your affiliate, the Communications, Energy and Paperworkers Union, has promoted it. You seem to have a commitment from the Minister of the Environment. Could you just elaborate on what the reality is there?

Mr. David Bennett: It's taken 10 years for the labour movement to get just transition for workers during environmental change onto the political agenda, and now we've certainly done that. As you said, there were a number of unions, particularly the Communications, Energy and Paperworkers Union, that pushed this in federal government departments and with the minister himself, the Honourable David Anderson.

The first thing to come out of it was statements in the House by David Anderson commending the president of the CLC, Ken Georgetti, and the president of the CEP, Brian Payne, for having brought to public attention the issues of workers who will lose their jobs as a result of effective climate change measures. In the House the minister promised a program of just transition that would address all of the issues like continuing employment, alternative employment, maintenance of wages and benefits, and help with relocation and retraining. He said the government would address those issues and that the labour movement would play a part in the implementation of Kyoto and in the just transition aspects in particular.

We then had a meeting with the minister--that is, CLC affiliates had a meeting with the minister--in Toronto on November 14 in which he confirmed this approach. He said he was going to set up a joint labour-government committee to look at just transitions and the real employment projections, as opposed to the fantasies that we've heard discussed today, and that this committee would report to him and his fellow minister, Honourable Herb Dhaliwal, in 90 days. We've already begun discussions on employment projections and we're expecting any day now this joint committee to be set up.

The disappointing thing was that in the climate change plan for Canada the idea of just transition was downplayed. It was mentioned only once and it was suggested that in fact if there were problems about transition they would be handled under the present mechanisms for retraining and compensation that the federal government already has. I'd like to stress that this is not what the minister said. It was not the understanding between the minister and the labour movement, and we are expecting the issue of a just transition program, and of employment projections, to be addressed in a serious way, in a committed way, and one that we hope will produce some positive results. We're confident that's what the minister will do.

There are pressures, if you like, within the government to downplay this issue, and, I appreciate, that's politics. What we're saying is the minister has made a commitment, which is to his credit. He didn't promise results, but he promised to make a commitment and we take him at his word. In the first 90 days we'll see whether there are going to be some tangible results from it.

º (1640)

The Chair: Thank you very much.

Thank you, Mr. Proctor.

Now we'll go to Mr. Savoy.

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

Welcome, gentlemen, to the industry committee.

I didn't get to see your presentation. I apologize for being late, but I understand from your comments to some of the questions that you perceive the targets in Kyoto of 6% below 1990 by 2012 to be very strict, but international scientists--in fact, 1,800 international scientists on the Intergovernmental Panel on Climate Change--recommended a 60% reduction in CO₂ emissions. What we're doing here, 6% below 1990 levels, is not a great jump.

If we understand the length that we have to go to in addressing climate change, the steps we are taking with Kyoto are very minor. So I have some concerns that Kyoto is seen as a huge move on CO₂ reductions and in the climate change realm in general.

If we were to put forward a hypothetical situation where we said we wanted to make climate change an issue, and CO₂ an issue, and we want to partner with industry, and all levels of government, and NGOs and labour groups, and we'd like your input in making a modest reduction in CO₂and greenhouse gas emissions over a 10-year period, what would your response be?

Mr. John Dillon: Thank you. It is unfortunate that you missed our presentations, but here are a couple of quick responses.

First, on the modest size of the target, we're here because our constituency believes this is an issue that has to be addressed over the long term. Whether it's a 50% reduction worldwide, or 60%, or 75%, I don't know, and I'm not qualified to answer. The reality is that this is a 75- or 100-year problem, as I said earlier.

The only possible way that the world--not Canada, the world--is going to make reductions of 50% and 60% of greenhouse gas emissions is by radically changing the way we use energy and a whole new generation of technology.

What we're saying is--and Jayson has the chart in there that shows you exactly how profits correspond with investments in technology--let's make sure our businesses, our industries, can invest in those technologies that really do pay off, and make those reductions over the longer term.

Mr. Andy Savoy: Anything else?

Mr. Jayson Myers: Just to your point about whether we are willing to sit down and do something, again I'd point out that industry has already been doing a lot to become more energy efficient, to reduce emissions--in the oil sands, an improvement of 60% in energy efficiency offset by the fact that demand for petroleum from the oil sands is growing. If you're going to offset that demand and growth, then the type of technology that the oil sands are working toward is pretty revolutionary technology. It's not just a matter of coming up with the technology. It's also a matter of making it commercially viable.

Nissan has, just this past week, come out with a fuel cell car. They are producing 30 of these. The cost of the car is 40 times the cost of a similar car powered by gas. So it's going to take time to make that commercially viable.

John is right; we're looking beyond an arbitrary timeline of 2010. The technologies may exist out there to take us and get those revolutionary improvements, but it's going to take long-term investment and long-term strategy.

That's where the uncertainty and problems come in, in trying to do something very short term. If we're serious about getting to the Kyoto target--there are other ways of buying our way out of this, but if we're actually serious--that's where the uncertainty and the concerns of industry come in, because I don't think that is realistic within an eight-year time period.

But to your other point, about whether we're willing to sit down, to the extent that we've been invited to the table, we've been talking with people from the government almost non-stop over not just the last five years but since 1997. Ever since Rio, when we were talking about stabilization of greenhouse gases, we've always been there. We've been taking an active part in Natural Resources Canada's industry program for energy conservation, the voluntary challenge registry. A lot of people say that doesn't have any impact, but when you look at the numbers of the energy efficiency improvements that companies have been making on a voluntary basis, you totally get another view of that.

So of course we're talking all the time, and hopefully in a constructive way. I think what we want to make sure is that the debate is constructive and that we're generating solutions here and not coming back to the idea that the only other way around this is simply by cutting economic activity, because that doesn't get us anywhere--and David, frankly, if that is the option, that's what's going to generate a lot more job losses than you're looking at.

º (1645)

Mr. Andy Savoy: I would like to follow this up, if I can.

Do you want to comment, David?

Mr. David Bennett: If I can.

Mr. Andy Savoy: Yes, certainly.

Mr. David Bennett: The business position over Co₂ reductions for heavy industry is based on the notion of reducing the energy intensity of production, and it sees investments in energy intensity as being counterproductive, which I think is simply wrong. But also it really means that the industry, far from disagreeing with the Kyoto targets, is actually saying we don't care about targets at all because energy intensity will take care of it. Whereas the reality is you can decrease the energy intensity of an industry, but if you increase the number of sources, then your gains are wiped out and any target you have is wiped out.

What you have to do is, yes, you must do the energy intensity exercise, but you also have to create your other sources. If you want to replace the production losses, you have to replace those by an alternative that produces far less Co₂, mainly the renewable energy industries. I despair of economists and responsible business people who say, well, there's this huge amount of economic activity, but somehow GDP is going to go down and job losses are going to be astronomical. They never care about job losses unless the job losses are an equal indication of their own predicament.

I simply don't understand where business is coming from. I think it's because they lose political control of the business agenda. They have to surrender it to the government, to the public, and so on, and they don't like being told what to do.

º (1650)

The Chair: Very short, and a very short answer.

Mr. Andy Savoy: Very quickly, then, looking objectively--I'm an engineer and I have a business background--what I see is us setting a very modest goal saying that we're going to reach that goal and we're going to commit to it internationally, and we want to solicit the support in the implementation plan in developing an implementation plan of all the stakeholders. I don't see what's wrong with that process. Can you comment on the process that I've just described?

Mr. John Dillon: I agree with Mr. Rajotte, I'm not sure exactly what processes we're going to implement.

Mr. Andy Savoy: Do you think we're going to move forward without consultation in the implementation of this?

Mr. John Dillon: Let me be clear. You keep describing a modest target. What we've been trying to say is this is a 30% reduction, not just for business, but for every Canadian over a very short period of time. It's not just about investments that Canadian business has to make in the technology that reduces its emissions. It's about investments that Canadians have to make in changing and reducing.

The government says it wants every Canadian to reduce by 20%. I guess they're going to buy the rest internationally. I'm not sure how we get there. But the reality is how are we, as Canadians, as a society--with a growing population, with people buying bigger cars, building bigger houses, driving more--going to reduce our emissions, and where are Canadians going to make those investments?

Let's face it; if individual Canadians have to reduce on energy consumption by 20%, or whatever the government decides the target is, that means investing, not just in caulking your windows and installing programmable thermostats, but in appliances that cost $1,500 apiece, new furnaces that cost $3,000 apiece, new windows for your home that could cost $5,000 or $8,000. Those are all expensive things that individuals have to invest in. That's what we're talking about. We need to have a process and a discussion about how we're going to do those things. We haven't had it yet.

The Chair: Thank you very much.

I'm going to go to Mr. Fitzpatrick. I have to remind you it's around six-minute intervals, so be short in your question, and I'm sure the witnesses will be very short in their answers.

Mr. Brian Fitzpatrick (Prince Albert, Canadian Alliance): Some of these questions are difficult, Mr. Chair, so I want to make sure I get them right.

The model on making forecasts on a model, I would submit, is a dismal science. Nortel Networks could probably verify that. Certainly, the Auditor General on the firearms registration could verify it. My investment portfolio would probably say that the model I'm using needs some adaptation as well. So in a lot of ways this is a crapshoot.

I'm really concerned about two things that I think are missing in the model, and I want to bring them up. How much government does Kyoto mean for Canada? There's the trade relationship with the United States, which I don't want to de-emphasize here. A whole bunch of nations are going to sign on to the Kyoto Protocol, but the Americans are going to be out of it. Nobody in their right mind can tell me that 10 years from now, if this thing unfolds and the U.S. exports into those markets, there aren't going to be trade repercussions from that. We're not part of the European Community. Our trade with them is very minor. Our trade is with the Americans. We're buying into something that hooks us up with an economic system we don't do much trade with. We're getting hooked into a process that's going to be difficult to get out of.

I read the Kyoto Protocol this morning. I thought I'd make a point of it. By 2005 we have to start making demonstrable progress. It says that greenhouse gas emissions and removal of sinks shall be reported and verifiable by 2005, not 2012. Article 13 refers to certified emissions reductions. Somebody has to certify that. Article 5 says that each party shall have in place, no later than one year prior to the start of the first commitment period, a national system for estimating CO₂ emissions. Article 6, paragraph 2, says that verification procedures have to be in place for that. Article 7 says that we must do an annual inventory and submit it to a conference. Article 7, paragraph 2, says that we must demonstrate compliance with this. Article 8 sets up United Nations expert panels, which start doing audits in our country by 2005, if I'm interpreting this thing correctly, to verify that we're doing these things. Article 10 requires programs to approve the data and the models we're using, and article 11 says that we need clean development mechanisms established in Canada.

I cannot see all of these things being accomplished without a whole lot of government. I'm just going to remind people that's not a minor point. I heard people say back in 1995 that the firearms registration was a slam dunk and that it wouldn't involve much government and much money. We know where that has gotten us. A few years back the President of the United States said that the era of big government was over. I'm not so sure. It's coming back.

We can have a big public sector involvement in this thing and a huge problem with our major trading partner, the United States. Have any of these economic models considered these factors? And what are the costs?

º (1655)

The Chair: Those were four questions. Now you'll have a chance to answer those questions.

Mr. Jayson Myers: Very quickly, I think you are right on in terms of looking at the bureaucratic structure. Some of the economic models do look at that and the buildup of public employees that would be necessary to run this and say that's where some of the job gains are actually coming from. What is missing is a good model about where the money comes from for all of this. That isn't taken into account. What's missing is the compliance cost, the cost of the paper work, monitoring, reporting, and building up that bureaucratic infrastructure. So in short, no, that isn't taken into account.

Mr. Brian Fitzpatrick: Mr. Dillon.

Mr. John Dillon: First of all, I'm glad to hear that there's someone besides me who takes the Kyoto Protocol to bed with them at night to read.

There is a UN bureaucracy that's being set up. But the reality is that we do have to report, and we do have systems already in place at Environment Canada to report on our inventory of emissions. It's not a small task by any means, but that is underway.

I think that the bigger burden, and the unknown part of it, is very much on the side of the consumer measures. We'll have some kind of bureaucracy, and one is being set up today, to deal with the industrial emissions. But the real issue, I think, in terms of government is expenses on the consumer side. Not only are we going to have to set up a number of people to administer those programs, but we're going to have to either regulate people, which I don't think we will do, or give out a number of generous government incentives to stimulate the kinds of activities we've been talking about.

The Chair: Mr. Bennett.

Mr. David Bennett: Yes there's always a danger that big bureaucracies are going to be set up to resolve a simple problem. As one brief example, we already have a program, the national pollutant release inventory, to which all of the large industrial emitters have to conform, because under the terms of the inventory, they count as polluters. It would be a very simple thing, simply to add carbon dioxide to the list of pollutants.

But it's business that's standing in the way of this, because it's business that opposes this very simple way of measuring emissions from large emitters. And how do they do it? They already do it in their enterprises and they do it by something--and this would appeal to an engineer--called a mass balance calculation. It's not people going out with buckets and thermometers and so on. It's a very simple engineering calculation. To pretend that this is a great burden on business, I think, is quite frankly ridiculous.

The Chair: Mr. St. Denis.

Mr. Brent St. Denis (Algoma—Manitoulin, Lib.): Just a clarification on this document here, Mr. Myers, on page 12 under U.S. initiatives, it mentions that the U.S. is committing to cutting greenhouse gas intensity by 18% over the next 10 years. What is the base year? I looked but I may have missed it. Obviously it's not the 1990 base year.

» (1700)

Mr. Jayson Myers: No, that was based on President Bush's initiative and the announcements that were made this February.

Mr. Brent St. Denis: But 18% of current.

Mr. Jayson Myers: Yes, 2002.

Mr. Brent St. Denis: Of 2002. Okay.

Mr. John Dillon: It may be a 2000 baseline.

Mr. Brent St. Denis: Do you know how that figure relates to the 8% cut over 1990 that they had originally agreed to?

Mr. Nick Discepola: If you read on a few sentences there, it says 2002.

Mr. Brent St. Denis: How does that 18% compare to the minus, the cut of 8% that they had committed to when they had originally agreed to ratify? Do you have any idea? I'm sorry, minus 7%.

I wonder if that 18% cut equates to 2% of the 7% or 3%. Or you're not sure....

Mr. John Dillon: Compared to a 7% reduction from 1990 levels, it's definitely on the plus side. That would move their total absolute emissions to significantly above 1990 levels, but I can't give you the exact number.

Mr. Brent St. Denis: Okay.

The Chair: Do you have access to that type of information to answer that question?

Mr. Brent St. Denis: I would simply like to reconcile the 18% based on 2002, which my colleague has pointed out is right here. A simple reconciliation of that to the minus 7% cut on the 1990 would be helpful.

Mr. Jayson Myers: We can do that. But you can figure it out; if you're looking at a 2% increase in U.S. GDP per year, you're going to come up with about a 45% growth rate in economic activity. An 18% cut from that would bring you down to about a 32% increase over existing levels over the next 20 years. I'm not sure what it would be in 2010. But you're looking at a significant increase. Over a 20-year period, you're only cutting it by.... You're going to still be increasing your emissions by about 2% per year.

Mr. Brent St. Denis: It probably would be fairly easy to map one number on the other.

What I'd like to ask, though, is this. Much has been made by the Alberta government and particularly by the petroleum industry and other industries about a made-in-Canada solution. I think my friend, Mr. Savoy, was getting at that. Further to that, I'm wondering if it would be possible for one or all three of you to characterize the main differences between the made-in-Canada as seen by...other than government. Mr. Chrétien talks about the government solution being made in Canada as well. Obviously there are two made-in-Canada scenarios.

I'm wondering if the industry/Alberta scenario could be generally painted out in relation to what you see in the government's initiative.

Mr. John Dillon: Let me make an attempt at that. I think several groups, including the Alberta government, have talked about a made-in-Canada solution. And they're not all the same, so it's not easy to say this is the Kyoto plan--

» (1705)

Mr. Brent St. Denis: There are several made-in-Canada solutions.

Mr. John Dillon: There are probably several made-in-Canadas. Arguably, it's not even that helpful any more to talk about a made-in-Canada plan, since it appears the federal government has adopted that terminology as well.

I saw a piece on the CBC that suggested the term actually originated in 1997 with the Honourable Preston Manning, but I don't know that for a fact.

In any event, the reality is that the approach we talk about is something that, as indicated, is based on emissions intensity, but it's really based on not saying that we have an arbitrary target, which was developed in 1997 on the basis of what other countries agreed to, and in particular what the United States agreed to, and therefore we felt obliged to be somewhere near that. And that wasn't based on any analysis of what was actually achievable. So we're talking about a process that says let's figure out what is achievable, what does make sense, what is a stretch for sectors of the economy to deal with, and build that up into a made-in-Canada plan.

We can't, as industry, suggest what others should do. What we have said is that the major sectors want to sit down and negotiate what those performance targets should be for their sector based on what the technology capability is, what the performance of the industry is, what the economic situation of the industry is, and are the technologies available today or are there some that might be in the pipeline that would be really applicable in five to ten years from now, and develop that jointly with governments, federal and provincial.

We certainly can't set a target for the country because we can't say, as business, this is what consumers have to contribute, this is what industry and farmers have to contribute. We say that should be developed with those groups.

Mr. Jayson Myers: I'd make the point that ministers Rock and Stewart just played host to our national innovation summit in Toronto last week. The focus was, what can we do to commercialize technology, promote investment in new technology, and promote capital turnover? These are exactly the issues we should be talking about here.

I think part of that made-in-Canada solution should be, let's put more emphasis on the innovation side, let's put more emphasis on the investment in urban infrastructure side. On the consumer part of things, let's engage the public in talking about what everybody can do. I think that has not been done.

Throughout these consultations we've had consultations with Industry Canada, we've had consultations with Environment Canada and Natural Resources Canada. Finance Canada has never been at the table, has never been engaged in talking about putting either the money or the financial resources behind us. If we're going to go through a meaningful process of consultation, I think that's a pretty important part of it at the end, even to give some certainty that this is a priority for the budget.

The Chair: Thank you.

Mr. Bennett, did you have something to say?

Mr. David Bennett: Yes. Very briefly, this whole concept of a made-in-Canada solution to climate change is riddled with mythology and deceit. Any program Canada adopts will be a made-in-Canada solution simply because the Kyoto Protocol is entirely open as to how you achieve these emission reductions. All solutions are made-in-Canada solutions. No one plan is a made-in-Canada solution vis-à-vis another solution because all that Kyoto does is lay down targets. It lays down some rules about how you count emissions, but it doesn't say how you have to meet this target.

There are three routes that are specifically permitted by Kyoto. One is international emissions trading. The second is the clean development mechanism whereby Canada can claim credits for developments in non-annex one countries. The third is joint implementation whereby we can share our reduction targets with other annex one countries.

The whole debate about a made-in-Canada solution really is pernicious. We ought to get away from this whole debate because it's meaningless and it does not relate to Kyoto. When people say they want a made-in-Canada solution, what they really want to say is they don't like the Kyoto Protocol and they don't like the targets. If that's the case, let them say so.

The Chair: Mr. Myers, please comment.

Mr. Jayson Myers: If we're talking about an approach, a plan, we also have to be talking about doing something, about real action. In 1998 we were partnering with the Chilean industry organization to register investments in reforestation and forest sinks. We could not do that here in Canada because there was no registry set up. They were registered in the United States.

Canadian companies are one of the largest investors in emission credits through their investments in things like sinks and land use activities. They don't do that here in Canada, they do it in the United States. We have companies going to the Netherlands to take advantage of investment pools that have been set up in that country. They don't do it in Canada because we don't have that. That's a part of this, let alone all the issues around commercialization of technology, things we're not doing to take full advantage of the technologies we're producing here.

A part of this is, let's do something that is actually constructive for a change, and let's make sure that it's part of the innovation strategy. Let's make sure that it actually leads to a real greenhouse gas emission strategy rather than coming up with some scheme to buy our way out of an obligation.

The Chair: Mr. Discepola.

» (1710)

Mr. Nick Discepola: Thank you, Mr. Chair.

Mr. Myers, I'd like you to clarify several things for me. It came up several times and I just want to make sure that I heard it correctly.

We have Mr. Savoy here saying that the targets are minimal and that we should probably be increasing them. I think I heard you say a couple of times in response to some questions that you don't even think we're going to be able to meet the targets as they are. Is that correct?

Mr. Jayson Myers: That's right.

Mr. Nick Discepola: Do you firmly believe that? Is your industry just going to accept that and say that you can't meet it? What repercussion does that have for Canada if we ratify an agreement the industries you represent don't even believe we're going to meet?

I would like you to answer that, and the other thing that struck me was that you made a comment that to me is fundamental. You said that we had to rebuild the trust that has been lost in this whole debate. That speaks volumes to me, so I'd like you to elaborate on both, please.

Mr. Jayson Myers: First of all, about the targets, as I was trying to point at the beginning of my presentation here, industry has been making considerable gains in actual emission reduction through energy efficiency improvements in reducing the carbon intensity of their emissions. Industry is going to continue to do that, largely because it makes really good business sense to do it--namely, saving money on energy and investing in new technologies to get ahead of the game in productivity. That all makes tremendous sense to industry. There are a lot of things we can do to encourage that, and industry will continue to go along those lines.

My point is that the major, overriding concern on industry's part is that we are facing some pretty hefty targets here, ones that are probably unrealistic. Either the target is unrealistic within an eight- to ten-year timeframe, or the timeframe is unrealistic for achieving those targets. That is the substance of our Kyoto problem right now.

Mr. Nick Discepola: What do you base that on?

Mr. Jayson Myers: Well, going to this relationship between economic growth and the progress that we're already making, what I was trying to say here was that some significant progress in making these investments in technology, in making progress in energy efficiency and in reducing carbon intensity, and for manufacturing, actually achieving a 2% reduction in greenhouse gas emissions since 1990 is something that's usually left off the discussion, but it's something that is extremely important.

The problem is, even with all of that going on, Canada's emissions gap is still going to be 240 megatonnes. It's going to be 40% above our Kyoto target, even with the progress that we're making.

To expect us to do something that will, as John was saying, deliver a 30% cut in emissions, we're going to be using 30% less energy--hear fossil fuel energy--over the next eight years to achieve this target. I think that's where the real doubts are.

If there is something in the plan somewhere that says, here are the actions that we can take to accelerate technological progress--we're going to eliminate capital taxes, we're going to streamline regulatory approvals, we're going to make sure that we're investing in procurement and the commercialization of technologies, we're going to fast-track nuclear energy in this country, we're going to fast-track investment in fuel cells--then maybe we'd have a chance of actually coming a little closer to that Kyoto target. But we haven't seen anything like that in the implementation plans, so why would industry have any assurance at all that it's going to be, well, you can double business as usual? That's a big stretch in eight years, but when you're looking at accelerating technological progress by 800% per year over the next eight years, that's where industry is a little sceptical, and that's where a lot of the uncertainty comes up.

On the issue of rebuilding trust, I think industry and a lot of groups--environmental groups, labour groups--were very much involved in a process of consultation with government around how we would come to what measures should be adopted that would actually lead to real greenhouse gas emission reductions in Canada. We've been involved from 1998 to 2000. What has really broken down--in my view, anyway, and John may have another view--is that over the last year, where maybe there's consultation, there has not been a lot of listening. What has come out of this seems to be a one-track plan to ratify and a series of changes in plans that actually have gone against a lot of the recommendations that not just business groups, but consumer groups and others have made to the government about implementation.

As a result of that, there have been real questions of credibility, certainly around the economic modelling, and as I say, a real lack of trust in terms of what the government is up to.

Mr. Nick Discepola: You're running too long for me to have another question.

» (1715)

The Chair: Mr. Bennett, I'm sure, will try to be short.

Mr. David Bennett: Yes, I will be short.

On the question of trust, I think it's too big an issue to deal with here.

Mr. Nick Discepola: Keep it apolitical, maybe.

Mr. David Bennett: Okay, that will make it even shorter.

Look, if we have a national project here, which Kyoto commits us to, the best chance we have of both economic progress and meeting the Kyoto targets is to ratify and then go about the serious business of implementing this program, to do it as effectively as we possibly can, because if we say, sorry, this is not for Canada, it's no good, we will be left with a whole lot of voluntary and well-meaning programs. We know from experience that voluntary programs are less effective at the level of the company and at the level of the individual consumer than a national project that involves targets, regulations, the direction of investment, consumer pressure in requiring consumers to buy energy-efficient appliances, and so on.

The best guarantee of us making a serious inroad into these Kyoto targets is actually ratifying and then implementing the protocol. The alternative doesn't work.

The Chair: I apologize, but the bells are ringing.

Mr. Dillon, if you could, please answer.

Mr. John Dillon: I just have a couple of quick points in response to Mr. Discepola's question.

First of all, Jayson has described to you very eloquently the difficulties of the target from a business perspective, but this is a national target. The reason we think it's difficult is that we don't see any evidence that the government has a plan to reduce consumer emissions by 30%, and who's going to pay for the programs, as I said earlier, to do that?

The other problem, a fundamental one that does get to this issue of trust, is the fact that much of the jurisdiction to implement this is in provincial hands. Right now we have eight out of ten provinces who say they have major problems with the federal implementation plan. There's a whole question of trust and rebuilding the process on the federal-provincial side.

The Chair: Mr. Rajotte.

Mr. James Rajotte: I'd like to ask about the international emissions trading credits. There's a lot of confusion as to how exactly the system would work--there are different figures given, $10 per tonne up to $50 per tonne--and what the price would be. I'd like you to just briefly comment on that.

One of the concerns that has been raised, obviously, is about purchasing credits from a nation like Russia and then not using this for clean air technology or whatever. In the latest climate change plan the government insists that if they buy a credit from Russia, they can guarantee that it will be used for clear air technology. Now, how exactly can you guarantee that? Can that be guaranteed in some sort of trading system?

Mr. John Dillon: I'll make an attempt at that, Mr. Rajotte.

First of all, I think it's important to point out that we have international emissions trading in the Kyoto Protocol largely because the United States insisted on having it, yet now the United States is no longer part of this.

All the cost estimates the government and others have developed, the low-cost estimates in particular, are based on the assumption that the supply of those credits will for the most part be coming from Russia and eastern Europe because their economies have collapsed since 1990. They have all these excess credits because they were given generous targets. Because the U.S. is no longer in and won't be buying those credits, the supply of credits from those countries will equal the demand from Canada, Japan, and those countries in Europe that can't meet their targets.

A critical assumption everyone suggests is that the price of carbon will be $10 Canadian a tonne or less. We have no idea whether that's a good assumption or not. The reality is, there is no market, and the market that would develop under the Kyoto Protocol would be vastly different from any of the experimental trades that are going on today.

The second point is, why would the Russians sell off all their so-called hot air credits at a low price? If they are going to control the market, surely they already have Harvard economists over there telling them how to control that market. As to the idea that it'll all be available at a low price, there are serious questions about that.

On the last point, as I mentioned earlier, Mr. Anderson has said that Canada will not buy hot air credits from Russia. I'm not quite sure what he means by that. The plan talks about the federal government buying as much as 10 million tonnes. I don't know if he's saying only that the federal government would not buy hot air credits from Russia or that they would try to prevent the business community from doing so if we get into that emissions trading regime.

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Mr. James Rajotte: The plan, as I read it, says they would, but only if they got a guarantee it would be used for clean air technology. Yet I don't know how you can guarantee that when you buy a credit.

Mr. John Dillon: We may attempt to, and again, if the government chooses to invest taxpayers' money in buying those credits as part of our overall objective, that's one issue. The government will have to satisfy itself and the Auditor General that it's done a good job. If they're going to try to prevent the business community...if they're going to impose obligations on the business community but then try to control what we can buy, I don't see how that would be possible in the market.

So, yes, it may be possible for the Government of Canada to sign a deal with the Government of Russia that says, we will buy a certain number of tonnes from you, but in return we want proof that the money we sent you has in turn been reinvested in other projects that improve efficiency and reduce emissions in Russia. That would be an intergovernmental agreement; I imagine they could do that if they wanted to, and it could be satisfactory.

The question for us as business people is whether they'll try to restrict the ability of business, because what that does is to raise the cost significantly beyond $10 a tonne.

The Chair: Mr. Bagnell, I'm going to allow you to have one question, and maybe the witnesses can combine answers.

Mr. Larry Bagnell (Yukon, Lib.): I just have one short question for Mr. Myers.

Have you done any study of the business that might be made, especially export business, from energy efficiency machinery and processes and vehicles and stuff? Obviously, we're going to be kick-starting some of those things before, say, the United States or some other countries do it, and because we'll be ahead of the game on what everyone else is eventually going to do, we might be able to sell some of those things.

Mr. Jayson Myers: Yes, we have, actually, and that was part of looking at the job numbers here.

Keep in mind that the environmental industries in Canada employ about 65,000 people, and there is considerable opportunity there. I think the key, though, will be to encourage the investments to be made by Canadian industries so they've got the customers actually buying the technologies in Canada. The key is also going to be let's make sure that those technologies, although they're developed in Canada, are then commercialized here, brought to market in Canada, and manufactured in Canada.

I think that's where a lot of the issues and the concerns around the approach here to implementation of Kyoto really come in, because so far our track record isn't all that good. So far we're not seeing the investments being made here, and so far we're seeing commercialization being done elsewhere.

The Chair: I apologize, but I must conclude because of the bells.

I want to thank the witnesses. Thanks for being so thorough. I appreciate it very much. And I'm sure we'll learn even more as we go along as a result of your testimony today.

Just as a reminder, we have meetings next week, 3:30 p.m. on Tuesday and 3:15 p.m. on Wednesday.

The meeting is adjourned.