Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 15 - Evidence - November 1, 2016
OTTAWA, Tuesday, November 1, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:57 p.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia in the Senate, and I'm chair of this committee.
I would like to welcome honourable senators, any members of the public with us in the room and viewers all across the country who are watching on television. As a reminder to those watching, these committee hearings are open to the public and are also available via webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under Senate committees.
I would now ask senators around the table to introduce themselves. I will introduce the deputy chair, Senator Paul Massicotte from Quebec.
Senator Fraser: Joan Fraser, Quebec.
Senator Lang: Dan Lang, Yukon.
Senator Ringuette: Senator Ringuette, New Brunswick.
Senator Mockler: Percy Mockler, New Brunswick.
The Chair: I would also like to introduce our staff, beginning with our clerk on my far left, Lynn Gordon, and also our clerk in training, Maxime Fortin, next to me. We also have our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today marks the twenty-first meeting on our study of the effects of transitioning to a low-carbon economy as required to meet the Government of Canada's announced targets for greenhouse gas emissions reductions.
In the first segment of our meeting, I'm pleased to welcome, from Canadian Manufacturers & Exporters, Mathew Wilson, Senior Vice President, National Policy; and Nancy Coulas, Director, Energy and Environment Policy.
Thank you for joining us. I apologize on behalf of all my colleagues for being late. We don't like to do that, but every once in a while, someone gets up in the Senate and starts to speak, and we have to stay there and listen. So sometimes you can consider yourself lucky.
In any event, you have a presentation. Please make it, and then we'll have some questions and answers. Thank you.
Mathew Wilson, Senior Vice President, National Policy, Canadian Manufacturers & Exporters: Thank you and good evening. No problem at all on starting an hour late. That's quite all right by us. We're just happy to be here this evening to talk about these important issues.
CME is Canada's largest and most influential industry and trade association. I'm joined today by my colleague Nancy Coulas, and on behalf of our 60,000 manufacturers and our association's 2,500 direct members, we're pleased to be here tonight.
While CME represents some of the largest industrial players in Canada, more than 85 per cent of our network is made up of small and medium-sized Canadian-owned manufacturers and exporters. We represent every industrial sector and every export sector and are from all regions of the country.
Manufacturing is the single largest business sector in Canada. Canadian manufacturing sales totalled $610 billion in 2015, directly accounting for 11 per cent of Canada's economic output, two thirds of all exports and 45 per cent of all R&D. Manufacturers also directly employed over 1.7 million Canadians in highly productive, value-added, high- paying jobs. More broadly, through the integrated supply chains of manufacturing, the sector is responsible directly and indirectly for about 30 per cent of Canada's total economic activity and about 27 per cent of all employment.
Simply put, manufacturing is critical for the wealth generation that sustains the standard of living of each and every Canadian.
The manufacturing sector has a strong history of responsible environmental performance. The sector has historically supported and led government efforts to balance environmental performance with economic growth, including most recently the objectives to reduce GHG emissions. Manufacturers have in fact been leaders in reducing those emissions. In 1990, Canadian manufacturers emitted just over 112 mega tonnes of CO2 equivalent, or approximately 18 per cent of Canada's total. In 2014, emissions from the manufacturing sector amounted to 96 megatonnes of CO2, accounting for just over 13 per cent of total Canadian GHGs.
No other sector in Canada has made this type of progress. At the same time, this 14 per cent reduction in emissions occurred even though Canadian manufacturing sales revenue increased 150 per cent and production levels rose 33 per cent.
Lower emissions were achieved because of improvements in environmental performance and technology adoption by the sector. Canadian manufacturers reduced emissions per unit of real GDP by 35 per cent between 1990 and 2014. This was due to technological progress in the form of improvements in energy efficiency, the lower use of carbon fuels and the adoption of new and less emission-intensive industrial production processes. Investment in new and improved plant facilities, technologies, machinery and equipment has been the key driver of technological progress across the manufacturing sector.
The evidence of the past 25 years clearly shows that improvements in environmental performance and economic growth are codependent. As investment in new machinery and equipment increases, companies are more productive, and emissions and energy intensity decrease. At the same time, these investments make manufacturers more competitive, enabling companies to invest further in their workforce and in new products and technologies as they expand their business globally.
CME has just concluded a national consultation on the future of manufacturing in Canada through an initiative we called Industrie 2030. The purpose of this initiative was to create a road map for doubling Canadian manufacturing output and exports by 2030 in large part through the acceleration and adoption of new technologies, which will make companies more productive and reduce emissions.
The feedback from manufacturers and exporters from across the country is instructive for any study on balancing the environment and the economy, and there are three main priorities: first, improve global competitiveness; second, technology-based solutions are critical; and third, consistent outcome-based actions are essential.
As a starting point, it is important to note that most companies are uncertain about the application of carbon taxes. As shown in the first chart we provided to you, which comes from our Management Issues Survey, 35 per cent of companies are opposed to any type of carbon taxes, while the remainder support carbon taxes but do not think it would go far enough or say it would depend on the details of those carbon taxes. However, this dichotomy of response really has more to do with the ongoing debate about carbon taxes, the various forms it could take and the differences in some of the solutions being proposed between federal and provincial governments.
That being said, companies are universally concerned about the impact that additional taxes would have on their competitiveness and how they would handle the potential addition of a carbon tax. As shown in the second graph, companies will try to pass along additional costs to consumers, which isn't exactly easy to do if your competitors aren't adding similar costs or are from different jurisdictions. Sixteen per cent of respondents said they would have to move production to another jurisdiction, and 13 per cent said they would invest more outside of Canada. Both are troubling results give the importance of manufacturing to Canada.
In order to drive investment and growth in any sector of the economy, it is essential that companies are globally competitive. Canada is not an island, and the signing of the FTA with the EU over the past weekend reinforces this. Goods produced in Canada can be produced almost anywhere in the world. In order for manufacturers to invest in Canada, produce goods here and employ millions of Canadians, they must operate within a globally competitive environment.
As such, companies are especially concerned that a carbon tax or other similar measures would lead to higher operating costs in Canada and will result in production and investment moving to other jurisdictions with more competitive cost structures and probably less stringent environmental controls. This form of carbon leakage would be counterproductive, both in economic and in environmental terms.
Policies, taxes and regulations pertaining to climate change need to ensure revenue neutrality and a level playing field between Canadian and foreign industry to be effective.
Based on this, there are three core recommendations from industry to ensure ongoing competitiveness that must be examined: First, a comprehensive economic impact analysis should be conducted on the impact of carbon taxes; second, government should ensure that the overall tax burden is equivalent before any potential carbon tax is introduced through the reduction of other business taxes, including payroll and corporate taxes; and third, governments must ensure that companies are globally trade-exposed so that we can compete in domestic markets, as well as in foreign markets where carbon taxes may not be applied, so that goods are not simply produced in foreign jurisdictions and imported into Canada.
A clear solution to many but not all of the competitive challenges is technology adoption, which would help both reduce emissions as well as improve competitiveness. As noted earlier, manufacturing has expanded in Canada at the same time that emissions have reduced over the past 25 years. As such, one thing that our consultations told us is that simply taxing activities will not work and will have a detrimental impact on the economy and the environment. Higher costs for energy, infrastructure, transportation and regulatory compliance will erode profitability and, therefore, the ability of companies to invest in new technologies that are required to make further progress in reducing emissions.
Companies can only invest in new clean technologies if they are profitable and have the cash to invest, as shown in the third slide. There is a direct relationship between investment levels and after-tax profitability of the businesses in Canada. As such, the business conditions for increasing competitiveness and profitability of companies are essential, including the overall effective corporate tax rate, energy costs and the general costs of regulatory compliance.
This is where governments have a clear supporting role. As illustrated in our fourth slide, there's a wide range of supports companies would look for from governments to help in emissions reductions. As a starting point, there's an important role that governments should play in supporting company investments and de-risking the adoption and creation of new clean technologies through national investment support funds. Investments in new technologies are often risky. Companies are often uncertain about what new clean technologies they should invest in or the impact those new technologies would have on overall operations.
CME is currently developing such a fund with the Province of Ontario that might serve as a model for other provinces or regional economic development agencies across the country to support clean technology adoption in all industrial sectors and in all sizes of companies. CME's SMART Green Program should be replicated and supported by the federal government and regional economic development agencies in all provinces across Canada. These investment support programs could be created from the revenue from any potential carbon tax.
Finally, it is critical to note that we must focus on ensuring consistent, outcome-based actions. If the desired outcome is to reduce emissions and grow the economy, we must ensure that we are measuring for those results, and we must ensure we are doing it in a way that is simple for businesses and consumers to participate in and support.
There are two core priorities from our consultations in this regard. First, it is important that the definitions of green, clean technology remain technology- and sector-neutral. The focus should be on expected outcomes from the use of technology, such as reducing GHG emissions or energy use, not what the technology is or how it is expected to operate.
Second, with several provinces already implementing policies and regulations aimed at GHG reductions, the federal plan must be aligned with the existing provincial plans to ensure consistency and to avoid stacking and duplication.
We want to thank you again for inviting us here today to discuss the importance that manufacturing plays in Canada's economic and environmental landscape. We believe that there is an opportunity for a continued balanced approach that sees manufacturing thrive while reducing its environmental footprint. Given the critical role that manufacturing plays with respect to Canada's economic and environmental performance, any national strategy to reduce GHG emissions and improve economic performance must also support the long-term growth of manufacturing if it is to succeed.
Thank you for having us here. We look forward to the discussion.
The Chair: Thank you. We will begin questions.
Senator Massicotte: Thank you both for being here and allowing us to have this discussion.
You recently produced your Roadmap to 2030. In there, you actually provide a road map where you double the manufacturing activities, which is very good and a strong fundamental objective, but nowhere in that document is there discussion relative to emission reductions. Could you comment on that?
Mr. Wilson: Yes, absolutely. It doesn't include it in that report. The way the report will roll out, that was a summary report of all of the consultations we did. We will be releasing, over the coming weeks or months, more detailed reports that will include specific commentary around carbon pricing and GHG emissions overall in environmental performance. That was phase one of our reporting, and we'll be rolling the rest of them out over the next few weeks.
A couple of recommendations in there relate specifically to what we're talking about here today. We did mention it in there in terms of any carbon pricing, reinvesting the money that would come out of that back into the sector, and we believe that's a critical component for growing the sector in the long term.
Senator Massicotte: As your presentation noted, you are part of the category of carbon-intensive trade-exposed industry, and obviously the government is sensitive to that also because they actually created that category knowing that pricing in other countries could affect your competitive nature and could be unfair. That's easy to agree to — and you make a reference to it — easy to sit and do that. We all know it as a category we have to treat in a special way. Exactly how would you want the government to treat that sector? What are you proposing?
Mr. Wilson: I'll answer generally, and maybe my colleague Nancy will have a little more to add on. That's a great question. In fact, I've just asked our chief economist at CME to look at exactly this question.
There's a lot of discussion around what "trade-exposed'' means, but there aren't many definitions or a deep understanding that we've seen anywhere. It's been out there either in government circles or in private sector circles in terms of what is trade-exposed and how you would handle that.
Our definitions, from a starting point, would probably be a bit broader than other definitions would be. We would look at it primarily from the standpoint of how much within a sector would be imported or exported in terms of production and sales in the Canadian marketplace. Frankly, in manufacturing, in our sector, we're very trade exposed. We're open to trade agreements, and even where we don't have trade agreements, we're very open.
We are not an island; we are very exposed. We are not like other sectors in the economy where we're in a controlled environment. We have to compete — whether it's the U.S., China, India, Japan, Germany — against those countries every day for investment as well as for production mandates and other things. We need to make sure that in those sectors and across manufacturing it is a balanced approach that looks at the holistic view of things. Maybe Nancy would have a bit more specific information.
Nancy Coulas, Director, Energy and Environment Policy, Canadian Manufacturers & Exporters: I would add as well that while we do have these members who are energy-intensive and trade-exposed, most of our members are small and medium-sized companies who will also see the impact as a supplier to some of these bigger trade-exposed companies. They'll see increased energy and transportation costs. To date, in Ontario, for example, very little information has been collected about what the impact might be on the small and medium-sized companies, so that's a concern.
As for the trade-exposed companies that are kind of defined right now as trade-exposed, certainly in Ontario we're looking at free allocations. That will help, and trying to define how those are rolled out over the years is also key in making sure that works.
Senator Massicotte: Given that 80 per cent of your product is exported to the United States, I suspect a starting point would be to find out what the environment in the United States is to make sure you're competitive. When you do your taxation, the treatment of carbon tax, that it's equivalent or doesn't disadvantage you in a significant way would probably be the first big step to take, I suspect.
Mr. Wilson: There is some challenge with that. Nancy mentioned the smaller members. If you look at the profile of manufacturing across the country, we're very heavy on very small companies. Something around 95 per cent of manufacturing has fewer than 100 employees, and most of those have fewer than 25 employees, so very small companies. They tend to supply into larger supply chains. There are metal producers supplying into oil and gas that might be supplying into oil and gas development right across the country and automotive sectors or other sectors like that. They are not directly exporting. They tend to be part of the bigger supply chains. They are tier 2 or tier 3 suppliers.
It's very hard to capture data on what is trade-exposed even when you're looking at it because most companies don't export directly. If you're looking only in the narrowly defined terms of who's exporting and who's importing, you will get a very different view than what's going on in the economy. The vast majority of companies are supplying locally as a sub-sub-supplier to a larger product, and then that product is being exported and is competing globally.
It's hard to get a clear picture just by the way our own sectors and companies are operating, and that's what's concerning. Without doing a detailed dive in terms of the economic impact and examining that at a real level that would work from a Canadian perspective and not just assuming it's the same as the U.S. or other countries, you might be putting in place policies that would disadvantage Canada and lead to bigger economic problems than what you're expecting on the surface.
Senator Seidman: Thank you very much for your presentation. Last week we heard from Fertilizer Canada, and they explained that reducing Canada's GHG emissions must be attained through sector-specific strategies. I'd like to know whether your members support the concept of sector-specific strategies on GHG emission reductions.
Ms. Coulas: I would say we would for the sectors that have the greatest emissions, like the fertilizer sector and oil and gas. They are the experts of those sectors, so looking at sectoral approaches would make sense.
But again, for most of our members, they don't fit into that nice category of that sector, so that makes it difficult for a good portion of our members.
Senator Seidman: So they don't fit into a sector?
Ms. Coulas: Yes. Many of our small and medium-sized companies, if they're a supplier to a sector, wouldn't fit into those nice categories that we have. Right now we look at emissions from different sectors. We have a lot of data on those emissions, and many of our members just don't fit into those categories. It's more of a general manufacturing category.
Senator Seidman: Could you give us an example of your company members that wouldn't fit into a sector? I'm trying to understand how that would happen.
Ms. Coulas: I'm just thinking of a smaller company that's a supplier of a very small part to a refrigeration manufacturer, for instance. They may have other product lines as well. It's sort of difficult to tuck them into a certain area.
Mr. Wilson: One example might be a small steel fabrication company doing work in oil and gas. They'd typically be lumped into steel fabrication, but in reality they're supplying into the oil and gas sector. You see a lot of that. Frankly, there are a lot of problems with the way we collect stats. This isn't a comment about the ability of Statistics Canada. It's just we haven't updated our definitions of what is manufacturing, for decades, frankly. What used to be nice, neat and simple is now kind of where companies are spreading across multiple sectors doing multiple things just because that's the way the sector has evolved itself.
Steel would be an interesting one. Certainly when we talk to our members, we get a lot of companies saying they're steel manufacturers, way above what would be classified in Statistics Canada data. It's because they're metal bashing, doing different things to steel, but they're supplying into oil and gas or automotive or aerospace, you name it. They do end up crossing over, and it's not quite as simple as what the StatCan definitions would say. They look at themselves differently than what's happening in StatCan definitions, often.
Senator Seidman: So how would they think about reducing GHG emissions?
Mr. Wilson: I think to Nancy's point, they don't look at themselves as just being in the steel sector or something like that. They're looking at themselves as being in multiple manufacturing sectors at the same time. In fertilizer there are clear lines. In automotive, if you're an OEM automotive manufacturer tier 1, you're clearly in automotive, but once you dip below the OEM and the tier 1 level, you start to blur the lines. The reality is because of the type of manufacturing we do in Canada, a lot of companies are kind of in the blurred line areas.
I think that's what Nancy is talking about. It's not quite as easy as saying let's do sector strategies because it depends on how you define the sectors. You might grab people you don't intend to, so it creates challenges on the definitions.
Senator Seidman: I understand what you're saying. If you can't do sector-specific strategies for some manufacturing companies, how do they think about it? The reason I'm asking is because I'm looking at your chart on page 4 where the question is how would your company adapt to a price on carbon. It's interesting that 54 per cent would pass along increased costs to consumers. Nineteen per cent would increase investments in new technologies, machinery and equipment. It is a question of how these companies think about playing a role within their own company to reduce GHG emissions.
Mr. Wilson: It's easy for a company to say they'll pass along the cost to their customer. The reality is very different than what they'd like to do. The automotive sector might be a good example. I know the sector fairly well. You don't just pass along your costs to the supplier on the next tier up. You have locked in contracts for years. It doesn't happen. They're going to have to look at other options.
The reality is most Canadian manufacturing isn't simply making something and selling it to an end customer. It tends to be a sub-assembly of something else. Companies will argue that's what they would like to do. The reality is that in the short term they certainly wouldn't be able to do that, and they'd have to look at other mitigation factors.
If you look at the history in terms of the emission reductions in Canada overall, the trend was always towards when companies had the ability to invest in technology, that's what they did. The challenge is how do you incentivize companies to do it at a level that's enough to meet the reduction targets that we have as a country. That's where the real challenges will emerge. That's what companies are looking for from the support of government. Does that answer better?
Senator Seidman: It does.
Senator Lang: I just want to pursue the question of sector-by-sector examination or establishing a target by sector. The fertilizer company here the other night as well as the auto industry had come to some tacit agreements with the previous government over sector recognition and also the targets that they would be expected to meet in 2030. There was an acceptance that these things could be done under certain circumstances.
Could you tell us what your experience has been? I recognize that not everyone may fit the categories, but the majority of your association membership, 60,000 manufacturers and 2,500 direct members, obviously 80 or 90 per cent have to fit into that sector. Can you tell us where you were with respect to that so we understand?
Ms. Coulas: As an association that's horizontal, we have all the different sectors. We pay attention, but we don't delve in deeply to the fertilizer sector for example. When we're looking at policy initiatives, we pay attention to the overall picture.
I do know that so much work has been put in by each of these sectors collecting data from different companies and working at round tables and trying to work towards targets that make sense. If there's a good consultation process with those sectors to develop a target that makes sense, I would have trust in that group of people. I would trust in that process, given where all the viewpoints are coming from.
We found targets very difficult for our other manufacturers. For companies that don't fit into those nice sector slots, where there's no specific consultation process for them, looking at targets is really difficult. Every company will be different. Companies will be at different points with respect to reducing emissions as well, so many companies will have already, as they say, picked the low-hanging fruit and done the energy-efficiency initiatives they could have done. They did it 10 years ago. Other companies just aren't there yet.
So when it comes to targets for those companies that don't fit into sectors, it's really difficult to look at it from that perspective.
Senator Lang: I don't know if you answered my question or not. You mentioned companies will try to pass along the additional costs to consumers. As you've indicated, it isn't easy to do. Sixteen per cent of the respondents said they may move production to another jurisdiction, and 13 per cent said they would endorse more outside of Canada. That, of course, has got to be of concern to most Canadians and those working in that particular sector.
Do you want to expand a bit further on that? The question of a carbon tax, both provincially and federally, has been ongoing for the year. Have any companies started to look at relocation, knowing that something will occur?
Mr. Wilson: That's a tough question. In general, when I looked at these results, I had the same reaction you did. Those are not good results from a Canadian economy perspective. We don't want to encourage that.
Part of the problem is there's so much uncertainty as to what it will actually be. Aside from B.C., which has been in place for a few years, there's not a lot of understanding of what's going to be taking place nationally or in the province. There is a lot of discussion, but no firm plans in a lot of places. Without implementation, companies are not sure.
When companies have investment opportunities, the capital flows to where companies can get the best rate of return on that investment. Even if they're Canadian companies, they will still look at other jurisdictions. If the cost of doing business is higher here, carbon taxes, payroll taxes, corporate taxes, R&D, tax returns or just general regulation in business environment, if it's more expensive to do business here, we're going to get less investment here. It's just natural in any type of business. When companies hear there is a new tax coming, it doesn't matter what the level is. The automatic reaction is to move the investment somewhere else. Those are smaller companies typically.
In the survey results we ran over the summer, respondents were about 90 per cent small and mid-sized companies. Domestically Canadian-owned foreign multinationals would have a different perspective on these things. Some might see it as a real opportunity to invest in Canada more and supply some technologies in the space. However, even they would be looking at their footprint and looking at how much it would cost to operate in Canada versus other places.
In Ontario investments have moved into the U.S. and other jurisdictions simply because of the cost of energy in the province. Companies see that as a competitive disadvantage. They can move their production to other jurisdictions where the energy prices are half or a third of what they are in Ontario. They're moving to upstate New York, for example, specifically because of the cost of energy. It would be no different in a carbon tax environment where companies will look at the cost to produce and decide whether or not to produce those things here or somewhere else.
Senator Fraser: Thank you. First, regarding the survey, when was it done? You have 2,500 members. What proportion of them responded? You did say it was mostly the smaller firms who responded. Can you give us any breakdown as to which size of firm tends to give which kind of answer? You understand the cross tabs, that kind of thing.
I noticed that your presentation is dated at the bottom May 5, 2016.
Mr. Wilson: It was an error on my part.
Senator Fraser: Okay. So the survey is actually more recent than that.
Mr. Wilson: The survey finished in September.
Senator Fraser: Perfect. Okay. So you can just let us know. Any information you can give us about breaking down those results could be very helpful for us.
Now, your comments on page 6 where you're talking about a national investment support fund, you state you're currently developing such a fund with Ontario. In the next sentence, you mention your SMART Green Program. Are those one and the same thing?
Mr. Wilson: Yes.
Senator Fraser: Would you please explain how it works, what you're doing with Ontario and what can be done nationally?
Mr. Wilson: Sure. Starting in about 2008, CME and the Government of Ontario started a program called the SMART Prosperity Now Program which was aimed primarily at small and medium-sized companies to help them invest in new machinery and equipment in their facilities, primarily aimed at new technology adoption for expanded production for exports. That was right at the beginning of the recession. That was expanded in partnership with FedDev Ontario, through Industry Canada, over the last six years. It is still ongoing; we have the SMART Green Program for southern Ontario.
The Ontario government now has come back in to do one specifically on green technology. The idea is that as part of the Ontario Green Investment Fund, a fund with a couple hundred million dollars — CME administers part of that fund; I think it's $20 million or $25 million over two years.
We have a process set up in our organization, with a panel of outside experts who administer this. Companies will apply to us. We have certain conditions that companies are supposed to be meeting. I am generalizing, but typically it would be an investment amount where we will match between one third and 50 per cent of the investment amount — a grant. It's aimed at specific outcomes, and those outcomes in this case would be new technology to reduce GHG missions. That's the purpose of the fund.
We have all the criteria laid out. So a small or mid-sized company would come to us and apply for a fund to say they're looking for $50,000 out of $100,000 investment in new machine equipment, and the outcome is to reduce their emissions by 15 or 20 per cent. Then we have a panel of experts who would look at the different applications coming in from the different companies, and we would judge the best one that would be most likely to have both the environmental and the economic impacts they say would. Then we will administer those funds.
Our history is that we're able to turn around those types of applications that come to us in about an eight-week period; the company applies and we get it back to them in eight weeks, cash in hand to the company. In similar types of government-run initiatives, it's typically eight months to a year and a half. We have an overhead of somewhere around 5 per cent, and government overhead runs between 30 and 40 per cent.
We take the politics out. We don't even judge ourselves. We have internal staff who control the entire thing, but we have an external advisory committee, typically ex-CEOs and university professors — people who know what they're talking about in the area — who will judge the applications that come in.
Senator Fraser: Have you had any discussions with the federal level about a comparable program?
Mr. Wilson: We have been having some of the conversations but nothing at that level of detail yet. But yes, we've been having some early conversations on it.
Senator Ringuette: Senator Fraser asked almost the same questions that I wanted to pose.
Would your discussion with the federal government in regard to a similar program involve you again, or would that be a national program that would be administered by whichever federal entity and that would act as almost a complement to the Ontario strategy right now?
Mr. Wilson: We haven't had that level of detailed conversation. From a CME perspective, it would be great if we administered it. We think we do a pretty good of job of administering the funds. Since 2008, we've administered somewhere in the neighbourhood of $80 million in funds out the door to small and mid-sized companies in Ontario.
We have done a good job and have had no problems at all. We're proud of our record and what we have been able to achieve supporting hundreds of thousands of jobs and hundreds of millions of dollars in manufacturing. We have a pretty good track record, and we could do it immediately; we have the infrastructure in place to set it up.
At the same time, we're not going to say that no one else could do a good job or that the government itself couldn't do a good job. We're more interested in supporting the concept of some kind of green innovation fund that could be targeted in this way, could support the investments in new advanced technologies and reduce emissions. We're interested in any dialogue we could have with the federal government toward this.
Also — and this is what we said in our Industrie 2030 report — any type of fund, whether it's a green fund or any innovation-type of fund, needs to be available for manufacturers right across the country. It's not having them available only for southern Ontario companies. I know ACOA runs different programs. While they're great programs, we should have those available across the country. A small, $25 million fund in Ontario is of limited value to someone in Quebec or Alberta. They should be national programs. We have the ability to do it, and so does the government. We'd like to see that over the next bit.
In terms of the timing of it, there is no green innovation fund set up federally. In Ontario, they have one and are starting that process. They are a year or so ahead of where the federal government is. We expect that conversation will come in time, and we have a great relationship with ISED, which is where this most of this would take place out of.
Senator Ringuette: Would you propose that any kind of grant be proportional to the emission tax paid? Then it would truly focus on the manufacturers that are paying the most because of their emissions, and that would create a greater incentive for them to move toward a greener production.
The federal government has indicated many times that the revenue would be neutral — that there would be different programs in order to create exactly what you're looking for with the manufacturing industry.
Mr. Wilson: I'm not sure how you would structure something that would look at just emission outcomes, because you could be in a situation where you're penalizing companies for work they've done before. We've always focused on the amount of the investment with desired outcomes. In the programs we're offering today and in partnership with the federal and provincial government, the focus is minimum thresholds for reductions and investments, and maximums as well. We've looked more at this, for example: Government sets an objective, the investment will meet those objectives, and we are trusting they are based on the information the company gives us. Then the money is invested through us.
We haven't looked at an amount based on the percentages; we've looked at amounts based on total investments and total overall impact.
Senator Mockler: When we look at your presentation, there is a question asked: How would your company adapt to a price on carbon? Then when I look at where they would pass along the cost, it prompts me to ask you a question: If what is being proposed by our government happens, what percentage of your members could actually leave your organization or leave Canada to go somewhere else?
Mr. Wilson: Our organization is a volunteer member-driven organization, so all of our members could leave, and Nancy and I would be unemployed if that happened. We are funded by our members and through membership dues. Any of our members could leave at any time.
Similarly, any company could leave Canada; whether they are Canadian-owned or a foreign multinational doesn't matter. They're able to leave. There is nothing holding anyone here. It's not to say they will leave, but we don't control them.
Senator Mockler: With your experience, how many do you think would leave? What percentage?
Mr. Wilson: I don't know. When B.C. brought in a carbon tax, a couple of examples were publicized. One cement company, in particular, moved operations south of the border, literally a few miles from where they were operating on the Lower Mainland. Overall, they aren't leaving.
I wouldn't be worried about the leaving so much as the commentary around the investment. If companies aren't investing in their manufacturing facilities, they become less and less competitive globally. The more we open our markets and the more they have to compete internationally, the less competitive they will be. So if they are not investing in their facilities in Canada, over the long run they will be shutting those facilities down because they won't be able to compete.
If you look at the problems manufacturing has had in Canada over the last 15 years or so, a large part of the problem is because we were relying on a 65-cent dollar in the late 1990s and early 2000s, companies weren't investing in their facilities, and we became unproductive and uncompetitive. If a carbon tax is added on, the same result will happen over time. It will not be an immediate shift; it will be the gradual decline of investment in Canadian operations that will lead to the problems.
Senator Mockler: You cannot make a prediction. This brings me to my next question.
Again, relative to the number of companies in your association, are your members concerned about the potential increase in electricity prices as a result of moving to clean energy? If so, what impact would that have?
Mr. Wilson: I talked about this Industrie 2030 initiative. I got to travel across the country and talk to companies. We did not only the online survey but also in-person round tables, and I can tell you that in several provinces the electricity costs and the increase in electricity costs were issue number one for manufacturers. They rely on a stable and affordable supply of electricity.
I mentioned Ontario earlier. We're hearing stories in Ontario of a three- or fourfold increase in electricity costs over the last four or five years, largely because of Ontario's Green Energy Act and what happened as a result of that, the spike in electricity costs in the province.
That is, frankly, unsustainable. That type of increase in cost for manufacturers in the province is unsustainable, and I know of companies who have moved operations into upstate New York, for example. One of the stories we heard specifically in one of the round tables was a company who moved operations into upstate New York was being offered free electricity that was actually being generated in Ontario. We were paying for it to be exported into New York, and New York was turning around and offering it to Ontario companies as a direct subsidy for investing in manufacturing operations in New York.
It is having a direct impact today already, and depending on what happens with a carbon tax or carbon levy, depending on how it rolls out, or cap and trade in different provinces, it will have similar effects I would assume in other provinces as well. It's too early to know exactly what those costs would be, but certainly the provinces where I heard it most, Ontario, Nova Scotia, Newfoundland and Alberta, were near the top of the list of provinces where companies were complaining about skyrocketing electricity costs.
In Ontario it was the elimination of coal-fired plants, and in Nova Scotia the same thing, so it's having an impact today.
Senator Patterson: Thank you for the presentation. I believe you mentioned carbon leakage in your presentation. Can you define carbon leakage? How could it be prevented? I'm wondering if one of the options you might believe in would be having Canada apply levies on imports that were produced in jurisdictions with weak or no emission requirements.
Mr. Wilson: As you can see, my expert has left, unfortunately, so I will do my best at defining it and certainly answer your question on the imports.
The issue of carbon leakage is something I think people are paying more and more attention to as we look at these things. The real concern is if products are just being made, if the idea is to reduce emissions in a global sense to fight climate change, the idea needs to be that overall around world we're reducing emissions, not just Canada on its own.
If anything is going to be produced anywhere in the world at different environmental standards, if Canada applies a carbon tax and the investment and production go offshore somewhere else, it's still being produced and in some cases probably produced at higher emissions intensity than it would be done in Canada. There is really no net gain from an environmental perspective overall globally, and in Canada we just lose jobs.
That is a great concern to industry overall, and as I mentioned, what it comes down to in my remarks is that we operate and manufacturing operates in a globally competitive environment, so capital can move anywhere in the world. You can produce goods anywhere in the world and import them or export them anywhere in the world, so we need to make sure that Canadian companies, both from an export perspective as well as a domestic sale perspective, have the ability to compete with their competitors that are producing goods anywhere in the world.
If we're producing something here in Canada and trying to export it into the U.S., our carbon strategy needs to take into consideration that we're competing in the U.S. against European and U.S. and Mexican and other firms. Similarly at home we're competing against those same firms. If we don't have an equivalency test of some sort that looks at whether Canada has a tax and other jurisdictions don't, that looks at equating what goes on in Canada versus the rest of the world, it will be very difficult for Canadian companies to compete.
So the issue of leakage and the issue of emissions taking place anywhere in the world is taken very seriously.
The issue you raise on border measures is something we're looking at. I'm not saying we support them, but we need to find a way to ensure that a Canadian company selling in Canada is treated the same as a company that might be in the U.S. that might not have the tax. Frankly, it's no different than the regulatory environment more generally, corporate taxes. It's just part of the operating costs. We need to make sure corporate taxes and everything else are aligned globally so that companies can invest here and produce here.
When we're talking about this, we're looking at investment supports we talked about earlier as well as at the overall business climate and investment climate the companies are operating within. It's not as simple as saying there are carbon taxes and we can't have them. It's looking at the overall tax and business environment we operate in and making sure that we are operating in a competitive environment.
Does that help?
Senator Patterson: Yes, thank you.
Your board of directors' resolution on climate change in 2015 said that voluntary and market-based approaches should be preferred over regulatory and tax-based approaches to reducing greenhouse gas emissions.
Could you expand a little bit more than you did in your opening remarks on the voluntary measures your members are taking and whether you believe Canada could meet its global emission commitments without government intervention?
Mr. Wilson: Oh, boy. On the first one, generally speaking, we always would favour approaches where industry is given targets and figures out ways to provide solutions.
Typically when government gets involved it becomes prescriptive and may not be in the best interests of anyone, and this is why in our comments we talked about looking at the outcomes, not so much the process to get there, and that's why we always look at those types of approaches.
Companies have done remarkable things. We talked about the overall reductions in emissions in the manufacturing sector holistically. Those have come through a variety of things, certainly introduction of new technologies.
Every time you can replace 30- or 40-year-old equipment with brand new equipment, it becomes a lot more energy efficient to operate, and emissions are a lot less. In other things, even small things like we're all doing around the house, changing to LED from fluorescent light bulbs — those types of approaches are having a big impact.
As my colleague mentioned earlier, given the reductions that have taken place today, the real challenge will be that the low-hanging fruit has been picked, and how much more of that is out there? Certainly from a technology perspective, investment in new capital equipment, we are a long ways behind and can go a lot farther than where we are today. On a lot of the other things, I've been in some world-class facilities from an emissions and environmental perspective. There is no low-hanging fruit left in those companies to generate. They even have co-gen biomass that they are using right on site for some of them. They are incredibly environmentally efficient. To go back to them and say, "You need to take another 20 or 30 per cent out'' is not going to happen. The 20 or 30 per cent will come out if they shut down the facility. That's where we need a more flexible arrangement to make sure we're looking at it holistically.
Hopefully that answers why we're looking at more of a voluntary approach in some of the things the companies are doing.
We feel a lot of progress can be made from a technology perspective. If it's too prescriptive in terms of exactly how you get there, that's typically when the problems will emerge, at least from our perspective.
We had a meeting last week with Minister McKenna who also talked about the need to look at outcomes, not so much the process to get there. We do believe the government is listening to that and that is the right approach to go forward with.
The Chair: We're almost at our time, and I don't know if we'll have much time for a second round.
I would like to ask a few questions.
Do the industries that you represent prefer a carbon tax or cap and trade? What would they rather have?
Mr. Wilson: Honestly, the results from our survey tell us they don't know, because there are so many definitions out there of what these things mean. Because most manufacturers are so small, most of them wouldn't know. I'm not going to give you an answer.
I would say the larger, sophisticated companies would be able to deal with either one. A lot of the small companies wouldn't know the difference between the two of them. That's part of the challenge. We are talking about multiple things at the same time. There is not a lot of definition in what they are.
Probably a carbon tax might be cleaner and simpler than a cap-and-trade system. That's just speaking from the conversations I have had, not saying that's what a company would want. There is a lot of confusion out there as to what is going on.
The Chair: With our biggest trading partner, would it be better to work at regulating and to stay in step with our largest customers south of the border than to embark on just a carbon tax that may drive some industries out of Canada? The part that disappoints me a bit is when it said they would go to places that have less environmental protection. That tells me what they're thinking.
I appreciate they're looking at the cost and the bottom line, but to say they will move out of Canada and go someplace where there are no environmental standards to produce cheaply is disappointing. I don't know if that is a general feeling within your group, or is it just a few that have said that?
Mr. Wilson: I don't think they're saying that. What they're saying is if they're going to stay in business, they need to operate in jurisdictions that are competitive, given that they are competing globally. They are not operating in isolation. I don't think they're looking at moving to places with lower environmental standards. They are not talking about packing up and moving to India or China. They tend to be looking at moving where their biggest customer base is, which is the U.S.
It was interesting. I saw former Prime Minister Brian Mulroney's comments about staying lockstep with the U.S., which is what I assume you are asking. We have been consistent as an organization with our membership over the years. We need to stay in lockstep with our biggest trading partner on all regulatory and policy issues. We can't do our own thing. We're too small of an economy on our own and too dependent on trade generally, and not just with the U.S.
We're not saying that you can't do a carbon tax, but if you are going to do a carbon tax or cap and trade, anything that will increase costs, we need to make sure that other costs are brought in line so that the overall competitive position is in line with the U.S. and our major trading partners, or companies will move.
They have two options: They stay in business in Canada and slowly go broke, or they move and continue operating and supply their customers somewhere else. It's not that they want to do it, but it is a business reality in a lot of cases.
The Chair: And 54 per cent of your group says they would pass the costs on to customers. I always refer to those people at the very end of the chain that pay the bill, and that would be Fred and Martha, and that happens to be you and your colleague that was beside you or me. Would you agree with me?
Mr. Wilson: At the end of the day, the consumer pays, whether it's direct or not. I mentioned earlier that companies have a hard time passing those costs along, and they will. Those costs always get wrapped up, whether it is a carbon tax or regulatory measures; at the end of the day someone is buying something, and it goes into the cost of that good that someone is buying, so yes, absolutely.
The Chair: The thing about companies moving, there is a lot more to it, I would suggest, than maybe what you allude to, that being a carbon tax or the price of electricity. If you want to move to New York, the price of electricity for the largest consumer is 17 cents. If you stay in Toronto, it's 5.5 cents. That has changed, and these statistics come from Hydro-Québec, which has been giving these excellent statistics for a long time. They're from April 2015, so there has been a change, but it's not in the magnitude of 10 cents.
There are some other reasons. I'm familiar with British Columbia. The cement industry is not taxed with a carbon tax because of its high consumption. They were one of the ones that didn't get taxed.
The industry that did move south of the border was for some other reasons too, so it wasn't just because of the carbon tax, although sometimes it's easy to say that. If you go to Calgary, the largest consumer is going to pay just under 5 cents, or it's the same thing in Quebec, 5 cents.
I would say there are other things that are convincing people to say, "I'm going to move to New York state. I'm not moving there to pay three times or twice the electricity rate. I'm moving there for some other reasons.'' Would you agree with me?
Mr. Wilson: Absolutely. I have been clear that it's an overall competitiveness issue, not just about one tax or measure; it's everything.
On the electricity prices, that doesn't include the all-in costs companies are paying. That doesn't include delivery charges, for example. I've seen some of those numbers before and they look good on paper. I've also seen the bills that companies are paying, and they don't line up with that. I take that with a grain of salt.
It's not about one issue. It's about the myriad of things going on. Carbon taxes, corporate taxes, payroll taxes, electricity prices, it all rolls up into the overall cost of doing business. That's what companies are looking at, and that is why we're looking at it from the overall competitiveness standpoint to make sure it's balanced and not just one measure.
The Chair: I agree with that.
Senator Lang: I would like to know when he compared the question of the price for energy, he stated this is what was being charged, and then you said, yes, but there are other costs attributed to that. What is the cost that a consumer is paying per kilowatt hour for a commercial manufacturing?
Mr. Wilson: I will get the committee the exact answer.
Senator Lang: And any other costs with electricity.
Mr. Wilson: The full costs.
The Chair: Thank you very much, sir. We appreciate your presentation and your answers. It was very helpful.
We're continuing our study on the effects of transitioning to a low-carbon economy for the second segment. I am pleased to welcome from CMC Research Institutes, Inc., Richard Adamson, President.
Thank you for being here. We look forward to your presentation.
Richard Adamson, President, CMC Research Institutes, Inc.: Good evening and thank you for giving me the opportunity to speak with you today. I am Richard Adamson, President of CMC Research Institutes, Inc.
We are a federally incorporated not-for-profit with one key mandate, and that is innovation associated with the elimination of greenhouse gas emissions from industrial sources.
My key reason for being here today is to talk about how Canada can turn some of the critical climate challenges into opportunities for economic development and ensure market access and develop new export opportunities and create jobs.
I'll start with a snapshot of CMC Research Institutes and how we operate, focusing on the implicit opportunities for Canada's innovative natural resource sectors in the context of global decarbonization, and discuss a specific example of an area of high-leverage investment in our innovation side.
CMC is a unique organization in Canada. The company is developing a series of institutes with each one focused on a different industry challenge relating to eliminating carbon emissions and forming the core of a clean-tech innovation cluster. Currently we operate two. We have plans to develop more in other areas of the country.
The Containment and Monitoring Institute is headquartered in Calgary and the Carbon Capture and Conversion Institute in Vancouver. The Containment and Monitoring Institute is focused on developing measurement and monitoring technologies for detection of movement of fluids in the subsurface and detection of near-surface leakage.
Our primary focus is the storage of CO2; at least that's what our original focus was, but we found the insights gained through research and field demonstrations conducted at the institute wound up with many other applications outside of CO2 storage.
The Containment and Monitoring Institute operates a field research station in southern Alberta. When completed later this year — in fact in a couple of weeks — the site will contain one injection well with a small plume of CO2 stored at a depth of 300 metres, two observation wells for monitoring, and the use of different types of down-hole equipment. This is the first of two horizons we plan to develop.
This site is truly unique because of its size, which is three quarters of a section of land. It operates at an intermediate depth simulating what could be expected if there was a small loss-of-containment event at depth. It is already attracting technology developers and researchers from across Canada, the U.S., Norway, the U.K. and Germany who are testing technologies and conducting baseline studies in preparation for the injection of CO2.
The Containment and Monitoring Institute also operates a mobile geochemistry laboratory for the rapid detection and analysis of soil gas and atmospheric gas, ground water and surface water and produced fluids. A key feature of that unit is a truck-based mobile methane detection system that offers real-time, drive around detection and characterization of methane and other gasses. The intent is to develop and prove cost-effective means to maintain rigorous response to methane leaks and to enable resources to focus on where the impacts are greatest.
The CaMI team is participating in more than $28 million in projects funded predominantly by foreign governments.
The Carbon Capture and Conversion Institute is at an earlier stage of development. This is a unique partnership between CMC, BC Research, and researchers at the University of British Columbia to accelerate the development and scale-up of industrial processes that capture CO2 and recycle it into commercially viable products. The institute provides leadership to help clients characterize, de-risk and accelerate the development of innovative industrial CO2 capture and conversion technologies from the bench to large-scale implementation.
This institute will be headquartered in a new Technology Commercialization and Innovation Centre that's under construction in Richmond on Mitchell Island. When completed in early 2017, the 40,000 square foot facility will provide technology developers with access to specialized equipment required to test and pilot capture and conversion technologies. The institute provides clients with the unusual opportunity of being able to access the expertise of early- stage researchers at the university and throughout CMC's global network through to experts in process engineering and scale-up and fabrication.
These two institutes concentrate on driving technology innovation to find solutions to one of Canada's critical challenges, greenhouse gas emissions associated with the industrial sector. That's what I really want to address today, turning these critical challenges into opportunities.
The best place for Canada to focus innovation is to identify our most critical challenges and focus efforts on solving those problems. In general, Canada's traditional industries have been resource extraction and processing, and all of them have the emissions issues. Whether it's oil and gas, mining, forestry, cement, metallurgical processing, industries where the biggest emissions are, those are the areas where we have opportunity to develop leadership. This is a similar approach to what Sweden and Finland took in the forest harvesting equipment field. They didn't make their fortunes on exporting logs. They exported the equipment used.
We solve our domestic problems helping to ensure access to increasingly climate-impact-sensitive markets, but we also develop expertise and solutions to export internationally. We can use our challenge areas as laboratories to develop the technologies and innovate the solutions that we can take to the world. By taking a lead role in reducing emissions associated with our products, we help guarantee market access and differentiate what have been commodity products from lagging competitors. This approach is similar to how Sweden and Finland have done things.
In January of 2014, CMC attended a meeting of the Deep Decarbonization Pathways Project, a collaborative project linked to the UN where 14 country teams were challenged to develop a model for their domestic economy in the year 2050 under conditions consistent with a 2-degree world, at 450 parts per million and having tripled the global economy. This was the third in a series of meetings. I was stunned to find that Canada was not participating in the exercise.
Several teams presented results of the preliminary models they had done and discussed challenges that their country would face in a decarbonizing world. In every case, it was clear that what they required to develop their economies would also require material that Canada exports. A good specific example was that South Africa discussed moving heavily towards biomass and biofuels. Two thirds of the way through the presentation they said, "We don't know where we're going to get our fertilizer.'' So I came away very excited by the prospect. Far from a threat to Canada, a decarbonizing world was one filled with opportunity if we could rise to the challenge of competing on the basis of low- embedded carbon in our products.
Given that we came late to the party, didn't have a team in place and had six months to get results in with a final report to Ban Ki-moon in June, we chose to return to Canada and self-fund a Canadian team. We identified some of the key players involved in the National Round Table on the Environment and the Economy and updated and adapted their 2012 models.
By the end of 2015, three reports later, this work had influenced consultation processes and policies in at least three provinces, had been submitted to the UN climate leadership forum in 2015 and to COP21 and had received extensive praise but very little funding.
What I took away from this process was a deep respect for the important insights to be gained through this type of modelling process, especially when taken in a global context. This kind of work is absolutely critical now and will become more so in the future as we steer our way through to global economic transformation.
It's crucial that there be an independent group to actively collect, moderate and curate data sets to support these models. These data include economic and environmental data. It should be something like the U.S. Energy Information Administration except broadened to include environmental data. A common set of highly credible data sets could be used by consultants, researchers, economic modelers, life cycle assessment experts and others, allowing them to challenge and refine their methods without having to deal with different underlying data.
When CMC embarked on the work of the DDPP, we were told by the federal government that the reason Canada was not participating was that we had no capacity. In the course of this project, with the help of a lot of contributed work hours from independent experts, we not only delivered excellent results that were influential domestically, but our team was identified as one of the best of the 16 final participating countries and was asked to help other teams develop their approaches. Further, one of our team, Chris Bataille, was contracted by the French institute, IDDRI, as part of their secretariat role.
As we enter this period of disruption of the global economy, there will be many opportunities and threats. We will need the very best tools to identify them and develop robust responses. This is a sound investment in building critical domestic capacity that will pay off in many ways in the future.
Our low-carbon pathways group existed for the duration of the first phases of the Deep Decarbonization Pathways Project. As an experiment, it was a success. It had huge influence and impact. It also demonstrated that there was real value in this field of endeavour. We have failed to identify a sustainable funding model for that group, though they continue to build on the work independently.
CMC is itself an innovation. As such, it does not fit easily into the traditional funding models available to universities, for-profit technology developers or government labs. We're still working on achieving a long-term funding model. Thank you for listening.
The Chair: Thank you very much, sir, for your presentation. It was very interesting.
Senator Lang: First I'd like to welcome you here this evening. Once again, we apologize for the delay in timing.
I'd like to refer to one statement you made. You said the CaMI team is participating in more than $28 million in projects funded predominantly by foreign governments. What foreign governments?
Mr. Adamson: I would say there was one really major project, a $19 million project funded out of the EU, where most of the partners are European Union partners. There are two projects funded by the Climate Programme in Norway. There are two projects funded by the U.S. Department of Energy. There are four research projects, smaller dollar-value projects being funded by U.K. academic groups. I'm sure I've missed something.
Senator Lang: Perhaps you could give us the projects you're involved in, the large ones. What exactly are you doing? I don't quite understand.
Mr. Adamson: There's a project to drive the costs down and develop measurement modelling and verification technologies for secure, long-term storage of CO2. The cost of what they call MMV, measurement, monitoring and verification, is a significant issue when you're dealing with a 30-year project, and in particular when there might be a 10- or 12-year post-closure monitoring period.
The demonstration projects that have been done to date have tended to gold plate their monitoring programs because they want to make sure they do everything they possibly can.
The real question is, if this were to become an industry, how can we drive the cost out of the MMV systems and still ensure secure storage and adequate monitoring? That's an international project where there are a number of novel technologies as well as some testing to quantify the detection thresholds, for example, of different types of technologies that exist today.
Senator Lang: I want to refer to something earlier in your statement. Is that what you're referring to when you speak of the three-quarter section of land and where there is a unique program under way because it operates at intermediate depth? Is that part of the $19 million? When do you expect to get results out of something like this that you're monitoring? Is it 30 years before you get your results?
Mr. Adamson: No. I'll explain how the facility works a little bit and then talk about the program a little bit. I'm not deeply involved on the technology side of that program.
There are a dozen places in the world where they're doing deep storage. They all have their measurement, monitoring and verification programs. But deep storage is deeper than 1,000 metres. It is often 1,500- and 2,000-metre depths, in which case the CO2 is a super critical fluid, so very dense. A small loss of containment, a bit of seepage of supercritical CO2, is very hard to detect because the difference between it and rock is very small.
When you get to intermediate zone — and people have done tests at surface of what CO2 leakage at 30-metre depths looks like. If you picture the CO2 working its way up, it gets to a depth where the pressures are low enough where it changes to gas phase. That's where you will likely be able to detect small levels of leakage and still respond prior to the CO2 getting to the surface. So what they call the intermediate geology is really critical, and nobody in the world has a test facility to do that work.
In the U.K. they're looking at building one. They're looking at spending £20 million on developing a facility, but they can't get the surface access because three quarters of a section of land in the U.K. is just not available. Getting permitting in many of the countries to do this type of work is a decade-long challenge.
So what we have is an opportunity because we have very large, open spaces and access to geology that lends itself to the work, and a permitting and regulatory regime that's very clear, transparent and straightforward. It gives us an opportunity to do this work here. It would be far more challenging to do in Europe or Scandinavia.
Senator Lang: What's the end objective here? I guess my point is, so there's some leakage. Is the idea to be able to monitor it and be able to contain that leakage? What's the end objective?
Mr. Adamson: Well, it's to detect and mitigate. Mitigation looks different in different situations under different types of leakage paths. In some cases it might be a matter of drilling down to a different formation and depressurizing that formation so that the CO2 doesn't continue to work its way to the surface. There may be other strategies, depending on whether the leakage is up near, say, an old wellbore or something else.
The mitigation strategies are also part of the work they're doing there. The idea is that if you wait until you can see the CO2 at the surface, it's too late to do anything about it. Does that answer your question?
Senator Lang: I suppose this can go on for a long time, so I'll pass.
Senator Fraser: Thank you very much for being here, Mr. Adamson. I second the motion that we apologize for keeping you much later than you planned. I hope you're not missing a plane or anything.
The DDPP work sounds fascinating, but — and this may just be because I'm not a technical or scientific person — I'm still not quite sure what the outcome was. You say that we delivered excellent results that were influential domestically, but what were the results? What are we talking about?
Mr. Adamson: Essentially what we took was we developed a set of techno-economic models that demonstrated what the economy could look like, and the best performing combination that would get us to that —
Senator Fraser: Combination of what?
Mr. Adamson: Of industrial changes in the national economy of Canada, with an 88 per cent reduction in CO2 emissions across the economy, so going from 20 tonnes per day per capita down to 1.8 tonnes per day per capita.
Senator Fraser: How did you guess that?
Mr. Adamson: Frankly, there were some things that were not — we identified some gaps. But CCS, carbon capture and storage, was very important. We found there were a number of other technological changes: very heavy reliance on electrification and greening the grid, about doubling the total electric power generation in the economy. The report is quite fascinating, and it's available online.
Essentially what we did was we based it on what was originally the national round table's economic models and refined them and adapted them to the end point requirements of this challenge. I think the national round table aimed at 80 per cent. It turned out that our target had to be more stringent than that. But it was a case of how to get to a 2- degree future.
It was fascinating to see the places where things broke down, where the challenges were the hardest. It was also fascinating that a lot of the pushback we got was we didn't rely on nuclear. We just left nuclear flat, because you can't use an economic model to predict growth in nuclear. It's a political choice.
Senator Fraser: So where were the biggest challenges? I'm sorry I keep interrupting you.
Mr. Adamson: The biggest challenges were on the industrial emissions, decarbonizing the industrial economy. Electric power was not such a huge issue. It was decarbonizing the industrial economy, moving rapidly enough to get the carbon reductions that are called for in a time frame that doesn't require huge penalties due to forced capital turnover. That's really the key challenge, the trade-off between forced capital turnover and the time frames required to get to that 2 degrees Celsius target.
Senator Fraser: I think I can listen to this for an hour. Thank you for the presentation.
I was intrigued by your report of attending the meeting of the Deep Decarbonization Pathways Project and hearing from the country teams who were well advanced that their models would often require something that Canada does or could export. You mentioned fertilizer. Could you give us some other examples of opportunities for Canada from this?
Mr. Adamson: Yes. There's a very heavy emphasis in the European countries on moving towards rail, towards offshore wind, towards a large amount of infrastructure build-out, all of which involved a lot of steel. The amount of infrastructure build-out across the world in terms of that type of development indicates that there will be increasing demand for iron and steel for that type of infrastructure. At the time there was a lot of conversation around Baffinland possibly being a very large iron ore development. A number of the presenters were talking about rare earth metals being an issue and the chromite development. The Ring of Fire was an area that I thought was of relevance, so basically across a number of different areas.
Senator Patterson: Thank you. I'm happy to tell you that the Baffinland mine is operating in my region of Nunavut and North Baffin Island. It's producing such pure iron ore that it can go straight into the blast furnaces of Europe without being smelted. But I digress.
You talked about the reports by the end of 2015 that had influenced consultation processes and policies in at least three provinces, had been submitted to COP21 and had received extensive praise but very little funding. If I may cut to the chase here, we'll be making recommendations to the federal government. Would you be able to say what you would like to see us recommend in light of your frustrations perhaps with Canada saying that we don't have capacity?
Mr. Adamson: Right now Canada spends a large amount on consultants doing economic modelling in the U.S. We have some really excellent people here and some great capacity in the country, and we have the ability to do that work here. I saw CMC as being a possible vehicle for getting this work done, but there are a number of groups doing work in this field. I'm not saying it needs to be us who do it. It seems to me we ought to be funnelling those resources into building that capacity. It's so strategically important to the decision-making process in this country going forward, understanding where the opportunities and threats are, that I think it's crucial we make a concerted effort to build and strengthen that capacity in the country.
Senator Patterson: Have you had a chance to discuss this with the federal government? My understanding is that their mantra has been that we don't need to be afraid of the green economy; it will create opportunities for new jobs and new growth in Canada. It would seem to me your message should resonate well. Have you had a chance to deliver that message?
Mr. Adamson: Yes. A couple of weeks ago we met with senior officials at ISED, NRCan, Finance and Environment, and we will be back for further discussions with them in a couple of weeks.
Senator Patterson: Can you give me a hint as to how those talks went?
Mr. Adamson: Those were really in some way introductory sessions, so we weren't making asks for funding or anything. We got very strong indications of alignment at the political level with senior officials, as well as within the bureaucracy at the deputy minister and assistant deputy minister level. Across the board we saw very strong support as to alignment with the objectives of the government.
As you work your way further down into the organizations, sometimes the level of support is less enthusiastic, but that's another issue.
Senator Mockler: We visited the town of Estevan, Saskatchewan. They came out with a carbon capture and storage facility, and information was shared with us. I have two questions for you on your presentation and the studies and the investment from abroad on this CCS innovation process.
Are there any other CCS projects you know of in Western Canada that are similar to Saskatchewan?
Mr. Adamson: They're all different in their own way. The aqua storage project, which I think is the one you're talking about in Saskatchewan, is about a two-kilometre deep well. It's a very high pressure and deep injection, and they are doing their measurement, monitoring and verification. Ours is quite complementary to that work.
The Shell Quest project is a much larger volume injection than happens at aqua store and is almost the same depth, I believe. Those are the two deep injection sites, and CaMI is this intermediate, shallower site.
Senator Mockler: Do other countries apply that technology, in your experience?
Mr. Adamson: Oh, yes. There are no other countries with what we have, but the deep injection sites are in the Middle East, Norway and Australia. There are a number of injection sites around the world.
Senator Mockler: What role should government play with industry when you look at trying to meet the target of emissions?
Mr. Adamson: First, it's absolutely critical that the policy and regulatory regime pathway be clearly defined into the future, especially on the industrial side. Whether it's a carbon tax or a cap-and-trade system or whatever the regulatory regime, it needs to have sufficient clarity for a long enough period of time that investment decisions can be made and that type of thing.
Also, there's a lot of innovation work going on and a lot of exposure to risk and mitigation of that risk through the development of these technologies, whether it's first-off demonstration projects or support for smaller-scale pilot levels as these technologies get scaled up. I think that's another area to help mitigate the risk.
Senator Mockler: Is there a sense, in your experience — you were here when we had the previous witness — that we could have a lot of companies leaving Canada because of it? If so, which sector of the economy would be most impacted?
Mr. Adamson: I think if the policy and regulatory regime is handled appropriately we can avoid that — for example, dealing with some credit for trade-exposed industrial sectors. I'm not a policy expert, but my sense is there's room for that.
I mostly deal with technology developers in this space. We're finding that we're attracting industry developers, SMEs, from the U.S. and from Europe to establish themselves here and to develop and commercialize their technologies here, because we have a policy and regulatory regime that's clear. There's greater clarity here than in many other areas, especially in the U.S.
In fact, I mostly deal with companies that want to sell into this marketplace because they're selling technologies for carbon emission reductions. So I probably am not an appropriate sample size for that.
Senator Mockler: With the experience that we have, there's only one province that we can all look at for success stories, and that's B.C. If you have a recommendation for government, would you recommend that we apply the B.C. formula?
Mr. Adamson: I would say that every province has a different mix of industrial and different types of emissions sources. The blend of regulatory or policy regimes is likely to be different for each area.
B.C. doesn't have very large-scale industrial emitters. Alberta has very large-scale industrial emitters. Specified gas emitter regulations or some variation of that which deal with marginal emissions from large-point sources makes a lot of sense for Alberta, but it doesn't for B.C. Carbon tax to mop up all the other bits and pieces that are harder to get with something like that makes sense.
It makes sense for Alberta to have a mixture, and it makes sense for B.C. to have a straight up carbon tax. Every province will have a slightly different scheme because of the mix of industries and emissions sources.
Senator Fraser: I wanted to ask you about your models. I gather you built into your models flexibility on policies, and I don't know enough to be able to ask you much more about that.
But I would like to know a little bit more about CMC. It's a non-profit, so I assume you rely on funding for the projects that you're engaged in. Where does most of that money come from? You talked about the European Union. Are there Canadian companies, for example, supporting the work you do?
Mr. Adamson: There are oil and gas companies that are subscribers. But Shell out of the Hague rather than Shell Canada subscribes to the work because of its international application.
Originally, we were funded as a network of centres of excellence and funded academic-led research. The federal component of that funding was used under that program, but we had Alberta government funding, which has been our startup capital for the new business model.
The key challenge we face is that many of the individual institutes with project funding — many of the projects assume that you're working with either a government lab or a university, so they prohibit general, administration and fee.
Senator Fraser: The core funding.
Mr. Adamson: The core funding. So it's very hard to generate enough out of the institutes to float it up to support the head office.
That's the key challenge we're dealing with right now. We're in the process of working with the federal government to try to establish some kind of core funding support.
Senator Fraser: What kind of staff do you have?
Mr. Adamson: The head office staff: communications, finance and me, which is business development basically. We have a total of five people in there.
Senator Fraser: Then for contracts with projects, you bring other people on board?
Mr. Adamson: The institutes themselves have staff. I was talking about head office.
Senator Fraser: That was my question.
Mr. Adamson: The institutes also have staff, but we operate as what I call a "semi-virtual organization.'' We have key technical program or project leads in the institutes, but we don't do entire projects ourselves; we always do them in a consortium. We'll have a head cat-herder on a project, and then we'll have three or four or five partners we're working with on any given project.
Senator Fraser: What's your own background?
Mr. Adamson: I'm an electrical engineer, but I've spent the last 35 years working on commercialization of new technologies.
Senator Fraser: When was CMC started?
Mr. Adamson: Six and a half years ago.
Senator Fraser: It's an impressive story you're telling.
Senator Mockler: There is a feeling out there that depends on the region of Canada, there is no doubt — but there is a feeling out there that governments could use that approach to have more tax. We say government loves to tax and spend. What do you think about that?
Mr. Adamson: Government could do it a number of different ways.
An interesting issue is if you look at demographic problems, income tax is really not a very good sustainable structure for funding government. I'm not an economist, so I'm going to get myself into hot water here. Really the issue is that as we wind up with an aging population that isn't generating income and fewer and fewer people are in the earning phase of their lives, it becomes a problem. But some form of consumption tax is an appropriate way to deal with that imbalance because it's sustainable, based on the number of people who are consuming.
A carbon tax actually takes the best concept of a consumption tax by building into it an incentive toward preferred behaviour, as well as collecting revenues. Personally, I find the concept of a carbon tax, as moving the economy away from income taxes and toward carbon taxes as a central means of collecting revenue for operations, is an interesting pathway to go, but that's probably not a popular perspective.
Senator Fraser: That is in a sense what B.C. did: They brought in a carbon tax and they had a compensatory income tax reduction.
Mr. Adamson: Yes.
Senator Mockler: I want to come to another aspect of that great debate just commencing across Canada, and that is the role of our forests. When you look at agriculture and forestry, we know what agriculture does with the fertilizer side of it, and we know what trees do. Do you have any comments on what role the forest sector should play in Canada for CO2?
Mr. Adamson: There is a significant amount of work that needs to be done on the whole area of what they call land use and land use change factors.
Aside from that, one of the possible institutes we're looking at developing I refer to as carbon storage in the built-in environment. There is a wide range of technologies that could result in locking carbon into infrastructure. The use of wood and wood products in a number of ways — not just the traditional ways but in novel ways — could be one of them.
Another one in our carbon capture and conversion technology area is the mineralization of CO2 into aggregate and cement and concrete products, et cetera. There is a spectrum of ways in which CO2 binding into products could be used.
Anything you turn CO2 into, you need a lot of it to be able to impact the kind of emissions levels we have. The built- in environment infrastructure is one of the places where we use a lot of stuff, so the whole idea of finding new ways of binding CO2 into the built-in environment including from the forestry sector is an important one.
The Chair: I have a couple of questions for you — just a few — and then we'll be done. Again, I want to thank you for staying and for your presentation.
The information we have from the Ministry of the Environment says that we have to find a way, before 2030, to meet the target of 30 per cent below 2005; by 2030, we have to get rid of 291 megatonnes.
That's not that long from now. Do you think the government is on target to remove that many megatonnes by 2030?
Mr. Adamson: I think we need to be more aggressive than we have been, but it is achievable.
The Chair: At what cost?
Mr. Adamson: I think what we'll find is that the cost will be much less than it appears right now. You asked about the variation of different types of policy arrangements. In our modelling, we looked at direct regulation for things like the automotive sector and the building sector. We looked at specified gas emitter regulations for large emitters and also, essentially, cap and trade, a carbon tax, for the rest of it. What we found was that the cap-and-trade system, by 2050, had to float to a value of about $250 per tonne, which is very high. If you tried to aggregate everything together and said, "We're just going to do it with a price on carbon,'' it became closer to $700 per tonne.
The thing that was really interesting, though, is that prior to the implementation of the cap-and-trade system on sulphur dioxide in the coal-power sector in the U.S., the economists' best guess was that in order to achieve the emission reductions they required, the cost per tonne would have to be $700 per tonne. It never exceeded $200 because of innovation. If we put the policy and regulatory regime in place and have the signals very clear and support the innovation process, I believe that we will be able to achieve the changes that we need at a much more cost-effective rate.
Innovation will not drive the rate of change. Policy will drive the rate of change. Innovation can only assist in the cost of getting there.
The Chair: Transportation in 2030 is expected to be 164 megatonnes, so we have to reduce that by 30 per cent. How do you think that we can change transportation across a country as large as Canada, hugely different in different areas? I know that central, in cities, there are electric vehicles. That doesn't work when mom and pop want to head across the country. How do you see that taking place?
Mr. Adamson: It's certainly very challenging. There are breakthroughs in battery technology that are coming that are likely to increase the range of those electric vehicles for personal transport, but personal transport isn't the big issue.
The big issue is heavy-hauling trucks and trains and marine transport and, of course, aircraft.
There are alternatives in terms of fuel choice, fuel switch out, for example, biofuels, and there are alternatives in terms of moving to non-carbon-based fuel systems.
The Chair: Like?
Mr. Adamson: Hydrogen, ammonia —
The Chair: Hydrogen isn't just something you take out of the air. Hydrogen has to be created. You either do it through electricity or through fossil fuel.
Mr. Adamson: Absolutely, and greening the grid and growth of the low-emissions sector on the grid is absolutely required, whether it's through fossil fuels with carbon capture and storage, whether it's through nuclear or through renewables.
The other thing that I tripped on myself, just a moment ago, is really important to understand. We get ourselves tripped up with the language of renewables versus non-renewables. That conversation actually is a conversation from the 1970s fuel crisis that just happens to have dragged itself into the 21st century. We don't have a fuel problem; we have an emissions problem. It really doesn't matter whether things are renewable or non-renewable. What matters is whether we have emissions from them. We need to look at solving that problem.
The Chair: At $200 a megatonne, to reduce 291 megatonnes, the staff just provided me the figure of $58 billion. That's between now and 2030. Somewhere, if we're going to meet that target, we need $200 a megatonne to reach that target. I'm using your number. That's $58 billion. Where does $58 billion come from between now and 2030?
Mr. Adamson: That is why the policy regime needs to be carefully crafted and not try to use one hammer to hammer all nails because, if you try to do it all with a carbon price, that's what you're going to wind up with. There are going to be sections of the economy where it makes more sense to go straight to direct regulation, building envelopes, personal transport. If you try to get everybody to move to electric vehicles simply by applying a carbon tax and driving up the cost of fuel, you're going to have to push that tax a long way.
The Chair: You're also going to have to build a lot of electricity, and our electricity is already 85 per cent clean.
Mr. Adamson: Yes, and we are going to have to double our electric power generation, and we're going to have to go with low emissions in electric power generation. There is no question that a lot of investment is required.
The Chair: I had a chance to meet with a person from Germany who was doing a lot of work in their green technology. They're still at 52 per cent coal, and their average cost to a resident is 40 cents a kilowatt hour; on average, across Canada, it's 10 cents. So, if you want 40 cents, just multiply your bill by 4 when you go home, and you can quickly see. That's just your electricity cost.
I look at some of these things as not insurmountable. We can work to do them, but I also look at information that I get: 2,400 coal plants are going to be built in the next while. Not everybody in the world is going to actually look at reducing carbon. In fact, most of them are going to increase it.
At the end of the day, I think we also have to look at adaptation in a real serious way if, in fact, the oceans are going to rise by how far — it depends who you listen to — and those kinds of things. Would you agree with me that it's not just a matter of reducing carbon? We can do all of those kinds of things and have no economy and not have any effect on what's happening with climate because we're such a small part of it.
Mr. Adamson: I believe that, in September 2015, at the Climate Leadership Summit at the UN, I was in the halls when that happened, and we turned a corner there in terms of international commitment.
You're absolutely right. Not every country is going to go all the way on this, but, really remarkably, China is stepping up, and some of the major players are stepping up in a big way. I believe India will, although their decision- making progress is a little less elegant than China's.
The point really is that I agree with you that we're unlikely to make the 2-degree-Celsius target. I believe we will overshoot and have to recover from an overshoot through negative-emission technologies of one sort or another. I don't see a way around it. As you say, the global issue is too large. That isn't a reason not to be pursuing this.
The Chair: No, that's right; I'm not saying we shouldn't. That's not what this committee is saying. What we want to do is be reasonable so that we don't actually, as we just heard from the last presenter, lose a whole bunch of industry, lose a whole bunch of jobs, so that Fred and Martha can actually continue to live.
Mr. Adamson: I believe that one of the key issues is that we have border-adjustment arrangements, as you were talking about. There are other ways of trying to maintain dealing with that fairness issue, that ability of the local industries not to flow overseas.
The Chair: I commend you for looking at carbon capture and storage, which I think is probably something that we're ultimately going to have to do. The IEA says the increase in fossil fuels in the next 50 years is only going on a trajectory this way, not that way.
What part of southern Alberta are you located in?
Mr. Adamson: Near Brooks.
The Chair: I'm a boy from southern Alberta, and I grew up on a farm. Every farm that I know of had a flowing well, an artesian well. You didn't have to drill very deep because the gas is so close to the surface that it pushed it out. All those flowing wells, you could take up a match, hold it alongside the water, and it would light up. That's what happened there.
You're doing this in Brooks. Obviously you're going to have leaks. Is it 300 metres you're going down?
Mr. Adamson: Yes.
The Chair: A thousand feet. Obviously there will be leaks. Is that the reason you're doing that? Why wouldn't you look at the one in Saskatchewan or Alberta? They're going 3,400 metres, and they're going through some impermeable surfaces. They're cementing their casing to hold everything down there, and they monitor any leakage, at least that's what we saw.
Mr. Adamson: Well, yes, but we have done all the bonding processes required to prevent leaks. There are very tight seals above where we are injecting. We're injecting a small amount, only about 1,000 tonnes a year, and the intention is to simulate a leak. It isn't to simulate an injection zone.
The idea is if we were to inject at 1,000 metres, you would have supercritical pressure seal. The density would be very high and hard to detect.
We're trying to prove out the use of that intermediate geology as a zone to safely detect early and respond before it gets to the surface.
The Chair: But you're not going through an impermeable surface as they are at 3,400 metres.
Mr. Adamson: Yes, we are going through several impermeable layers of shale and mud, stone and a coal seam. There are a number of layers there that we go through. It's intended to be impermeable all the way to the zone.
We also have a 500-metre depth zone that we haven't developed yet.
The Chair: I would be interested in more information on the impermeable zones. I'm not aware of any of those that close to the surface, but I'm not a geologist, either.
Mr. Adamson: I'm happy to provide that. I rely on the rocks. I'm an electrical engineer, after all.
The Chair: Thank you very much. The meeting is adjourned.
(The committee adjourned.)