Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 16 - Evidence - March 6, 2012
OTTAWA, Tuesday, March 6, 2012
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:45 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good evening. I will call this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources to order as we continue our study into the energy sector. It has been ongoing for the past three years. Tonight we are privileged to welcome some gentlemen from the government. In particular, I believe we have two panels this evening. Our first one is from Natural Resources Canada, and I will introduce our guests in a moment. I wanted to welcome everyone. I want to welcome the viewers on the CPAC network and the World Wide Web and our dedicated site.
I wanted to say this study we have been doing on the energy sector began with a trip to Washington nearly three years ago, or maybe even three years ago. At that time, it was a different atmosphere in the sense that Minister Prentice, I believe, was the Canadian Minister of the Environment, and President Obama came here for a day. One of the things that were outlined was how important it was that Canada and the U.S. work together. We went down to Washington, and we met with a lot of the main stakeholders on the energy and the environment file. We were operating on the basis that Canada and the U.S. were working together with a view to going to Copenhagen and various other things. Since then, I think there have been tremendous changes in the sense that things have simply happened. They have evolved in the world.
Our study is about getting people understanding the energy sector. Let us talk energy. We find that theme has sort of registered with Canadians. Indeed, there is a dialogue. I know of at least two other organizations that have sort of a catch line "let us talk energy." Of course, it involves natural resources and the environment.
Anyway, we had this trip to Washington, and we felt it maybe would be appropriate to conclude our study with another trip to Washington and compare what we would find out today with what we learned on our initial visit. However, given the exigencies of time, money and resources here, we felt perhaps we could learn as much as we needed to know about the evolution that I have just referenced and what is going on today between our two countries from those of our people in government who are dealing with this on a daily basis.
Colleagues, we have invited people from NRCan, DFAIT and Environment Canada to join us and tell us about their files and about the main issues.
For our first panel, we have, from NRCan, Mark Corey, ADM for Energy; and Doug Heath, Director, Oil Sands and Energy Security Division. From Foreign Affairs, DFAIT, sitting at the table is John Allen. All of you have met with some or all of us at one time or another. I am delighted you could come tonight. I think we gave you sufficient notice, unlike maybe some other committees, so I hope we will have useful input tonight. We will hear from each of you and then we will have questions and answers.
We are keen to know whether Canada is operating independently at the moment, and we are working in lockstep on some aspects of the clean energy dialogue. There is the issue with Keystone. There is a lot of bilateral static in the air in energy, but there is no doubt that energy is a volatile word and current word and subject matter, and it has geopolitical implications that are profound. It is important, before we go to print with our report, that we understand the current dynamic between Canada and the U.S. on the subject and various Canadian provinces and some U.S. states that are at play. If we conclude from what you folks tell us, we will go to Washington, if you counsel us to do that. Hopefully we will learn a lot here tonight.
Without further ado, I am Senator David Angus. I am from Quebec, and I am the chair of the committee. To my right is our colleague Senator Grant Mitchell from Alberta. He is the deputy chair. These folks are analysts and very able folks from the Library of Parliament, Marc LeBlanc and Sam Banks. Senator Richard Neufeld is a former minister in the British Columbia government on this very subject matter of natural resources and energy. Senator Bert Brown, from Alberta, is also very experienced in the oil patch and all the things that go on there. I think he had a gusher right in his own backyard. We finally discovered the Rolls Royce when we went to Calgary recently. From New Brunswick, where they are now becoming great experts in fracking, we have the Honourable Senator John Wallace, who, with other colleagues from New Brunswick, has been welcoming to their province recently big American experts in shale gas and telling them about the wonders of fracking. This is another issue between Canada and the U.S, because shale gas has become a huge and real resource that can be gotten at and therefore gets to the energy security question in the U.S. From the province of Quebec, we have Senator Judith Seidman. To my left is our clerk, whom I think you know, our very able clerk, Lynn Gordon. From the Northwest Territories, we have Senator Nick Sibbeston, and another northerner, from the Yukon Territory, Senator Dan Lang. We have another Quebecer, from Montreal, Quebec, Senator Paul Massicotte. Tonight I welcome someone filling in for Senator Peterson from Saskatchewan. Senator Chaput is absolutely welcome here. We are delighted to see you. We just had a wonderful visit to your province, and we went to the greenest building in the world, the Manitoba Hydro building. Again, we heard a lot about the U.S. because there seems to be a big north-south element to this whole energy field.
Without further ado, please proceed, Mr. Allen from DFAIT. Thank you for being here.
Jon Allen, Assistant Deputy Minister, Americas, Foreign Affairs and International Trade Canada: Thank you, Mr. Chair and senators. It is a great honour and pleasure for me to be here. I will focus my remarks on the Keystone XL pipeline and the approval process in the United States and related issues. In my comments I will touch on why the oil sands are a critical, strategic resource for Canada; the importance of Keystone XL for the Canadian and U.S. economies and for energy security; the review process and the current state of play vis-à-vis that process; as well as certain views in the United States.
The Chair: That will be great to hear. You may know that our Canada-United States Inter-Parliamentary Group had a delegation in Washington last week, and I gather that everyone down there wanted to talk Keystone.
Mr. Allen: I was speaking by phone to the embassy earlier today, so hopefully we will be giving you a consolidated view. Of course you are welcome to take a trip down to confirm and engage.
The Keystone XL project, often referred to as KXL, is a proposed $7.6-billion expansion of the existing Keystone pipeline that will bring oil, mainly derived from oil sands from Alberta, to refineries on the U.S. Gulf Coast.
The oil sands are a key strategic resource that contribute to economic opportunity and energy security for Canada, North America and the global market. Every day Canada supplies the United States with approximately 1.9 million barrels of oil, nearly half of which is derived from the oil sands. The strategic value of Canada's 170 billion barrels of proven oil reserves, the third largest reserve in the world, cannot be overstated.
In Canada, the oil sands industry is one of the country's largest direct employers, with approximately 132,000 people deriving employment from it. According to the Canadian Energy Research Institute, an independent Canadian think tank that specializes in Canadian energy issues, the oil sands development is expected to contribute $2.3 trillion to the Canadian economy over the next 25 years and support an average of 480,000 jobs annually under a production scenario that includes only existing infrastructure.
As oil sands production increases, most of the increased production will go to U.S. markets, requiring new cross- border pipelines to be built. The KXL pipeline would facilitate long-term access to secure oil supply from a friend and ally and thereby help reduce U.S. dependence on imports from less stable or declining foreign sources.
Let me now touch on the KXL review process in the U.S. TransCanada Pipeline filed its application with the U.S. Department of State in September of 2008. The Department of State, which has delegated authority to issue presidential permits for cross-border pipelines, engaged in a lengthy review and consultation process for the KXL permit application which, as you know, was ultimately unsuccessful.
Over the course of 2009 and 2010, as part of the presidential permit review process, the State Department prepared a draft environmental impact statement, or EIS, consistent with the National Environmental Policy Act.
In April 2010, the State Department released the draft EIS for KXL, which began an inter-agency consultation process and a 45-day public comments period, including 21 public meetings in communities along the proposed route. As a result of public and congressional interest, the public comment period was twice extended by an additional 15 days and additional public hearings were added.
Then, in response to concerns expressed by the public, Congress and various U.S. agencies, notably the U.S. Environmental Protection Agency, the State Department decided to undertake a supplemental EIS, which was released in April 2011 and which initiated another 45-day public comment period. The State Department subsequently received over 230,000 public comments in response to that latter comment period alone.
On August 26, 2011, the State Department issued the final EIS, which found that there would be no significant impacts to most resources along the proposed project corridor. As well, TransCanada had agreed to incorporate 57 project-specific special conditions developed by the U.S. Department of Transportation's Pipeline and Hazardous Materials Safety Administration.
The saga was not over. The release of the final EIS began a 90-day national interest determination. This broader evaluation of the application extended beyond environmental impacts and took into account economic considerations, energy security, foreign policy and other relevant issues.
For the national interest determination, the State Department decided to hold additional public hearings in the six pipeline states — Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas — and also in Washington, D.C., and to receive additional public comments.
The September 2011 hearings in Nebraska highlighted a growing public concern about the proposed pipeline route that crossed the Sand Hills, an environmentally sensitive area, and a desire to see the route moved off the Sand Hills.
In November 2011, the State Department announced that it could not make a national interest determination without further information and directed a supplemental EIS for alternate routes wholly within Nebraska but away from the Sand Hills. TransCanada and Nebraska then announced an agreement to move KXL off the Sand Hills, and they are now working together to agree on a new route.
On January 18, 2012, the State Department recommended to the President that the KXL application be turned down. It cited the Temporary Payroll Tax Cut Continuation Act of 2011, which included a provision that forced a decision on the pipeline within 60 days, as the reason. The Department of State argued that the federal government could not assess a new not-yet-announced route in Nebraska within such a short period.
In his statement of concurrence, the President said, however:
This announcement is not a judgment on the merits of the pipeline, but the arbitrary nature of a deadline that prevented the State Department from gathering the information necessary to approve the project and protect the American people.
Since then, TransCanada has indicated that it would reapply, and I understand that a TransCanada spokesperson today out of Houston indicated that they would reapply within five to eight weeks.
The State Department has stated that, to the extent that the new application is the same as the previous application, both the National Environmental Policy Act and the internal State Department procedures allow the State Department to assess information from the previous application. It noted, however, that a determination as to how much information may be accessed and how this information may shorten the assessment time cannot be made until the new application is filed.
On February 27, TransCanada announced that it would proceed with building the Gulf Coast segment of the Keystone XL pipeline from Cushing, Oklahoma, to Port Arthur and Houston. Construction will begin as soon as remaining required permits from federal, state and local entities are obtained, with a possible in-service date of mid- to late 2013.
In addition, TransCanada stated its intention to file a separate Presidential Permit application with the Department of State in the near future for the northern segment of the pipeline from the Canada-U.S. border to Steele City, Nebraska. TransCanada will supplement that application with an alternative route in Nebraska as soon as that route is selected.
As you have just heard, the KXL pipeline has undergone a lengthy and intensive review over the last few years. With the assurance of a change of route in Nebraska, KXL enjoys wide support from both Republican and Democratic politicians in all the six impacted pipeline states. This includes all 6 governors, all 12 U.S. senators, and 42 of 46 U.S. representatives.
The Chair: What are those six states, just for the record? Did you mention them already?
Mr. Allen: I did, but I can mention them again. They are Montana, South Dakota, Nebraska, Kansas, Oklahoma and Texas.
The Chair: Thank you, sir.
Mr. Allen: Indeed, no one is opposed, but four of those representatives have not taken a public position. This is not a case of NIMBY. None of the politicians in the states concerned oppose the pipeline.
There are continued efforts within Congress to permit KXL. Congressional proponents of KXL have pushed for new legislation to expedite the project. Nevertheless, there is as yet no clear path that would see any new legislation that would jump-start the KXL permitting process. The Government of Canada has undertaken extensive advocacy efforts and outreach to key U.S. decision makers and influencers. In this regard, we have worked with the Government of Alberta and TransCanada Corporation. We will continue to watch the debate unfold in the U.S. and advocate on behalf of the project as appropriate.
Thank you again for this opportunity to speak before you. I would be pleased to answer any questions that the committee might have.
The Chair: Thank you, Mr. Allen. We will hear all your colleagues before we go to the questions, except for one, just while it is fresh in my mind. You say TransCanada Corporation has announced that they will go ahead with that southern segment, but how can they do that? They cannot go ahead, can they?
Mr. Allen: The southern segment is wholly within the U.S. and does not require the same permitting process.
The Chair: I see. It could go, then, with the permits.
Mr. Allen: It could go; that is right.
The Chair: Thank you.
Next would be Mark Corey, I believe.
Mark Corey, Assistant Deputy Minister, Energy Sector, Natural Resources Canada: Thank you, Mr. Chair.
What I think we had been asked to talk about tonight is low-carbon fuel standards, specifically the California low- carbon fuel standard. While it is not in the United States, we thought, if you are in agreement, we would also talk a little bit about the European Fuel Quality Directive, just to contrast the two, and it is probably instructive to look at the two standards together.
The Chair: That is fine. Your discussion will include how Canada is involved, dealing with their counterparts, on a common approach to this issue?
[Translation]
Mr. Corey: Absolutely. As you mentioned, my name is Mark Corey, and I am the Assistant Deputy Minister of the Energy Sector at the Department of Natural Resources Canada. I am accompanied by my colleague Douglas Heath, Director of the Oil Sands and Energy Security Division. Amongst other things, I am responsible for federal policy for the Canadian oil and gas sector including crude oil, refined petroleum products and natural gas, south of the 60th parallel and in frontier lands. I am here today to speak to the committee on low carbon fuel standards.
[English]
The Chair: I am just caught by "I am responsible for federal policy for the Canadian oil and gas sector." Of course, the cabinet is responsible for government policy, but you are the main man in terms of the bureaucracy and in advising government in oil and gas, in the oil industry.
Mr. Corey: We are very busy these days. We have a whole number of issues on which we are quite popular appearing before standing committees, both of the Senate and the house as well. Yes, absolutely.
The Chair: We were surprised to hear today that your boss — I guess titular boss, Minister Oliver — cancelled a speech somewhere. It was all written up. I think it was in New Brunswick.
Senator Wallace: Moncton.
The Chair: Did you know about that? We thought maybe he had too much natural gas there or something.
Mr. Corey: No, I am unaware of that.
I will walk through the slide deck.
[Translation]
First, I will provide an overview of the goals of these measures. Second, I will briefly describe California's Low Carbon Fuel Standard, or LCFS, and the European Union's —
[English]
That is the Fuel Quality Directive, FQD.
[Translation]
— Fuel Quality Directive, and I will conclude by outlining the Government of Canada's position on fuel standards in both cases.
[English]
The third slide: In general, in terms of the objective of a low-carbon fuel standard, it does really three things. They are looking to reduce greenhouse gas emissions in transportation fuels, particularly gasoline and diesel; they are looking to support markets for low-GHG-emitting things like biofuels, alternative fuels, or develop other forms of GHG offsets; and they want to encourage the development of clean fuel technology.
To do this, they introduced low-carbon fuel standards to regulate the amount of GHG emissions that can be associated with gasoline and diesel. We have two major jurisdictions now, California and the European Union, who are trying to implement such low-carbon fuel standards.
The Chair: Just so we quickly get an overview, is this part of what they call the Clean Energy Dialogue between Canada and the U.S.?
Mr. Corey: No, that is different. In fact, our colleagues will be coming in the second hour to talk about the Clean Energy Dialogue.
In California, a brief overview of what they have done: They started in 2007, created on the basis of an executive order by then Governor Schwarzenegger. The measure requires fuel suppliers to reduce the carbon intensity of gasoline and diesel supplied to the California market by 10 per cent by 2020, starting in 2010.
Of note, there have been some significant legal issues with it. The first version was never actually implemented. A second version was adopted in September of 2011 and has a January 2013 start date.
It is a bit complex, because after they introduced the second one on December 16, on December 29 there was a court ruling that basically threw the measure out. In December 2011 — that is the end — the U.S. Federal Court in California issued a set of rulings against the first proposed LCFS regulation, finding it potentially violated provisions under Article 1 of the U.S. Constitution related to interstate commerce. The court found that the LCFS discriminated against out-of-state ethanol producers, provided an economic advantage to California heavy crude over foreign heavy crude, such as oil sands, and had the effect of regulating commerce in terms of fuel production and transport occurring in other states.
That is now being appealed by the California Air Resources Board, who are arguing that the second measure they brought forward in fact is in compliance. That is where it stands before the courts right now.
I will now tell you a little bit about how the second one would actually work.
California fuel suppliers are required to reduce it by, as I mentioned, 10 per cent. They are looking at doing four things. First, they can decrease the emissions of fuel by blending it with lower-GHG-emitting things, like biofuels. Second, they can purchase credits from companies that provide alternative transportation fuels, such as, for example, low-GHG-intensive electricity. There is a credit scheme. Third, they can create credits by investing in certain innovative technologies, so again it is a credit scheme. Fourth, they can offset emissions by increases in other reductions within the state of California. Again, it is a credit scheme. They can either blend with biofuels or use credits from other areas.
If yearly GHG averages increase from the base years to others, then companies are required to make even further reductions to make up the difference.
[Translation]
The original version of the LCFS gave Californian crude preferential treatment, even though it was similar or higher in GHG intensity than other crude oils, including the oil sands. This treatment was found by U.S. courts to be discriminatory. Another assessment of the revised version is still ongoing. However, on its face, it would seem to treat fuels with similar GHG intensities in the same manner. In our view, that means that it is fairer, but, over the coming months, Canada will remain vigilant to ensure that oil sands crude is fairly assessed and GHG profiles are accurately calculated.
[English]
We will be watching the details, but it seems that they probably have overcome some of the more discriminatory parts of the measure. Again, a lot of it will be in the details of how they implement it.
The Chair: I find it odd that under the American Constitution, they do not favour their own suppliers and producers, it would seem. Is that right?
Mr. Corey: It is an interesting point. Canada's position has always been that we are okay with people treating oil sands as a more GHG-intensive fuel, so long as all the other GHG-intensive fuels in the world are treated the same. California heavy crude has a GHG intensity that is not all that much different than the oil sands. In this case, we have insisted that it be treated in a similar fashion to oil sands. It looks like California will be dealing with crude oil on a case-by-case basis dependent directly on the GHGs produced in its production, which for us, as far as the principle goes, seems fair.
The Chair: Somebody went to court and challenged the constitutionality of that first version. Was Canada a party to that litigation? We were the ones being discriminated against.
Mr. Corey: No, it was basically industry that took that case to court.
The next slide is on the European Union's Fuel Quality Directive, which was introduced in 2009 as part of the climate and energy package by the European Council. They are aiming to achieve a 20 per cent reduction in GHG emissions by 2020. The Fuel Quality Directive looks at reducing the carbon intensity of fuel supplied to the European market by 6 per cent by 2020, which is over 2010 levels.
They have been trying to implement this since its adoption. They have considered a number of approaches over the past three years. In October 2011, the final version, which is being considered currently, was introduced. You may have read about this in the newspapers: In February 2012, there was a technical committee dealing with this. The vote in the technical committee was that it was rejected — a weighted vote. Again, each country has a certain number of votes depending on its size, and 89 votes were in favour of the measure, 128 votes were against, and 128 abstained. In our view, a lot of the abstentions were people who had serious problems with the measure but, for whatever reason, decided to abstain rather than vote against it. The European Commission, in spite of this vote, is moving to the Council of Environment Ministers of the EU to see whether they can get the European ministers to pass it without the support of this technical committee.
Senator Lang: Is it normal or extraordinary when a measure is voted on and dealt with at the member states technical experts? Is it normally just left there?
Mr. Corey: Not being an expert in the procedures of the European Union, our understanding is that this is how it works, and that being defeated in the way that it was, it goes to the European Union environment ministers next, who will look at it. For example, should they approve it, it could then go to the European Parliament for a final vote in spite of the fact that the technical committee — the people who really understand the refining industry and who know the business — either voted against it or overwhelmingly abstained. Yes, it is part of their process over there.
In terms of how the actual Fuel Quality Directive works, they have not separated the world into different categories of crude oil so that there is this GHG intensity here and this GHG intensity there and this is how we were going to situate it. Rather, it is based on breaking the world into conventional and unconventional feedstocks. They have a basket called "conventional crude," which has everything from light crude to heavy crude in it. Remember, heavy oil that is extracted from the oil sands. They then have a second category that is called "natural bitumen, which is where the oil sands fit. They have another category called "oil shale." As you can see from the chart, the difference is between, for example, an intensity of allowed 87.5 and 107 grams of carbon dioxide equivalent per megajoule of energy. That is a 22 per cent difference. They are saying that the oil sands are different than all other, for example, heavy crudes or other light crudes, and that the difference in GHG intensity, you would think from this, was actually 22 per cent.
On the next slide, however, you can see that heavy oil is basically heavy oil. This was published by the Cambridge Energy Research Associates in 2011. Looking towards the bottom of the chart, you can see Angolan heavy crude, California heavy crude, the Middle East heavy crude and Venezuela is in that. The red bar indicates fuel of combustion; 80 per cent of GHGs produced are from the car or from the truck and the other 20 per cent are in the production. Those red bars are not all that far apart. The low oil sands, which tends to be surface mined, actually has lower GHGs than Nigerian light, Angolan light, Venezuelan partial upgrade, California heavy crude and Middle East heavy oil. We are saying that even if these things are not exactly correct, they are not that far off. Canada's view on this is: If you are going to bring in a measure that deals with GHGs, this is the basis on which you should be dealing with it — on GHGs and not on some artificial thing like feedstock.
Senator Massicotte: On that specific chart, do Angola and Venezuela produce as much oil as we produce per day?
Mr. Corey: We could get those figures. I do not have them today, but, for example, they do sell into the world market.
Senator Massicotte: Is it significant enough that it is a good comparable?
Mr. Corey: The European Union currently imports heavy oil from Venezuela, Iran and Saudi Arabia and from Russia, Nigeria and Angola. This is light crude, and the interesting thing about light crude is that there are different ways of producing it. For example, if it has extensive flaring of natural gas or if they just vent the natural gas into the air, which is a production technique that is frowned upon but done in some parts of the world, you could actually have GHG intensity on light crude that is actually higher than the oil sands.
Senator Massicotte: If you can get back to us on the production of those comparables, I would appreciate that.
Mr. Corey: We can do that.
Our view on that in terms of GHG intensities is that that is the basis on which the measures should be taken.
The next one just basically says that we feel that the measure is ineffective for a number of ways. First of all, the European Union does not actually import a lot of oil sands into the European Union. If there is any from Canadian oil sands going in, it would possibly be through the Gulf Coast in the United States where some oil sands is exported now. They basically produce some diesel that then gets sent to Europe. There is not much crude from Canada going, and yet this is one of the centrepieces of the Fuel Quality Directive, so they are targeting somebody that they do not really import from.
As well, regarding some light crudes that are heavily flared or vented or even other heavy crudes, we would argue that you really need to look at the GHGs coming from those crudes; and they are not doing that. They are basically getting a free ride. These other crude oils are coming in at 22 per cent less than the Canadian into the U.S. market if this measure goes into effect.
The final thing is about transparency. Canada is a transparent country. We are open and we put out all the information on production. Other countries do not quite do the same. In fact, a lot of them report very little. The European Union, where they do not have the statistics, basically says, well, we do not believe that they are producing the GHGs, and so they are into that bottom category of 88 per cent. This sets up a situation where you discourage countries from being transparent and reporting fully, and you encourage countries that do not report to basically never report. That is another problem we have with the measure: It actually discourages and penalizes transparency.
The next slide talks about the fact that normal practice in the European Union is to do an impact analysis on any major measure. They have not done one on this measure, so our argument with them is that this will require suppliers in the EU to put tracking and tracing measures into place, which will add to their costs. They have no studies done that actually track what the impact of this will be. Our view is that they will probably do some of this work in 2015, when they will come back to do further work; and we think they should probably do that work now.
The next slide talks again about transparency and the fact that we provide full information and a number of other countries do not. We are going to basically discourage those countries from ever providing full information if the measure goes in the way it is.
You can see there are two different approaches. We have the California approach that seems to be moving towards actually judging individual crude based on the GHG produced in its production. We have the European Union approach that has these arbitrary measures of feedstock, which, in our view, is not really directly related to GHGs. We will be watching California closely to make sure that, as the details evolve again, we feel that it is fair. We will be continuing to work with the European Union to make sure that decisions they make are based on fact, hopefully do not discriminate against Canadian crude oil, and do not punish transparency.
Again, that is just a bit of a contrast between the two measures and the work that we have been doing on them.
The Chair: Thank you very much, Mr. Corey.
Mr. Allen, at the outset of your remarks you mentioned that Canada ranked number three in the world in terms of oil reserves. Who ranked one and two?
Mr. Allen: Saudi Arabia and Venezuela.
Mr. Corey: Venezuela is number two. That has changed in the last few years. It used to be that Saudi Arabia was one. When Canada moved its oil sands oil into our reserve section, that pushed us well up. We were then number two. It is important to note that we have 174 billion barrels of reserves. Four billion are conventional, and 170 billion are in the oil sands. You can see where our natural interests lie.
The Chair: You do not include anything that is, say, in the Arctic waters, undeveloped offshore oil?
Mr. Corey: No, we are talking about stuff that is proven, that is —
The Chair: Right. We had witnesses here last Thursday from the Northwest Territories government. You may have seen it. They use big numbers in terms of the reserves.
Mr. Corey: Mine are national numbers for proven reserves anywhere in Canada now. Venezuela passed us because they also have heavy oil deposits.
The Chair: Are theirs onshore or in the Maracaibo?
Mr. Corey: Most of it is onshore, I believe. There is some offshore in South America. I believe most of Venezuela's is onshore.
Senator Mitchell: Thank you gentlemen. We greatly appreciate this. It is very useful for us.
My questions are quite technical. What goes through the Gulf Coast portion of the Keystone XL? What oil will go through that if they do not get to do the rest of it?
Mr. Allen: I believe it is existing production in that area that will go through it.
Mr. Corey: Yes, I could elaborate. One of the issues —
The Chair: American oil, though?
Mr. Allen: American oil.
Mr. Corey: It is a combination of a number of things. One of the facts that we have in the North American oil market is that Cushing, Oklahoma, is kind of the centre of a lot of the activity, and there is a bottleneck at Cushing. For us to get oil from Cushing down to the Gulf Coast refineries, we do not have enough pipeline capacity. Having TransCanada Corporation pre-build the southern part actually helps to start unblocking some of the bottlenecking at Cushing. It is also not just from the oil sands. For example, there is a lot of expansion in the Bakken oil play, which is from southern Canada and the northern U.S. It will help to "de-bottleneck" Cushing and to get our prices up by getting our oil to the markets in the Gulf Coast.
Senator Mitchell: You explained that this can be built because it is not international. Does that mean that you do not neat State Department involvement? Is that the difference?
Mr. Allen: You do not need State Department involvement, but you will still need U.S. federal permitting. There is still a process that has to be gotten through, but you are not crossing the borders. Therefore, you do not need a presidential permit in that regard.
Senator Mitchell: That was the specific hang-up in this case?
Mr. Allen: That was the hang-up; that is right.
Senator Mitchell: Will this Gulf Coast portion, breaking that obstacle to getting oil elsewhere, have any effect on compressing the price spread between Brent and West Texas?
Mr. Corey: I think most of the oil analysts would basically argue that de-bottlenecking Cushing and being able to flow western crude all the way to the Gulf Coast more efficiently will actually help to reduce the spread between Western Canadian Slack and WTI, yes.
Senator Mitchell: Do not get me wrong, but one of the big arguments for the urgency of the gateway is to get markets west so that you compress that spread. To some extent, this will help, at least in an interim way.
Mr. Corey: When you look at the expansion of the oil sands and production that is going on in western Canada, we will need a number of these pipelines to deal with the growth over the next few years.
Senator Mitchell: I am just trying to get the economics of the spread.
Mr. Corey: You would have to say that all the pipelines will actually help. We need more ways to get our pipelines to market. I think one of the things our minister has said pretty consistently in public is that the biggest, fastest growing markets in the world tend to be in Asia, particularly in China. Getting it to the west coast helps us get into those big, fast-growing markets.
Senator Mitchell: You think that this second approach to the definition of California heavy crude versus our heavy crude will be useful and hopefully will work for us, and that is great. However, if it does not, do we have recourse under NAFTA?
Mr. Corey: If California heavy crude has about the same GHG emissions that some of the oil sands do and if we were treated differently, I think we would probably argue strongly that we should be treated the same.
Senator Mitchell: Right. If you look at this chart, for the Caspian Sea it is 500 kilograms of carbon dioxide per barrel. That is about half a tonne, right, or a little over half a tonne?
Mr. Corey: Sorry, could you say that again?
Senator Mitchell: If you look at the slide 9, "Well-to-Wheels Greenhouse Gas Emissions," the Caspian Sea's is 500 kilograms. That is about half a tonne of carbon, is it not?
Mr. Corey: Yes, 500 kilograms would be half a tonne.
Senator Mitchell: Give or take?
Mr. Corey: Yes.
Senator Mitchell: Thanks very much. That was great.
Senator Neufeld: Thank you for being here. You made two very good presentations, and I appreciate it.
Mr. Allen, can you tell me, in total, how many days the Keystone XL pipeline was under the public hearing process? I tried to add up the days as you went through. What I am trying to do is just to compare it to Canada's. To get Gateway through, I think we were at over two years, as I understand it, with 4,000 and some presentations and 700 days or something.
Mr. Allen: We started in September 2008, and it was January 2012 when the President and the State Department declined the permit.
Senator Neufeld: They did not have hearings.
Mr. Allen: They did not have hearings that whole time, no.
Senator Neufeld: I am not talking about the first conception of it. I am talking about how many days of hearings.
Mr. Allen: I will have to get back to you on that. There were a number of public comment periods, which were then extended. I can add them all up and provide that to you.
Senator Neufeld: Okay, that would be great.
In the U.S., do they have a number of days that hearings can take place? Do they have a drop-dead date? Some provinces have "x" amount of days for a hearing to take place. Are you aware of anything in the U.S.?
Mr. Allen: I do not think they have a drop-dead date. I think they basically make a determination on whether or not they have heard all the comments. As we have seen, they have extended on a number of occasions and there was no restriction on that. They were basically prepared to hear from any and all interveners and wanted to make sure that they did so.
Senator Neufeld: You have obviously followed very closely; I guess that is your job. Can you tell me whether or not there was a huge Canadian involvement in the environmental hearings, from the environmental side? Were there lots of Canadian environmental groups and organizations that were down in the U.S. saying that we should not build this pipeline? Are you aware of a lot of that intervention?
Mr. Allen: I am not aware of a lot. There were plenty of American groups arguing on both sides. In Nebraska, for example, there were as many people arguing for as there were against. In some cases, they were the unions, for example, the steel workers.
However, I am not aware of a huge number of Canadian NGOs that were down there.
Senator Neufeld: That is interesting in comparison to the number of NGOs funded from the U.S. that we have on Gateway. I just wanted to get some sense of that.
Mr. Corey, in your slide 3, you talk about the three things that Canada is doing for low carbon fuel standards. The second one is support markets for low GHG emitting biofuels, alternative fuels and other forms of GHG offsets. I am interested in the GHG offsets. Can you tell me what Canada accepts as GHG offsets? Do we have that in definitive form, by any chance?
Mr. Corey: This is related to GHG offsets in California rather than Canada.
Douglas Heath, Director, Oil Sands and Energy Security Division, Energy Sector, Natural Resources Canada: The offsets listed on that slide are offsets that California would allow refiners or oil importers to take should the fuels they use exceed their GHG targets. The offsets would include a technology investment such as carbon capture and storage, it could be purchasing a credit from other alternative low transport fuels, such as electricity, biogas or hydrogen, or it could be GHG reductions through reforestation within the state of California. Those were the types of offsets they had in mind. It is not Canadian. This is under the Californian scheme.
Senator Neufeld: Slide 3 is talking about California. I misunderstood you. Slide 2, you say lastly outline the Government of Canada's position on low carbon fuel standards. Did I miss that totally?
Mr. Corey: Our view is that we support low carbon fuel standards as long as they are implemented in a way that is equitable. Our view would be that if this is about GHGs related to crude oil, then it should be about GHGs related to crude oil. They should not draw categories. As I said, we did the European Union to demonstrate how far off base some of these can get. They are what we consider to be arbitrary distinctions between feedstock, and that is the basis on which they are going to start drawing categories. Our view is it should be based on the actual GHGs involved in producing a barrel of crude oil.
Senator Neufeld: We do not have anything written down that says, "This is Canada's position on what low carbon fuel standards should be as far as Canada is concerned." I understand what you are saying about the EU and California. We do not have anything written down on what we would accept, do we?
Mr. Corey: I would say we do in the context that we have intervened both in California and the European Union to say these are the ways that we would find acceptable. These are the things you should be doing, such as the principles, for example, I have laid out. We have actually sent them to both of them, saying, "If you implement it in such a way, then we are okay with it."
Senator Neufeld: We are just following along. We do not have a standard written down where we are leading or at least saying, "This is what our standard is." We are actually going to someone else, the EU and California, for instance, and saying, "We do not agree with those for these reasons." I am not disputing the reasons, by the way. It is interesting to me that we do not have something that says, "This is the standard we want to apply it to."
Mr. Corey: I would argue that actually we have been very clear. It is a principles-based approach. We are saying that as long as we are treated equitably, and we have said what we think "equitably" would be in these cases, then I think we have been pretty clear on that with them.
Senator Neufeld: We should be treated equitably.
What do you think, having been involved with the EU in what they are trying to do to say that our heavy crude is way worse than the heavy crude they are using from Venezuela and other places in the world? To what advantage is it to the EU to do those kinds of things and to discriminate against Canada? What advantage does that give them, understanding that very little reaches there? I know that, and you have confirmed that. Very little of it reaches there. Other than to be able to just stand on the little pinnacle and say "Hey, we are better than Canada because the oil sands are terrible," is that the only reason? There must be something else driving that. Do you have an opinion on that?
Mr. Corey: I do not know that I would want to speculate on their motives. I would just observe that there is very little Canadian crude going into the European Union right now. The measure will have very little impact on the European Union itself, on the refining industry, on prices at the gas pump. If they actually did it right and started distinguishing by GHGs, it would probably have much more impact on them. To speculate on their motives, I am not sure I want to do that.
Senator Massicotte: Why do we care if we do not ship there and it does not matter?
Mr. Corey: I think there are a couple of reasons that we should care. One is because it sets a precedent. If Canada sits back and allows the European Union to impose these rules, which are not based on the recognition of the actual GHGs in the oil, then it almost invites other countries to do the same. It almost sets an international standard that makes it okay for other people to do it. Our view is that it is not acceptable and that we should not allow these things to be put into place where they are not based on science and not based on the actual GHGs of the crude.
Senator Neufeld: That is a very good reason. I totally agree with you. Thank you.
Senator Lang: I want to follow up on that. It seems so out of character for us to be singled out the way we are, especially in view of the fact that it is not really a marketplace for us. I think we have to start asking who is paying for all the lobbying that is being undertaken in order to be able to get this to be such a priority when it really is not of that much interest to them, other than it is an issue that can distract from perhaps some of their own direct responsibilities. Perhaps you could inform us. Who is paying all this money to lobby to get this particular issue on the order paper? I know what it is like to get an issue here on the order paper here in Canada. It is almost impossible. How are they doing it with all these 20-odd countries?
Mr. Allen: We do not have any information about that. If I can speculate to some extent, you have a significant number of environmental NGOs in Europe, as we do here, sometimes operating on the basis of misinformation, things they pick up that are not necessarily fact. Whether it is seals or oil sands, they react and put pressure on their parliamentarians and legislators, just like people do in the United States and in Canada. You end up with certain people in certain areas feeling that pressure. I do not think we have any information about funding in Europe or in the U.S., for example.
If I may, senator, in terms of your question, there were 105 hearing days that were definite, and then, during the national interest determination, there were additional hearings, but I do not have the facts on those. We are at least 105, but more than that.
Senator Lang: I would like to go back to Keystone for a minute, if I could. You state that we supply the United States with approximately 1.9 million barrels of oil a day. With the completion of the Keystone, what will that increase to? I do not think you provided us with that number.
Mr. Heath: Keystone would increase the capacity 700,000 barrels per day. You have to keep in mind that not all of that would necessarily be from Canada. Some of that might come from the play that Mr. Corey mentioned earlier.
Senator Lang: Is that on the American side?
Mr. Heath: It is on both sides, but it is mostly North Dakota and Montana.
Senator Lang: From Canada's perspective, we will be going from 1.9 million to an additional 500,000 barrels there?
Mr. Heath: It is somewhere in that range.
Senator Lang: I wanted to go to another area, and that is the question of pricing. We mentioned the gateway prospect of getting access to the West Coast and then to Southeast Asia.
Have you looked at what the consequences would be for the value of the oil sands and a barrel of oil if we had that access to the West Coast and could transport to China?
For example, I noticed that last week a barrel of oil was trading for about $24 less in the U.S. than what we were selling a similar barrel of oil to China for, it having gone through the trans-mountain pipeline. Perhaps you can comment on that. That is a huge difference.
Mr. Corey: I would probably talk about three prices. The first one is Brent, which is the international benchmark basically set by North Sea oil. The second one is West Texas Intermediate, WTI. Until recently those prices pretty much tracked each other. In fact, sometimes Brent was less than WTI. Brent is currently about $15 a barrel higher than WTI, which means that we are getting less money in the North American market than what is being paid on the world market.
Western Canadian Select, WCS, which is coming out of Alberta, is a heavy crude. It typically trades at about a $10 to $20 discount to WTI because it is a heavy crude and because of transportation and other things. That oil is currently trading at about a $30 differential, so we are leaving $10 to $20 per barrel on the table by not having access to the foreign markets.
There was a study done recently at the University of Calgary that concluded that getting access to foreign markets through pipelines is essential to bringing some of the prices back into line. We are currently selling at a discount because we cannot get the Canadian oil to international markets.
The Chair: Senator Janice Johnson is from Manitoba. She is the co-chair of the Canada-U.S. association that I told you was in Washington last week.
I mentioned, Senator Johnson, that you had been there with a delegation last week.
Senator Johnson: It is nice to see you this evening. We were down for many days and spent four days on Capitol Hill.
Your research and presentation is extremely accurate in terms of views of the U.S. As a matter of fact, I would probably double that, because there was not one member of either party whom we saw who was not upset about what had happened. When the Prime Minister visited China and talked about oil, it became red on the radar screen of everyone in Washington. I have been there many times and have never before seen the kind of reception that we received. People from many states wanted to talk about the issue and tell us that they support us. North Dakota is very interesting because they are very involved with this development as well. Many, including Speaker Boehner, believe that this will be over with before the end of the year, if not earlier, because both are playing politics as well right now.
They were also asking many questions about us in terms of China. They were not taking Canadian oil resources for granted, but they were certainly shocked that we would think of selling elsewhere. I could not believe the reaction. The news today was exceptional, and you can see that they are probably moving. It is only the politics that is stopping it from going forward.
Will the price not improve once we get this done, and how long will it take once we get this moving again?
Mr. Corey: Again, we are saying that Keystone XL will be part of the solution. Seven hundred thousand barrels per day would help move it all the way to the Gulf Coast. It will help debottleneck Cushing. It will help to start bringing Western Canadian Select and WTI more in line with Brent.
As to how long it will take, the current schedule is to have the pipeline completed in 2015-16.
Senator Johnson: How will that affect the price?
Mr. Corey: By getting better access to market, the price will come more in line with world markets. The way the markets should work is that you should see arbitrage and trading between the two until they come back into line. The differences will be that a heavy crude will always sell at a discount to light crude because it costs more to upgrade it. There is a difference in transportation costs. There are other things like that, but overall crude should be basically a world price.
Senator Johnson: What about the shale gas in the United States? Many people mentioned that as an alternative.
Mr. Corey: Shale gas has basically changed everything in energy terms in North America. I can say that five years ago no one that we know of saw it coming. Before the recession natural gas was selling in the $8 to $9 range for 1,000 cubic feet. Today it is down to about $2.30 per 1,000 cubic feet. That is because a huge volume of new gas has been brought on in both Canada and the U.S. Canada has been quite active as well. Most of the stuff that is happening right now is happening in northeast British Columbia. Canada has enormous potential in shale gas. We are always quick to underline that it is without provincial jurisdiction and, Mr. Chair, as you noted, various provinces are in different places on the development of shale gas resources.
Senator Johnson: Is that coming along, though?
Mr. Corey: In British Columbia and Alberta there are people who are quite used to and comfortable with the industry. They have regulators that have been regulating for a long time. There are concerns, but it is proceeding; it is progressing.
In Eastern Canada there is not the same familiarity with the industry or the same kind of regulatory history with it and people are more concerned about it.
Again, as we always underline, it is an area that is within provincial jurisdiction and one that will proceed —
Senator Johnson: It is the same in the States.
Mr. Corey: You see the same thing in the States. In Texas there is much development going on, whereas in states like New York and Pennsylvania there is much more public concern. Again, they do not have the same history as some of the producing areas do.
Senator Johnson: The U.S. is a significant investor in and producer and developer of new technologies in our oil sector. Can you comment on that?
Similarly, Canada is a major investor in the U.S. petroleum industry. What is that picture like now?
Mr. Corey: It is really an international industry. I was in Houston last year at the offshore petroleum conference where I ran into many young engineers from Canada working for different countries. It is pretty interchangeable. The players and the investment in the energy industry are international, and Canada has done very well by it.
Senator Johnson: We are a player.
Mr. Corey: Absolutely.
Mr. Allen: The United States has done very well by our oil sands as well, because there is a huge amount of American investment in them. They are benefiting not only by receiving a stable supply of our oil, but also by the investments they make in those oil sands. They will benefit as well by the people who construct and maintain the pipelines, et cetera. It really is a double benefit.
As unfortunate as this whole situation is, you have mentioned the one bright light. We have been spending years trying to convince Americans of the importance of our relationship and of our exports, in particular our energy exports. Of course, most of them think they get all their energy from Mexico or Venezuela, but the bell has finally rung and they are finally aware that they do have an important friend and ally.
Senator Johnson: It is a real wake-up call.
Mr. Allen: Yes, especially, as you note, the China factor. Out of bad things sometimes come positive things.
Senator Johnson: There is a desire on their part to bring our efforts closer together on all fronts resource-wise and not take this for granted. I felt that strongly, too. As you know, they change congressmen every two years, so there were a tremendous number of new people, and they are particularly up to date on this.
Senator Massicotte: On that note, strategically, in a negotiating sense, it is obviously very good for the Americans to wake up and not continue to take us for granted, which they have done many times in history.
I presume, though, we may win this one. We are getting the influence and the impact we want. However, I would hope that does not take away our interest to get to the West Coast for the pipeline. It is a long history. We are going to live a long time. You cannot depend on one customer. Do you agree with that? We are taking pleasure in the fact that we are getting a response, but I presume it does not take away from our strategy of diversifying our markets. Am I correct?
Mr. Allen: I think the Prime Minister, the Minister of Energy and Minister Baird have all made it extremely clear that there is a keen interest in moving the pipeline and our resources to China and to other demanding countries in Asia, and they are committed to that irrespective. However, that is not to say that the United States will not continue to be a huge importer of our oil. We are not abandoning the United States by any stretch, but we will maximize our markets and the price we get for that product.
Senator Massicotte: Good. Thank you.
The Chair: Senator Wallace, this is the chance for the eastern shale gas people to speak up.
Senator Wallace: I am not going to talk shale gas at all.
I was interested in Senator Lang's comment about the impact on pricing if the oil sands product is able to move through the Keystone line into the U.S. As you said, you anticipate it would reduce the discount off the WTI that the oil sands crude is now selling at. It would be moving, as you say, approximately 500,000 barrels per day into the U.S. market, which obviously is increasing the supply. What impact would that have on the WTI pricing benchmark? With increased supply, would that impact the WTI benchmark?
Mr. Corey: Again, this is where we get into the realm of economics and economic theory. Economic theory basically would say that as transportation bottlenecks are taken out and we can better move our product to the markets where it is wanted and needed most, price will increase, and you may eventually see the two prices starting to converge. As I say, they were converged. They were pretty close.
Senator Wallace: You are talking Brent and WTI?
Mr. Corey: Yes. Then WCS will always trade at a discount because it is heavy and you have transportation costs. It is access to markets that will bring the prices back in line. That is what we need, access to markets.
Senator Wallace: I think that makes sense, that there will be greater benefit for every barrel of oil sands crude that is moved, but I am wondering what impact that will have on pricing in the United States. With increased supply of crude into the U.S. market, normally increased supply drives down price. I am wondering what impact that will have on the prices that are received by other suppliers of crude to the U.S. market. If Canada comes in, the gap between what we are getting now and WTI would narrow, but what impact would that have on the WTI pricing? Would it likely reduce it?
Mr. Corey: Again, the markets tend to adjust on their own.
Senator Wallace: They will respond to the increased supply, is the point.
Mr. Corey: Yes. For example, if refineries in the U.S. can get cheaper Canadian crude than what is available on the world market, they will start buying it and demand will go up. As the demand goes up, the price will go up. The market mechanism eventually will work to raise these things up.
What is depressing it now are a couple of things. It is basically congested transmission infrastructure; it is the fact that production in Canada is ramping up; and it is basically difficulties in accessing appropriate refineries and getting it to market. That is what is driving the differential.
Senator Wallace: Similarly, if the oil sands crude moves to the West Coast and that product enters the Asian market and beyond, that would have some impact on the Brent benchmark as well, would it not?
Mr. Corey: Again, it would start to bring the two more into line, because of course Asian markets are paying world price right now. We want to sell into markets where we are getting world price for it.
Senator Wallace: I guess the point is that obviously the producers in Canada would have enormous interest in the price of the oil sands crude. It will impact all the other suppliers in the world as well, will it not? They will have more than a passing interest on the impact of Canadian crude now competing with them, whether in Asia or the United States; is that not true?
Mr. Corey: Yes. To the extent that more oil, for example, from Canada, enters world markets, that should be a mitigating factor on price increases. It is hard to be categorical, though, because there are so many other things that happen.
Senator Wallace: Supply and demand, yes.
Mr. Corey: Stability in the Middle East and the situation in Iran, those things will also drive price quite a bit.
Senator Wallace: Mr. Allen, in terms of the rerouting of the Keystone line, it was going through Sand Hills and now it would route around that. Am I correct, though, that the Sand Hills area was crisscrossed with pipelines well before Keystone was even proposed?
Mr. Allen: There were a lot of pipelines in Nebraska. There were pipelines that were over it as well.
Senator Wallace: I guess that is history now. That was my impression, that pipelines were nothing new to the Sand Hills area.
Mr. Allen: Yes, if you look at a map. As you say, we have moved on, and both TransCanada and Nebraska seem to be coming to an agreement.
Senator Wallace: In terms of moving on now with the proposed new route to Cushing, does that move through areas where there are existing pipelines, and have been for a number of years?
Mr. Allen: Yes.
Senator Wallace: There is nothing new about the Keystone line going through those areas?
Mr. Allen: Exactly. We are not anticipating significant problems there. There will be hearings, and you will always find someone who has a farm or someone who has something that could be impacted, and they may well protest. I think that, overall, you are absolutely right in terms of the level of development of pipelines.
Senator Sibbeston: My question is with regard to the presidential decision not to go ahead with the pipeline. Recognizing that there had been a lengthy process of environmental and other technical concerns, when eventually the President decided not to proceed, or on the advice of the state department, is it recognized that it really was a political decision rather than one that they were really concerned prevented the state department from gathering the information necessary to approve the project and protect the American people? That is the kind of formal reason. Is it generally viewed and understood that really the President made a decision because of the upcoming election?
Mr. Allen: That is a tough one for me to answer, but I can say that once they had decided that they had to do a rerouting in Nebraska, they did want the time to analyze the new route; and since a new route had not even been agreed upon, there was an argument that they did not have the time in 60 days to analyze that. There was a legitimate argument that the route had not been decided, so you could not analyze the new route if it had not been decided. Whether or not there was some politics behind it I think is a question we would have to leave to the President.
The Chair: We will find out tonight, being Super Tuesday.
Senator Sibbeston: In our country, the National Energy Board and other environmental groups consider projects such as the Northern Gateway pipeline. There seems to be a lot of opposition to the pipeline, particularly with native people and environmentalists in B.C.
Can we ever reach a stage in our country where the federal government will just decide, despite all the opposition and resistance, to just go ahead with a pipeline? What would happen in the situation where the government goes ahead and there is still a lot of resistance? Would the project be in danger in any way?
The Chair: They would cite our report as backup.
Mr. Corey: There are a couple of factors that we always have to keep in mind in terms of both the Constitution and legal decisions of precedent. First, the Government of Canada has a responsibility to consult with Aboriginal groups where they are affected. If a pipeline is going through an area where Aboriginal groups have interests, we have a duty to consult with them. It is part of the constitutional makeup of the country, and it is something that has to happen. Second, we have a number of laws related to environmental assessments. Our minister has been pretty upfront and fairly straight with everyone in talking about the fact that he is concerned about the length of time it takes to get through some of these processes. He would like to see the regulatory system work well and make sure that it is efficient without impacting on the effectiveness of it. There is a requirement in the country for an environmental assessment. Again, I think our minister has been pretty clear that the government plans to take action in the coming days on that.
Having said that, could the system be made more efficient and more effective? I think you will find that is one of the government's priorities in the coming days, but there are a couple of caveats to keep in mind.
The Chair: Stay tuned, Senator Sibbeston.
[Translation]
Senator Chaput: My question concerns slide 12 of your presentation, concerning transparency. You are telling us that not all countries provide the same quality of data and transparency. You add that "some of these countries likely have similar GHG intensity" to that of oil sands crude but that they do not report it. I believe that is probably the case. Do you have any evidence to support that?
Mr. Corey: I can say that we have quite substantial evidence in the case of some countries. For example, for Russia, we have satellite images showing flames coming from flares at night. What you cannot see is the venting of natural gas into the atmosphere. We know that this is an industry practice there. In Canada, this is very well regulated; we have regulatory systems in place, and we have monitoring reports. We also have information for other countries indicating that they do not completely monitor greenhouse gases. We are asking whether it is possible to put in place a system that requires complete information on greenhouse gases. Under the current rules, there is no incentive to make any improvements.
For example, if we had more comprehensive monitoring reports on greenhouse gases and if we considered the calculations for the European Union, we could secure larger penalties than in the present situation, in which we do not exactly know greenhouse gas levels.
Senator Chaput: Do you believe that, in time, the countries of the European Union will be able to agree on transparent and verifiable data?
Mr. Corey: The current regulations provide that there will be a review in 2015. I have a copy of that here.
[English]
They are going to go over the potential for extending possible reporting on the basis of actual values of greenhouse gas intensity for the upstream and the accuracy and reliability of monitoring and reporting of fossil fuel greenhouse gas intensity.
[Translation]
That means they know perfectly well that there are significant deficiencies in the measures. They intend to review that in 2015 to try to solve those problems. The question we ask them is: why don't you do it now before taking discriminatory measures against Canada?
Senator Chaput: From what you are saying here, Canada has transparent, independently verifiable data; is that correct?
Mr. Corey: Absolutely. Here in Canada, yes.
[English]
The Chair: I want to thank you, gentlemen. I believe that some of you undertook to provide us with some further information through the clerk of the committee. We may call you back, Mr. Corey, perhaps with your minister, before we conclude our study. Some issues in the coming days might come into focus more; and it would be interesting to have the latest word from our government. Thank you, Mr. Allen, Mr. Corey and Mr. Heath.
We will move to our next panel of witnesses. From Natural Resources Canada, we have Stephen Lucas, Assistant Deputy Minister, Science and Policy Integration; Jonathan Will, Director General, Electricity Resources Branch, Energy Sector; and Marc D'Iorio, Director General, Office of Energy Research and Development, Energy Sector; and from Environment Canada, we have Dan McDougall, Assistant Deputy Minister, International Affairs Branch.
Welcome and thank you for being here. As you know, the focus is on a kind of U.S.-Canada file, but it is a wide- ranging dynamic topic that is moving fast. Anything that you think will be interesting for us in our study, feel free to say.
Mr. Lucas, will you present first?
Stephen Lucas, Assistant Deputy Minister, Science and Policy Integration, Natural Resources Canada: Yes, and I will split my remarks with Mr. McDougall.
The Chair: Will the other two gentlemen be making a statement?
Mr. Lucas: No.
Mr. Chair, honourable senators, it is my pleasure to address the Standing Senate Committee on Energy, the Environment and Natural Resources with my colleague Mr. McDougall. Jonathan Will is also the co-chair of the Electricity Grid Working Group in the Clean Energy Dialogue, and Mark D'Iorio is also the co-chair, with the U.S. Department of Energy, of the Carbon Capture and Storage Working Group.
I know that all the members of the committee understand the importance, to our economy and to the lives of all Canadians, of Canada's natural resources and, in particular in this context, our energy resources.
[Translation]
Today I want to focus on the Canada-US energy relationship and how this relationship is central to the achievement of objectives shared by both countries: energy security, prosperity and environmental responsibility.
[English]
As well, my Environment Canada colleague, Dan McDougall, and I will expand on one of the key mechanisms in place to deepen energy and environment collaboration between Canada and the U.S — the Clean Energy Dialogue.
Canada and the U.S. share the world's longest border, a rich history, and highly integrated economies. Underpinning this bond is a two-way energy relationship that is unparalleled in size and scope. The two countries operate within a common energy market, reinforced by a seamless network of transmission lines and pipelines serving people on both sides of the border.
For example, Canada and the U.S. benefit from a highly interconnected electricity grid, with more than 30 major transmission lines that connect most Canadian provinces to their neighbouring U.S. states.
This allows grid managers to optimize electricity generation assets in both countries and to improve reliability and efficiency.
[Translation]
Canada is the number one supplier of all forms of energy to the United States; 99 per cent of Canada's energy exports go to the U.S.
[English]
Due to the enormous scale of our energy resources and our open market economy, Canada is a safe and reliable supplier of energy to the U.S. We have the world's —
The Chair: And to nowhere else it sounds like.
Mr. Lucas: We will get to that.
The Chair: Have we got that right?
Mr. Lucas: It is 99 per cent, yes.
The Chair: Ergo diversification, right?
Mr. Lucas: Yes.
Senator Neufeld: We do some.
The Chair: I know we do, but he said it; it is only 1 per cent. You will bring it out in your questions.
Mr. Lucas: It is slightly less than 99 per cent if you include coal and uranium, but that is speaking about electrons, electricity, oil and gas, and natural gas.
The Chair: Electrons. I like that.
Mr. Lucas: We have the world's third largest oil reserves, as colleagues noted, and the sixth largest oil producer. We are also third in terms of natural gas reserves and hydroelectric production, and we are the second largest uranium producer. Canada is also determined to bring new sources of clean energy into the mix, as both Canada and the U.S. move towards lower carbon economies. Canada already has one of the cleanest electricity systems in the world. More than 75 per cent of our electricity comes from non-emitting sources, including 60 per cent from hydropower.
Trade in electricity represents a key growth opportunity for Canada, especially as the United States looks to increase its use of renewable, non-emitting power. Provinces are already planning to build a number of large hydro projects over the next decade.
[Translation]
As both Canada and the U.S. are seeking to ensure economic growth, energy security and environmental responsibility, the interconnected energy relationship will become increasingly important.
[English]
The Chair: Again, sorry for interrupting here, but I want to repeat again that we are on the CPAC network and worldwide web. You have said something that we have heard from every province we have been to — more than 75 per cent of Canada's electricity is clean. It comes from non-emitting sources. Why is this message not out there in the world? Why are we the "big bad?" You will tell us, right? Carry on.
Mr. Lucas: I will certainly look forward to your recommendations on that.
The Chair: You know what I am saying.
Mr. Lucas: There are communications challenges in telling the energy story from government, industry, and other stakeholders, as you have heard from across the country. Our electricity mix is a phenomenal part of our story.
[Translation]
And this is where the Clean Energy Dialogue comes in, as a key part of our energy and environment relationship.
[English]
I will turn now to my colleague, Mr. McDougall, who will provide an overview of the Canada-U.S. climate change relationship, before speaking to the Clean Energy Dialogue.
The Chair: Good. This is what we are hoping we will hear. We know you do not have a taxing power, but —
[Translation]
Dan McDougall, Assistant Deputy Minister, International Affairs Branch, Environment Canada: Canada and the United States have long recognized their environmental interdependence and there has been strong bilateral cooperation on environmental issues for more than 100 years. Collaboration and dialogue with the U.S. on clean energy issues is of particular strategic significance as Canada continues to work internationally to find a global solution to climate change. The Copenhagen Accord was agreed by world leaders in 2009.
[English]
Senator Angus, I believe you were part of that delegation. It represented a significant first step in establishing a new, more effective regime, in that it included mitigation commitments by all major economies, covering 80 per cent of global emissions.
Under the Copenhagen accord, Canada and the United States inscribed goals of reducing economy-wide emissions by 17 per cent, from 2005 levels, by 2020.
At the UN Climate Change Conference in Durban, this past December, Canada also worked closely with the U.S. and other like-minded countries towards establishing a new agreement for the future that includes all major emitters.
We were very pleased with the outcome of Durban — the Durban platform — that will lead to a new global agreement that includes all major emitters.
The Chair: On that, I was not part of the Durban delegation, nor was I at Cancun. However, I am interested in the nomenclature that evolves from these places. What do you mean the Durban platform? Is it like the new beginning, sans avoir Kyoto?
Mr. McDougall: Not quite, but it is trending in that direction, one would say. Kyoto continues for another little while, for a few countries, but the Durban platform is the nomenclature, I guess, for the package of decisions that was taken in Durban. Some of those relate to measures that were started in the previous negotiating session in Cancun, and Cancun itself built on the basic architecture that was started in Copenhagen. There has been a series of progressive measures that moves us toward a new global regime for dealing with climate change.
The Chair: You were there, Mr. McDougall?
Mr. McDougall: I was, yes.
The Chair: You seem to protect your minister well. We had dinner with him last week, as a committee, and he really had a great time. It was pretty hairy down there, though.
Mr. McDougall: It was, but we were pleased with the outcome of Durban. It is a positive step forward on a number of fronts.
Canada supports an approach to climate change that achieves real environmental and economic benefits for all Canadians. Given the highly integrated nature of the North American economy, this includes aligning our climate policies with the United States, where appropriate.
We have made great strides on a number of domestic regulatory initiatives to reduce greenhouse gas emissions. We have started with the transportation and electricity sectors, two very significant sources of greenhouse gas emissions in Canada, representing 22 per cent and 17 per cent, respectively, of our total emissions. We started with the highest emitting sectors in terms of our approach.
We plan to continue to proceed to address emissions from other major emitting sectors.
Canada is working very closely with the United States government to establish common North American standards for regulating greenhouse gas emissions from light-duty and heavy-duty vehicles, an approach that will benefit the environment, industry, and consumers. We have aligned our approach with the U.S. by introducing progressively more stringent greenhouse gas standards for passenger automobiles and light trucks, for the 2011-16 model years. We are also working towards more stringent regulations for the years 2017 and beyond.
In addition, the Government of Canada also intends to implement greenhouse gas regulations for the heavy-duty vehicle sector and engines, beginning with the 2014 model year. Again, it will align its approach with the United States, given the highly integrated nature of our automobile industries.
The Chair: You are aware that we have been hearing evidence about trucking, converting their diesel engines to these LNG engines. We visited the Westport facility in Vancouver, and we had evidence, in a public hearing, from Mr. Robert and other people. We will meet within the coming days the deputy minister from Quebec on the subject.
My question is based on the news today. The U.S. has just announced a huge thing today about the trucking industry converting or coming out. Do you know anything about that? I thought, wow, we will hear tonight. It was a huge announcement today about trucks converting to LNG engines in a massive volume. One company talked a fleet of, I do not know, several hundred trucks. Anyway, it is worth following up. It fit right in there, so I wanted to put it on the record, because it is part of the Canada-U.S. thing.
Mr. McDougall: Indeed. Thank you, senator.
We have also made significant movement over the past year in implementing key elements of our renewable fuels strategy. As of December 15, 2010, gasoline is required to contain an average of 5 per cent renewable content. As a further step, we are implementing a 2 per cent renewable fuel requirement for diesel fuel, which came into force on July 1, 2011.
The Chair: Whenever you say "we," it means Canada or Canada and the U.S. together?
Mr. McDougall: It means Canada.
Taking action in the electricity sector will lead to further significant reductions in greenhouse gas emissions and improve air quality for all Canadians. Final regulations are expected to be published in 2012, and the regulations are scheduled to come into effect on July 1, 2015.
These federal measures, combined with actions taken by the provinces, have brought us one quarter of the way to our 2020 target for greenhouse gas reductions. To close the remaining gap, the Government of Canada will continue to develop and implement further measures to reduce greenhouse gas emissions in other major sectors of the national economy, complemented by provincial and territorial actions in their respective jurisdictions. Work is under way to develop regulated performance standards in priority industrial sectors.
We are also working with the U.S. and a few other countries to focus additional work on a new area on short-lived climate pollutants, such as methane, black carbon, or soot. There is increased evidence that action on these fronts can yield important near-term benefits, particularly in the Arctic.
I would also like to highlight our work with the U.S. on climate change issues through the North American Commission on Environmental Cooperation. For the first time in 17 years, the strategic plan of the commission has a priority focused exclusively on climate change-related work. Our current efforts include studies to improve the comparability of greenhouse gas and black carbon emissions inventories, as well as work on emissions from cook stoves in tribal communities in Alaska, for example. Canada looks forward to doing more work in this area alongside our American and Mexican partners under the NAFTA Commission.
Turning now to the Clean Energy Dialogue, in 2009, Prime Minister Harper and President Obama launched the Canada-U.S. Clean Energy Dialogue. The CED is an important bilateral mechanism through which we work together as partners to develop clean energy technologies and to reduce greenhouse gas emissions.
This Clean Energy Dialogue is a key part of our broader climate change coordination with the United States and provides a good mechanism for collaboration. Ambitious regulation depends on technological advancement. It provides the right incentive structure and makes R&D investments pay off. Thus, there is a real complementarily between the Clean Energy Dialogue and our overall climate change plan.
If I could take a few minutes to explain some of the achievements of the working groups under the first phase of the dialogue, I think it would be useful. I would note the work of the clean energy research and development working group, which is co-chaired by Environment Canada, and then turn back over to my colleague to speak to the work on the carbon capture and storage and the electricity working group. Both of those are co-chaired by Natural Resources Canada.
[Translation]
As with the other working groups, collaboration is its guiding principle. The Clean Energy R&D Framework identifies resources and offers ways to help experts, institutions and companies to connect and share information and infrastructure across both nations.
The Research and Development Working Group has been supporting a series of collaborative projects to help us to meet our clean energy goals. For example, joint exploration of advanced light-weight magnesium alloy sheet metal that is being undertaken by the R&D working group can contribute to vehicle light-weighting that will play an important role in meeting the ambitious vehicle standards being developed for model years 2017 and beyond.
Other collaborative projects include research to improve productivity and harvesting methods in the use of algal biomass, as well as other work on new and improved materials, such as for applications in marine energy production.
I will now turn to my colleague, Dr. Lucas, who will describe additional highlights from Action Plan 1.
[English]
Mr. Lucas: The carbon capture and storage working group is working to enable the development and deployment of carbon capture and storage, or CCS technologies, in both the United States and Canada. I will highlight a couple of the achievements of this working group over the past three years since the program was launched in 2009.
One includes securing a $5.2 million investment from Canada and the U.S. to expand work on the International Energy Agency's Weyburn Midale carbon dioxide monitoring project in Saskatchewan. These funds allowed the project's final phase to focus on best practices for the safe and permanent storage of carbon dioxide with enhanced oil recovery.
The Chair: So the CCS initiative is a joint initiative? I always thought it was strictly Canadian, but with investment. It is part of our cooperative deal with them?
Mr. Lucas: Indeed, Canada and a number of provinces, but significantly Alberta, have invested in their own projects in terms of government partnering with the private sector on a number of different carbon capture and storage applications. The U.S. has done similarly at the federal level industry, as well as a number of other countries, including the U.K. and Australia. There is a global network of CCS demonstrations projects planned or starting to move towards construction. One that has been in operation since 2000 is one that initially started as a Canada-U.S. joint project and has now involved the International Energy Agency, and it is really to do long-term monitoring of the storage.
The Chair: Which one is that?
Mr. Lucas: That is the Weyburn Midale project in Saskatchewan where a couple of Canadian companies are pumping CO2 underground to help with oil recovery, and then there is a monitoring system set up to determine if any of the CO2 leaks back to the surface, understand the nature of storage, et cetera. It is an important, large-scale scientific experiment in a real-world setting involving industry.
A second initiative was developing a North American carbon storage atlas under the partnership involving not only the United States but Mexico as well, where we developed a compatible mapping methodology and extensive data sharing. It is to both determine large sources of carbon or CO2 emissions as well as potential underground storage sites in Saline aquifers below 800 metres or a kilometre below the surface.
The third area is advancing collaborative research on next generation CCS technologies, including technologies such as chemical looping and pressurized oxycombustion which look at different applications, including coal fire generation.
[Translation]
Two conferences were held by the working groups, in May and November 2010, that facilitated the sharing of knowledge, best practices and lessons learned.
[English]
We also signed — Minister Paradis with Secretary Chu — a declaration of intent concerning cooperation on energy, science and technology with the U.S. Department of Energy in April of 2010, and this allowed us to further our bilateral engagement on CCS as well as other areas, including bioenergy, to work effectively between our national laboratories.
Turning to the electricity working group, its purpose is to facilitate the long-term transition to a modernized electricity system, one that will allow the secure movement of power across both nations and enable the harnessing of clean energy sources.
In phase one, the working group held a number of significant events and completed foundation papers on key issues. In particular, it held a bilateral forum in February 2010 on building the workforce of tomorrow focused on training and recruitment issues in the electricity sector.
You may have heard in your study that there is a significant workforce challenge for the energy sector as it grows.
The Chair: That is very important.
[Translation]
Mr. Lucas: Together with the United States, we also organized the bilateral conference, Increasing Opportunities for Trade in Clean Electricity, in May 2010, enabling stakeholders to identify potential clean electricity resources and markets that could provide a foundation for increasing trade in clean energy.
[English]
We also advanced discussions around the creation and optimization of a smart grid through a smart grid policy leadership forum held in cooperation with the Ontario Independent Electricity System Operator and the University of Waterloo in January 2011.
Canada also established a smart grid standards task force involving provinces, industry and the Standards Council of Canada to provide Canadian input into standardization efforts with the U.S. National Institute of Standards and Technology.
Finally, we completed a foundation paper on policy and regulatory issues associated with energy storage, which is an issue that has to do in particular with renewable power generation where it is intermittent. You need to be able to store energy when the wind blows a lot and then go to other sources in your electricity generation mix when it is not blowing.
Smart grid and renewable portfolio standards papers examined issues such as regulatory constraints, how the adoption of energy storage can assist in the integration of renewable energy projects and how renewable power procurement policies can act as barriers in clean energy trade.
With this three-pronged approach on clean energy research and development, CCS and Integrated Electrical Grids, Canada and the U.S. have created a dialogue that is supported with a concrete action plan. The plan has provided a means to address our clean energy challenges in a real and concrete way. However, there is more that needs to be done and we want to maintain momentum on the work that has been started.
Looking ahead, we see an opportunity through a renewed Clean Energy Dialogue to deepen engagement on clean energy technology and innovation building on the work that has been done to date. We are also exploring the inclusion of energy efficiency more explicitly under the umbrella of the Clean Energy Dialogue. Work on energy efficiency was undertaken in the first phase of the CED under the auspices of the Clean Energy R&D working group and included the expansion to have the ENERGY STAR labeling program for equipment and appliances to facilitate harmonization in the North American market.
The CED remains an important mechanism given our integrated energy market and mutual interest in transitioning to a lower carbon economy. We have been working with the U.S. Department of Energy to identify priorities that could be included under a second phase of the Clean Energy Dialogue for years ahead. We expect to provide our ministers and the U.S. energy secretary with a proposal in the coming weeks.
[Translation]
The close energy and trading relationship between our countries is one that Canada wishes to maintain and nurture.
[English]
Even as we take steps to diversify our energy markets and reach out to partners in Asia, the Canada-U.S. energy relationship will continue to be critical for long-term North American energy security and economic prosperity.
The Chair: Thank you, Mr. Lucas and Mr. McDougall. It is nice to see Environment Canada and NRCan working together so cooperatively.
Senator Mitchell: Thank you for the very interesting presentations and for being here.
I have several questions and will start with regulations. You make the case that you are making some progress. It certainly seems as though some has been made in transportation and electricity.
When will we see regulations on oil sands?
Mr. McDougall: The discussion has started with industry about the next phase of regulation, and that is the next logical sector. We started with the highest emitting sectors, so the oil and gas industry more generally is the next largest sector that we get to.
Oil sands in particular is part of that, but only part. We are looking at the sector more generally in terms of oil and gas production rather than just the oils sands part of it. At the moment we are particularly focused on concluding the regulations on the electricity sector. The first phase of that was published last August in the Canada Gazette. There has been a great deal of comment on that and a great deal of work has been done on that with those who are making representations as well as with the provinces. We are continuing to work to conclude that as the first priority.
Senator Mitchell: I thought the minister himself said that you are working away on those oil sands regulations. Compared to the number of people working on coal regulations how many are working on oil sands regulations now and what are they doing day to day? Is it 2 people, 102 people? Do you have a date for their completion? I guess it is before 2020.
Mr. McDougall: We do not have a particular date for when those will be finalized, but the discussion has started with industry on this. An important part of this is getting the discussion going and getting started on these. A lot of work is done before one gets to prepublication in the Canada Gazette.
Senator Mitchell: We take the government's word that you are at 25 per cent of the 2020 objective. However, we have 75 per cent to go in eight years, although we are not sure when the oil sands will be regulated. Does anyone have a chart saying how much will be in transportation, in coal, in oil and gas and in whatever else, which adds up to 17 per cent reduction by 2020? They say they will do it, but are there numbers beside initiatives?
Mr. McDougall: It is a different approach from what was taken in the past. Much work was done around the time of the signature to Kyoto and post that in terms of analysis, discussion, dialogue and consultation on what would be the proper shares amongst all of these things. You can sort it out, as you are suggesting, by sector, subsector, province or regions. At the end of the day, you spend decades discussing what should be the sharing arrangements and meanwhile there is very little work going on in reducing emissions.
The focus over the last several years has been to get to work on reducing the actual emissions. That is what we are trying to do domestically, and internationally as well. The focus internationally was on the differentiation between developed countries and developing countries. Developing countries must do this and we in developed countries, regardless of what our emissions are, get a free ride in terms of making commitments.
The discussion in Durban was our attempt internationally to change that conversation. We said that we are focused on a problem and we need to focus on how, collectively, we will come up with solutions to that problem. We are doing the same thing domestically by getting on with the emissions, starting with the most important sources of that, and recognizing that there is collaboration required to do that. There is collaboration, as you noted, required between our departments here in Ottawa and there is collaboration required with provinces as we undertake our work. There is unique work that needs to be done by provinces, which have their own jurisdictions and responsibilities and their own capacity to take action. At the end of the day when this all adds up, it is coming together with all parties to attain our targets.
Senator Mitchell: Mr. Lucas, in your presentation you were talking about energy security and so on. Certainly one of the tenets of our case to the U.S. is that they should buy Alberta oil because it is ethical and it is secure compared to the oil they are buying now. It is interesting that the Atlantic provinces are buying oil from much the same places as the U.S., so they would, ergo, have an energy security problem.
What happens, for example, if something literally blows up in the Middle East and you cannot get oil to the Atlantic provinces, regardless of price? Who is working on that energy security question? Is anyone worried about that?
Mr. Lucas: I will start at the level of energy policy principles, and then we can speak to specific situations. The reason I wanted to do that is, as I think Minister Oliver outlined and I am sure you have heard in your story, our approach to energy policy at the federal level is that we certainly recognize the role of the market. Market decisions down east and by energy companies across the country, in terms of where the supply would come from and whether pipelines flow from the East Coast into Central Canada or, conversely, some day could flow the opposite direction, there are indeed some proposals under way, such as Enbridge's proposed Line 9 reversal, which would reverse a segment of a pipeline taking oil from the U.S. into Ontario.
In the context of a larger emergency situation, there is a federal act in terms of energy emergencies that would have to be activated. Certainly, the view in terms of longer-term trends is that the market would adjust in terms of supply. If supply, for example, as we saw, shut down in Libya, which impacted Europe and had a knock-on effect with other suppliers in terms of the companies importing oil to the East Coast, the refineries there would look to other sources of supply as the first operating principle.
Senator Mitchell: There was some toing and froing about Canada doing a cap-and-trade initiative several years ago, particularly when it looked like the U.S. was going to do it. Could you give us an assessment or even a definitive answer of where Canada is on that? Do we hold any commitment at all to cap and trade, or is that done?
Mr. McDougall: The approach of alignment with the United States, as is necessary to do in order to avoid competitiveness impacts, pretty much precludes that for the moment. The United States has embarked on a regulatory approach to reducing greenhouse gas emissions as well, so we are following a similar approach. I think there is little prospect in the immediate future of the U.S. going to a cap-and-trade system.
Senator Mitchell: Is anyone assessing the actual increase in the price? All these regimes — cap and trade, carbon tax, or regulations — put a price on it. Is anyone doing the economics of that?
Mr. McDougall: Yes, absolutely. As each of these regulations is going forward, what is presented with that is the actual cost of that, both the cost and the benefits of each regulatory measure.
Senator Mitchell: What would the cost per tonne be for the electricity sector?
Mr. McDougall: I do not have it directly here. There are two elements of costs. You have to make assumptions too in terms of what the cost is in terms of the impacts of not regulating, and regulating as well. I will have to get you the actual figures.
Senator Mitchell: Would you?
Mr. McDougall: Absolutely.
The Chair: Just a supplement or a complement to the deputy chair's questioning. Maybe it was timidity that restrained him, but I imagine you are ready to answer his question. What is the Government of Canada's policy on pricing carbon?
Mr. McDougall: At the moment, our policy is that we are not pricing carbon.
The Chair: That is the policy?
Mr. McDougall: Right. We are following a regulatory approach with respect to how we are going about it. There is an implicit price that has to be calculated in terms of the cost-benefit of a particular measure, so the regulatory policy incorporates that within it. There is extensive modelling going on with each of these regulations as they are being presented. In the Canada Gazette, there is a regulatory impact analysis statement that is provided to all, which clearly sets out both the costs and the benefits from an economic perspective.
The Chair: Thank you very much.
Senator Neufeld, the man from the province that has a carbon tax.
Senator Neufeld: Thank you.
On your page 4, the implementation of the renewable fuel strategy, 5 per cent in gasoline and 2 per cent in diesel fuel, the 2 per cent came into force on July 1 of 2011. Is that being adhered to by all provinces and territories? Is everyone complying now, from July 1, 2011 until now? Is everyone in tune with that? How do you monitor that?
Mr. McDougall: I do not have the data on how it is being modelled. I would have to get back to you on that.
Mr. Lucas: We work with the refiners, the people who do the blending, on the compliance.
Senator Neufeld: You are not sure whether everyone is in compliance. A lot of provinces have 10 per cent standards of their own, probably higher than the federal standard. I was quite interested in the diesel fuel one. Is everyone complying, territories and provinces, with the 2 per cent? If you could provide that answer for us, that would be great.
I was also interested in the next page, when you were talking about working with the U.S. You say your current efforts include studies to improve the comparability of greenhouse gas and black carbon emission inventories and on cookstove change-outs in Alaska. Maybe one of you could explain cookstove change-outs.
Mr. McDougall: I can speak to that, if you wish.
Senator Neufeld: I live close to Alaska.
Mr. McDougall: That is one particular project that the EPA has launched in Alaska, under the rubric of the Commission for Environmental Cooperation. It is replacing dirty-burning fuel sources with cleaner-burning fuel sources.
What we are doing more generally — and this we have done with the United States — there are six countries. Minister Kent, Secretary of State Clinton and ministers from these other six countries have launched a global initiative to reduce these types of emissions, which are basically methane-based emissions, to address the newer-term aspects of climate change. It is Canada, the United States, and Mexico, along with Sweden, Ghana and Bangladesh, who have launched this initiative to try to tackle better these other sources of emissions. Cookstoves is one of the areas of focus.
What is happening with all of these pollutants, if you will, is that there is a climate effect and there is also a health effect with almost all of them, disproportionately affecting women and children in developing countries as well. Again, it is a measure of practical, on-the-ground things that we are trying to do to tackle the problem as directly as we can. This is an area where we have health and a lot of agricultural side benefits to it.
Senator Neufeld: That is the answer I was looking for. It is not just about Alaska; it is about around the world, what they are doing with cookstoves and that sort of thing.
Mr. McDougall: Absolutely.
Senator Neufeld: You are talking about algae biomass, as well as other work on new, improved materials, such as for applications in marine energy production. Could you expand on that a little? I have a general idea, but just so that people who are watching can understand where you are coming from.
Mr. McDougall: This is really just a sneak peek, if you will, of some of the work that is being undertaken as we look forward to the next phase of action under the Clean Energy Dialogue. Certainly the offshore energy sector is one that a lot of countries are looking at, Canada and the U.S. as well.
As we are doing that, we are looking at it on both fronts. As Mr. Lucas mentioned, we will be looking at it on the policy and regulatory front as to what actions can be taken there to encourage greater sources of clean energy in that area. At the same time, we will be looking at the complementary measures that have to be done from an R & D perspective, what kind of materials changes are required to have materials that can withstand better the rigours of the marine environment. We are looking at it on both fronts, through mechanisms such as we have here with the Clean Energy Dialogue that allow us to do that. It is a mix of the practical, the research oriented and the policy front.
Senator Neufeld: One final question. On page 10, you talk about working on different things to reduce GHGs, and you talk about the ENERGY STAR labelling program and those kinds of things, which I totally agree with. I have no problem with them. Have you looked at building regulations and redoing some of the existing stock we have? Just driving from the airport to town, you can have a pretty quick look around and understand there is a lot of leakage — tremendous amounts. Are we looking at that? One place the federal government does not have total control but can set a standard is building code standards, which is probably an easy thing to do because it is something we will not have to do later on. If we continue to build with two-by-fours, very little insulation and not triple-glazed windows, at some point in time we will have to deal with that. I wonder where you folks are at with that or if you think about that part of it?
Mr. Lucas: We think about it quite intensively within Canada. The built environment is another one of the sectors that represents a major source of emissions when you look at the pie diagram of emissions.
As you know, we have had programs, such as home retrofit, and we have done work with the provinces and building associations and others on the National Building Code. There has recently been an update of that code that improves significantly over the previous code. It is something in the order of 25 per cent improvement for new build. With the provinces and territories and the energy ministers council, we are looking at the next generation to 2016 in terms of continued improvement of that building code for new build.
With respect to commercial buildings, one project in round one of the Clean Energy Dialogue looked at the demand response potential of buildings. Can buildings communicate their energy needs more or less with the grid to help manage loads on grid? Consistent with the smart grid context, it is not necessarily improving the energy efficiency of the building but it is improving the energy efficiency of the grid so you are not generating more electricity at a time than you need and you can respond to increased demands, say from air conditioning and those sorts of things. It is an area of Canadian interest that we share with the provinces. As well, we look forward to further collaboration with the U.S. under the renewed U.S.-Canada Clean Energy Dialogue.
Senator Lang: I will be fairly quick because it is getting late. I want to go back to our greenhouse gas emissions and the target of 17 per cent. A little earlier we heard testimony, and I believe you were listening. In a very short period of time, we will see an increase of at least 500-barrels of oil being produced in the oil sands for sale. That does not take into consideration the prospects of the gateway pipeline and what could happen there if things were to be positive. Obviously, we will have a significant increase in GHGs as far as the oil sands go. That is just the oil sands, not mining development and other projects that are going ahead.
How will we meet this 17 per cent if we have this significant increase in these other areas over and above what we are already doing? Perhaps you can explain that to us. Obviously, there will be more greenhouse gas emissions. Where will we get less from in order to meet that target?
Mr. McDougall: Certainly, the projections we have undertaken or that have been done around this have factored in the increase that is expected within this. The only way we are going to meet the target is by conscientiously nipping away at it wherever we can. There will not be any one big magic silver bullet that will come along and do this. The measures required will be a well rounded basket of measures that will be necessary to do this.
If you currently add up what is being done at the provincial level, it is a significant contribution to the overall target of 17 per cent. The 17 per cent is not just federal actions that will be taken within this; these are actions being taken by the country as a whole. At the end of the day, it is Canada that will be reporting, not just the federal government measures. Each acts in their own jurisdiction. As I explained earlier, we are trying to be very practical and start with the ones where we can get the largest and most immediate effect. We have been doing that on the light vehicle regulations. That is a major contribution to that 17 per cent for that first model year group of 2011 to 2016. We are in consultations now on the next model year group that will flow from that. As we work our way around the wheel of emissions, looking at a pie chart of where emissions come from, it will be getting those measures in each of those sectors.
Senator Lang: I want to follow up with one other question on provincial jurisdiction, which you mentioned in your response. I did not notice the provinces spoken of in this document except in the area of hydro and a few others. That is basically all it was. I have been involved in a territorial government, not unlike Senator Neufeld. We know what the jurisdictions of the territories and provinces are. From an implementation point of view, we have probably just as much if not more authority day to day in terms of saving energy, depending where it is.
With the provinces and territories, it is fine for the federal government to go to the U.S. and say they will do certain things, but you need the provinces and territories on side. Within your organization, are you in constant meetings with the territorial and provincial governments to ensure that when you say you will do something you can do it?
Mr. McDougall: Mr. Lucas will speak to this in terms of the Clean Energy Dialogue. In general, yes, we have ongoing mechanisms for consultation and discussion with the provinces. There are regular mechanisms and there are special mechanisms for the area of regulation, for example. New processes will be set up to discuss any of the measures with them. On the international front in negotiations, for example, the provinces were part of the Canadian delegation in Durban, in Cancun and in Copenhagen. The provinces are part of this overall picture, and we work closely with them.
Senator Seidman: We had truly excellent presentations this evening. We have learned a lot. I would like to start with how you ended. You said that the Canada-U.S. energy relationship will continue to be critical for long-term North American energy security and economic prosperity, even as we take steps to diversify. I would say that your testimony about the enormous collaboration with the U.S. and the testimony of our previous witnesses leave me with an impression that what is happening now is counterintuitive, given the whole reaction over Keystone and the reaction of the Europeans.
I make this observation for your comments. I think you started to allude to them and I would like to look at them a little more carefully. It is obvious from the point of view of energy security, that Canada seems like an obvious resource and market that is stable and transparent, as we have heard. What can we do? What is our role? What is our responsibility to help the United States and the rest of the world understand in an effort to alleviate the kind of conflict and issues that we are dealing with right now?
Mr. Lucas: I would say a couple of things on that. First, I will note that with respect to the provinces and the Clean Energy Dialogue, they are engaged in specific areas. We work with the CCS Network that we co-chair with Saskatchewan, for example, integrating that with the work with the United States. It is very much a partnership, and it goes to another of the principles in our energy policy approach, which is respect for jurisdictions, which energy ministers reaffirmed last summer at Kananaskis in their collaborative approach.
With respect to what Canada can do, we can connect our tremendous resources with infrastructure, supported through open and transparent regulatory processes so that decisions are made and reflect the views brought to those regulatory processes and through consultation with Aboriginal people; but connecting the resources we have and the infrastructure to markets does represent a significant opportunity to contribute to North American energy security, as we have noted, and certainly was a consideration in the longer term and I think recognized by many Americans, but as well globally.
A number of countries in Asia are looking to diversify their sources. There is significant volatility in the Middle East. There is declining conventional reserves such as in the North Sea. Our stable political system, open environment, open to investment, creates a great complementarity between needs and our resources.
I think it is that complementarity that was one of the chords struck by the Prime Minister's remarks in China in terms of that interest, and similarly with Japan and Korea and many other countries.
With respect to Canada's interests, as well, the oil sands represents probably the largest technological project in the world. In addition to investment from Canadian firms and investors, foreign investment is an important ingredient to enable the development in a sustainable way that resource and to develop the technological breakthroughs that can help it be developed in an even more responsible way as we go forward.
There are mutually supporting interests in terms of contributing to Canadian energy security and North American energy security, and having the third largest reserves in the world make a contribution globally, but it requires infrastructure and it requires a continued focus on the environmental responsibility and the development of those resources, as we have seen industry leadership on that just last week with the Canadian Oil Sands Innovation Alliance coming together to focus their resources on some of these challenges.
Mr. McDougall: We both come from science-based departments as well, so a key part of what needs to be done is just getting the facts out. As was done in the previous presentation, when you look at what the reality is for carbon and composition of oil sands versus other elements, getting that actual technical data into the dialogue really helps to refute some of the positions that have been taken with respect to the Fuel Quality Directive in the EU.
We have just launched — Canada and Minister Kent and his Alberta counterpart — a major world-class monitoring effort from the oil sands, again, getting the facts on the table so we are not talking about mythologies and what people think is going on but what is actually happening and what the consequences actually are.
When we are in international fora explaining how Canada situates in the world vis-à-vis our emissions and other emissions, we are 2 per cent of global emissions. It is important for us to do our fair share, but we need to recognize that if we are going to actually have an effect on climate and climate change, that means getting others into a new global regime that is actually going to have an effect on that. That means getting the other major emitting nations — China and the United States together make up almost half of global emissions — to be part of any agreement for it to be effective.
We need to situate our story in the proper context, and we need to back it up with solid facts, which require very strong science-based research and monitoring efforts, such as we have just done with the oil sands.
Mr. Lucas: I was just going to note in conclusion that I think it goes back to the earlier point we had around communication, that we have one of the cleanest electricity systems in the world in terms of GHG emissions. Oil sands represent one one-thousandth of global emissions. Getting the story out and having a number of voices carry it, supported by the facts, is certainly critical and we look forward to your report's comments in that regard.
Senator Seidman: If I might just ask one final question about that, I really appreciate that and I agree that we need to get the facts out. We need to be perhaps stronger at getting the facts out. It is the scientific facts that are really critical here. Surely, many of these things can be refuted.
What can we do better to get our facts out? What is it from your point of view that might help in getting our facts out? Are there suggestions? Are there things that would make it easier, concrete suggestions that you might have?
Mr. McDougall: We try to get the message out every chance we get. I deal with international affairs, and certainly with my colleagues in other countries I take every chance I can to get the story out of what is Canada's performance vis-à-vis the measures we are taking to achieve our targets, the things we are doing on monitoring the relativity of oil sands versus others. There are reports and studies such as your committee is doing. I expect your report will be very useful in a number of fronts that we will be able to use for communicating, for getting the story out.
Senator Seidman: Exactly.
Mr. Lucas: One of the areas that energy ministers at Kananaskis agreed on for action in their collaborative approach was around having better access to energy information and increasing awareness, so certainly there is a role for ministers. Minister Oliver has been very active in terms of his dialogue with Canadians and international audiences, but we have that agreed-on fact base with the provinces so that both levels of government, as well other stakeholders, can tell Canada's energy story and have it stand up to scrutiny, as Mr. McDougall said, based on scientific evidence, and ongoing monitoring is a key part of the path going forward.
Senator Mitchell: I have a quick supplemental. What if, in fact, we have gotten our story out? What if people know it and they are not buying it? This idea that we just have to go harder faster with our communication was what the forestry industry said until one day Victoria's Secret said, "You know what, we are not buying Canadian paper for our catalogues." All of a sudden it imploded and they got really, really good.
I think the premier of Alberta would say we have to demonstrate to people a new fact, and that we are actually lowering carbon emissions, and then we will have some credibility when we say let us build the Keystone because we really do get this and we are going to do it better and you can trust us. Right now, maybe people get our story. We have got the facts out because you have been working hard. You said Mr. Oliver is working hard. He is very persuasive. It is not working. They maybe get it. They understand, they are not stupid, and they are not buying it. We have to do more.
Mr. Lucas: It goes back to the point I made earlier about sustaining a focus in government through regulation, federal and provincial level; through a focus on research and development to develop the technologies that can help make those advancements to meet or beat the regulations; and to be committed, as I think these industry alliances are, where they are pooling their resources and recognize they have a common challenge, whether it is on tailings management or emissions, is an important step in that progressive improvement of the environmental performance with the government standing behind and monitoring it for the plan that was recently announced in the case of the oil sands, and it goes to other developments as well. That is the credibility in the story, the evidence and a commitment to improve.
Senator Mitchell: We do not have much evidence to show because we have not reduced carbon at all.
Mr. Lucas: I think that is what led through previous studies to the work by both the Government of Alberta and the Government of Canada, to recognize that we needed to up our game in terms of oil sands monitoring and I think that is what the minister has announced.
[Translation]
Senator Massicotte: Thank you for being here, gentlemen. It is very much appreciated. The comment is often made that you cannot put a price on carbon because the United States, our major trading partner, does not do it. To be non- competitive for our industry, we cannot move on that sector. However, there have been a number of studies, one by the C.D. Howe Institute, which is quite rigorous and comprehensive, and other studies by think tanks, which state that, yes, that is the case, but we nevertheless cannot do a lot with the carbon price to encourage a favorable trend.
What are your comments? You may know the sector better than the C.D. Howe Institute. What is your reaction to all the studies that say we should move? We repeat that we should not move on the carbon price because the United States is not doing it.
Mr. McDougall: I would say that the concept of commonality with the United States is important in certain cases, but not everywhere. For example, in the automotive industry, it is essential for the two countries to work in unison. In other areas, competitiveness is not as big an issue in certain cases. There are unique sectors in both countries.
For example, I also mentioned the electricity sector. The committee mentioned that 75 per cent of our electrical production comes from hydrological sources; that is not the case in the United States. Consequently, competitiveness in the electricity sector is completely different. The carbon minimization approach in both cases is different as well. So for the electrical production sectors in the United States, this is a different approach. They have 675 production sites in the United States. Here we have 70. So that is a different factor.
The issue of competitiveness between the two sources is completely different. I would say that these are unique circumstances in each field that we can examine to determine the unique approach in both countries. Let's retain the concept of a common approach in general.
Senator Massicotte: Our approach is obviously regulatory. We will manage the regulations to ensure we achieve our objectives. That makes sense in certain sectors where supply is not elastic. I believe that argument carries some weight in transportation. Virtually all economists say that, if you can change the carbon price rather than regulation, that is much more effective, much less costly and involves much less red tape. Do you agree with that?
Mr. McDougall: In a way, yes. Obviously, the tools of the market are generally more efficient, but the circumstances have to be there before we can take that kind of approach. For example, once again in the electrical power production sector in Canada, it is virtually impossible to establish a single market for the trade in carbon permits that yields the homogeneity of business and the small number of businesses in the sector. In general, yes, but that is not necessarily the case in every circumstance. Furthermore, if we examine a global problem in establishing a carbon market under the Kyoto Protocol, it is so difficult to establish a market that could function well.
Senator Massicotte: We do not all have the same rules; that's why.
Mr. McDougall: The concept is simple, but the devil is in the details.
Senator Massicotte: We have set our target for 2012: 17 per cent less. We have reached one-third of that goal. Are you very confident that we can reach that target in eight years?
Mr. McDougall: We have to be confident.
Senator Massicotte: You are involved in the details; are you very confident that we will get there?
Mr. McDougall: Yes.
[English]
The Chair: Thank you, everybody. It is late.
Dr. Lucas, you referred several times to "Canada's energy policy principles." They must be written down somewhere. Could you send them along?
Mr. Lucas: We can certainly do that. I think the most current reflection of those is contained on the NRCan website. We would be happy to furnish those to you. The most current reflection that was developed with the provinces was in the collaborative approach to energy discussed and agreed upon by provincial energy ministers at Kananaskis. We will provide that, as well.
The one additional point I wanted to register in regard to Senator Mitchell's question if I could, Mr. Chair, was just that, in terms of monitoring, we do have facts on the story that go back and forth. For example, between 1990 and 2009, based on GHG emission monitoring from the oil sands, for example, we know that the emissions per barrel were reduced by 29 per cent.
Recognizing there is further work to do going ahead with the new system in place, there are some key facts on the improvements that have been made over the past 10 to 20 years that are important to get out and put in context to recognize presently that, at present, they represent 0.001 per cent or one one-thousandth of a per cent of global emissions.
The Chair: You have talked about all the different modeling and studying three ways to Sunday that you do in the oil sands. I will just throw out something that some of us are curious about. Let us say tomorrow at noon, all production in the oil sands came to an immediate halt. We allegedly contribute 2 per cent of the GHGs, globally. What would be the effect on that, if any; and what would be the effect on the Canadian GNP and GDP? Have you ever done that?
Mr. McDougall: Excellent question. You need to consider that oil sands accounts for approximately 6 per cent of our emissions in Canada. There is an inordinate amount of focus on the 6 per cent. As I was mentioning earlier, we are taking a much more comprehensive — and in answer to your question, senator, we have to take a much more comprehensive — approach to looking at not just the 6 per cent — the 6 per cent are important — but the 94 per cent. It is with the 94 per cent that we are going to get the greatest possibility for reductions, recognizing that, as Mr. Lucas just said, if you look at the oil sands, I believe it has the steepest decline in emissions intensity of any sector that you can look at. If you look at what they have done, there has been enormous decline in emissions intensity.
Senator Massicotte: What percentage of that is our GDP?
The Chair: We have it, though; we saw a chart in Calgary.
An Hon. Senator: The sector is about 7 per cent.
Mr. Lucas: It is a significant proportion of that. I do not have the number offhand, but I would imagine 4 to 5 per cent. It is a very significant part.
The Chair: The oil and gas sector, compared to anything else, it is multi-. . . .
Senator Massicotte: I heard 7 per cent. Is it half?
Mr. Lucas: I think 7 per cent is the oil and gas sector GDP.
Mr. McDougall: GDP, and 6 per cent of emissions.
The Chair: Have you done the modeling that I mentioned?
Senator Massicotte: It is 3 per cent of GDP impact at times of 0.12 per cent of the GES.
Mr. McDougall: No, I think the closest that has come to the modeling that you are talking about is perhaps the study released about a week ago in terms of examining what would happen if you burnt all of the oil sands oil in comparison to burning all of the coal that is in Canada.
Senator Massicotte: No comparison.
The Chair: Colleagues, I take it there are no further questions. It is late. Thank you all for being so patient. We did get started late, and gentlemen from NRCan and Environment Canada, it has been terrific, and we really appreciate it.
Thank you very much.
(The committee adjourned.)