Finance Committee on Oct. 1st, 2014

[The Chair, Conservative, James Rajotte]

I call this meeting to order. This is meeting number 45 of the Standing Committee on Finance. For our orders of the day pursuant to Standing Order 83.1, we're continuing with pre-budget consultations 2014.

Colleagues, we again have two panels here with us today.

We have five individuals presenting in the first panel. First of all, we have Clean Energy Canada, with Ms. Merran Smith. From the Canadian Water Network, we have Mr. Gord Lambert. From the Forest Products Association of Canada, we have Ms. Catherine Cobden. From the National Angel Capital Organization, we have Mr. Robert Douglas. From the Prospectors and Developers Association of Canada, we have Mr. Charles Beaudry.

Welcome to all of you. Thank you so much for being with us this afternoon.

You have five minutes maximum for your opening statement.

We'll begin with Ms. Smith, please.

[Merran Smith, Director, Clean Energy Canada]

Thank you for the invitation to present here today.

I'm the director of Clean Energy Canada. I'm here with my colleague, Clare Demerse, our senior policy adviser based here in Ottawa.

Clean Energy Canada is working to accelerate Canada’s transition to a clean energy economy. When I say “clean energy”, I'm talking about renewable energy sources like wind, solar, and hydro power, as well as innovation in the way we consume energy. I'd like to make three points in my comments to you today.

First, the clean energy sector is now very big business around the world. With almost a quarter of a trillion dollars invested globally last year, this is no longer a boutique or niche sector, and Canada needs to take note of this rapidly changing industry.

Second, Canada's clean energy sector has huge potential. We're producing both clean electrons and the clean energy technologies and services that are increasingly in demand around the world.

Third, the federal government could be doing much more to support the clean energy sector in Canada.

I'm going to start with the big story.

The world is making a transition to clean energy at a pace that would have been tough to imagine just a few years ago. A few facts help to illustrate that shift.

First, investors directed $207 billion to clean energy projects in 2013, which is coming close to the amount invested in fossil fuel power generation.

Second, in the past five years, the price of a solar module has dropped—I should say “plunged”—by 83%. This is a game changer for global solar uptake.

Third, there are now 144 countries that have some form of renewable energy targets, and mainstream brands like Walmart, IKEA, Starbucks, Google, and Facebook have committed to be powered 100% by renewable energy by 2020.

Finally, the big headline from China used to be that they were building a new coal-fired electric plant every week. Now they're building a new windmill every hour, and 2013 saw the first time that China invested more money in new renewable energy capacity than it did in new coal and gas-fired power plants.

This growing global commitment to clean energy has significant implications for the competitiveness of Canadian businesses. Fortunately, Canada is already well positioned for success in the clean energy economy. Analysis from McKinsey done for Natural Resources Canada found that our country has significant clean power potential.

We're already the home of the world's third largest hydro power generation capacity, but McKinsey also found that Canada could take a lead in sectors like solar power equipment, marine power, and energy-efficient buildings, among others; so it's not like we're starting from nothing. Canada saw well over $6 billion invested in clean energy last year, moving us from twelfth to seventh place among the G-20 nations.

It's essential to emphasize that in recent years this investment has been driven by provincial, not federal, leadership. While provinces have jurisdiction over electricity generation, the federal government could make a huge contribution by actively and strongly supporting the growth of the clean energy sector. In addition, clean energy is a core climate change solution. Thus, progress in the clean energy sector could help the federal government meet the national climate target it adopted for 2020, a target that we're not on track to meet.

For budget 2015, we recommend two areas of investment to support clean energy.

First, building on progress in previous budgets, add three more types of clean power technologies to capital cost allowance classes 43.1 and 43.2, which are designed to support clean energy directly. The three types would be: first, building integrated photovoltaics, which replace traditional building materials like shingles and windows with solar materials; second, investments to make buildings solar-panel ready; and third, power storage technologies that help close the gaps when the wind isn't blowing or the sun isn't shining.

Our second recommendation is to create more demand for clean power indirectly by providing a rebate to Canadians who buy an electric car. This would also have direct benefits for the growing number of Canadian companies involved in the production and servicing of electric vehicles.

Electric cars are significantly cheaper to operate than conventional cars over their lifetime, but they cost more up front. Rebates help to reduce that sticker shock so that Canadians can afford to drive cleaner cars. Because the Government of Canada likes to be harmonized with the U.S. on vehicle and climate policies, as was reiterated by Minister Aglukkaq last week, we recommend matching the current U.S. federal rebate, which offers up to $7,500 for the purchase of an electric vehicle. It's clear that the American rebate is working. The U.S. has over 220,000 electric vehicles on the road today, while we have under 9,000, far fewer even on a per capita basis.

Thank you. I look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Ms. Smith.

We'll go to Mr. Lambert, please.

[Gord Lambert, Partner and Past Board Member, Executive Advisor, Sustainability and Innovation, Suncor Energy, Canadian Water Network]

Thank you. It's a great pleasure to be here today.

My name is Gordon Lambert. I'm the executive adviser for sustainability and innovation for Suncor. I'm grateful for the opportunity to appear before you today on behalf of the Canadian Water Network, with which I've had experience both as a board member and as a partner on research.

We are here to present how a federal investment of $60 million over 10 years would enable application of a successful model to achieve benefits across Canada in areas where buy-in across sectors and decisions based on sound science are critically important.

The CWN's experience has shown significant uptake of its approach of bringing together cross-sector stakeholders around an apolitical table to address key water management issues. Based on that experience, the federal investment is forecast to attract another $120 million in investments from private and public partners, which will generate many times that in socio-economic benefit and lead to self-sustainability of the network within 10 years.

In my role as a senior sustainability professional, I've seen clear evidence that water is critical to Canada's socio-economic fabric, and managing it well provides Canada with a unique competitive advantage. Canada's agriculture and resource industries are valued in the hundreds of billions of dollars, and the global water goods and services sector is valued at over $300 billion. Innovation to optimize these sectors not only sustains quality jobs, but has a multiplier effect in other sectors like energy, infrastructure, and engineering.

Capitalizing on Canada's water opportunities could result in: improving both water use and quality in the Canadian agrifoods sector to more effectively and sustainably supply a growing domestic and global market; finding solutions that fit, both technically and culturally, in ensuring safe drinking water in small communities and for aboriginal Canadians; enabling communities to adopt financing, technical, and social innovations that allow them to deal with infrastructure deficits and increasing costs and uncertainties resulting from events like floods and droughts; and moving decisions forward on water management needs in government and the private sector to unlock the socio-economic benefits of oil and gas development, including hydraulic fracturing and oil sands, in socially acceptable ways.

The CWN is uniquely positioned to empower Canada to take advantage of these water-related opportunities. It cuts across all sectors and stakeholders and is focused on generating practical solutions based on credible science. As a national and apolitical not-for-profit, its fundamental strength lies in its objective science-based approach, not owned by any single government, industry sector, or interest group, but resulting in benefits to all.

The CWN is already a success story for the federal government. It has developed its end-user driven consortium model over 14 years as a federally funded network of centres of excellence, demonstrating the ability to attract partners to collaborate and co-invest, attracting over $45 million during that period. The opportunity for the federal government now is using this model to move key priorities forward, building on our success and the relationships we've achieved to date.

The CWN is already applying this new model successfully. In our municipal water consortium, municipalities, industry, and other levels of government are investing millions in research to advance priority issues. On top of that, municipalities representing over 14 million Canadians see the role of the CWN as being so critical that they've committed over $700,000 in 2014 alone to support its operations.

The CWN is also developing a hydraulic fracturing and water consortium, an area extremely important to Canada's energy development, where advancements in knowledge would significantly move forward both the industry and its provincial oversight. Federal investment through this proposal would support critical research to address questions of groundwater protection, governance, waste water handling, and landscape impacts.

The proposed investment would enable the federal government to apply this model going forward to ensure that innovation leads to success in areas in which it needs most to catalyze progress. Government and industry invest significant funds in important complementary programs to support research and commercialization opportunities, but none fill this critical, cross-cutting, apolitical, national niche to support broad social policy and dialogue linked to economic success through innovation in water management.

I thank you again for your consideration today and look forward to your questions.

[The Chair, Conservative, James Rajotte]

Thank you very much, Mr. Lambert.

We'll go to Ms. Cobden, please.

[Catherine Cobden, Executive Vice-President, Forest Products Association of Canada]

Thank you, Mr. Chair.

FPAC has made an official submission, so I will keep my comments brief, but will flag that we do have a more detailed submission at your disposal.

It is my distinct pleasure to be here today on behalf of the Canadian forest industry, an extremely important contributor to Canada's economy and in particular the rural economy. Our industry, I will remind you, is a global export powerhouse. We send product to over 187 nations worldwide. We are also the economic engine of hundreds of communities across the country that are almost entirely dependent on our existence. We employ 200,000 Canadians, and significantly more Canadians benefit indirectly as well.

You all know that the forest industry has faced significant challenges. In response, we have retooled and we have charted an interesting, exciting future direction. Our sense of confidence is supported and underpinned by an amazing and impressive innovation system with a remarkable array of new innovations in new products, new markets, and new processes. We have had the opportunity to describe our vision and our innovation agenda with this committee in the past, but I will remind you that the potential in front of us is great. By the year 2020, our aspirational goal is to employ an additional 60,000 Canadians, add an additional $20 billion to the Canadian economy, and further reduce our environmental footprint by 35%.

The government and all of our partners have been instrumental in supporting our pathway of change. This includes an array of support, from the trade posts to the investment in forest industry transformation program to the federal-provincial-industrial collaboration in a research powerhouse called FPInnovations. I will note that Pierre Lapointe, the CEO of FPInnovations, is here with me today.

Our official submission highlights three important suggestions for your consideration. Today I'll use your time to dive deeper into one of them and just mention the other two very briefly.

Our forest sector has a strong desire to fill our innovation pipeline with more ideas from colleges and universities to really leverage the brain power for this transformational journey that vision 2020 is articulating. To date we have been the direct beneficiary of research capacity in 26 Canadian universities supporting this transformation. It has been the direct result of an interesting sectoral initiative collaboration out of NSERC that was launched in 2008 and is coming to an end in March 2015.

The research outcomes of this initiative have been impressive, and I urge you to look at them in detail. I will just say that at the highest levels, through the efforts of over 120 professors, 515 students and postgrads, and close collaboration with the industry and our innovation partner of FPInnovations, Canada is now the global leader and is extremely competitive in an array of new products such as nanocrystals, bioactive papers, new lightweight biomaterials that feed their way into the supply chain of an incredible array of other sectors, bio-textiles, where we are now in the supply chain of the textile industry of India, for example, and new wood construction applications.

I'm naming just a few here. I will proudly point out that we have a new brochure in innovation with a lot more success stories called “Forest Innovation: Expect Us in the Unexpected”. We'd be happy to distribute that.

To maintain our edge, though, we need to build further research from these research outcomes and get further momentum. Our partners, our colleges, our universities, and we are recommending the establishment of a dedicated fund of $60 million over five years for university and college R and D to fill that innovation pipeline.

I'll close by saying that we have two additional recommendations in our brief. One is to improve our federal-provincial-industrial coordination in promoting our forest practices globally. We do continue to face environmental campaigns despite the fact that we have world-class environmental credentials. I think we could all work together on protecting and supporting Canada's brand.

The final recommendation is to urge the government to convert the SDTC next-generation biofuel fund to a biorefinery fund. This fund has been around for six years. This is not the first time I've requested this of this committee, but I do ask you to look at it again, because another year has passed, another year where it remains unspent. If you convert it, it will be applicable to the forestry sector, the agriculture sector, the biochemical sector, the textile sector, the biofuel sector, etc., to deliver our bioeconomy potential.

Thank you very much.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

We'll go to Mr. Douglas now, please.

[Robert Douglas, Director, National Angel Capital Organization]

Thank you, Mr. Chairman and committee members.

I'm Rob Douglas. I'm a director of the National Angel Capital Organization, otherwise known as NACO, and also president and co-founder of an angel investor network in southwestern Ontario. I come to you this afternoon to deliver good news, both about NACO angel investors across Canada and about early-stage companies.

Since NACO's founding in 2002, a committed group of volunteers and a small staff have shaped this not-for-profit organization into the champion of Canada's angel investing. It is Canada's only national association representing angel investors.

NACO boasts over 2,000 members who receive intelligence, tools, and resources to facilitate investment into innovative early-stage companies. NACO's work supports the growth and development of a robust early-stage investor ecosystem in Canada, accelerating innovation, economic growth, competitiveness, and of course jobs.

Who are these angel investors? Typically, they are hard-working Canadians who have been successful in business and who have both the financial resources to invest in enterprises and an interest in seeing the next generation of entrepreneurs succeed. More often than not, angel investors are driven to give back to the ecosystem in which they thrive, placing greater value on coaching and mentoring a new generation of entrepreneurs than on the financial gain they may get from these investments.

Angel investors are becoming an ever-increasing force in the world of capital formation in Canada. Confronting what is referred to as the capital availability gap, angels provide private growth capital to early-stage companies before venture or institutional investors will get involved. Since 2010, available statistics indicate that over $180 million has been invested by angels in nearly 500 companies. Without this investment, many promising ventures would have failed or sought investment or relocated outside Canada.

What is NACO's challenge?

Traditionally, angel capital has come from individuals who invest solo, or as lone wolves, sourcing deals privately and making investment decisions on their own, but over the last five years, we've noticed a significant shift in this profile as more and more angels join groups to leverage the knowledge and experience of their peers. As a founder and president of the Golden Triangle Angel Network, known as GTAN, in southwestern Ontario, I have observed first-hand the tremendous power of angel investor groups. From a standing start in 2009, our organization has grown to over 100 active angel investors.

These members have invested over $20 million of their own personal capital without a single request for special treatment such as tax incentives. These members have invested in over 40 companies, coached and mentored countless entrepreneurs, and created or retained 750 identifiable jobs in our community, making GTAN one of the top five angel groups in Canada, according to a recent Industry Canada study.

There are currently more than 30 formal angel groups across Canada, most of them NACO members. Regrettably, these visible angel groups represent less than 10% of the total angel investors in Canada. NACO's challenge today is how to organize the community of angel groups and investors to maximize the economic impact of supporting innovative early-stage companies.

This involves professionalizing angel activity, education, best practices, and standards. NACO is seeking $5 million in financial support over the three-year period of 2015 to 2018 to undertake a campaign to mobilize those many private investors who have not yet embraced the power of angel investing, either as individuals or as part of angel groups, and who would benefit significantly from having access to other like-minded individuals through more formal investment structures.

In addition, NACO strongly supports the creation of investment vehicles that incent angels to invest and accelerate the growth of the investee companies. One such program, FedDev's investing in business innovation program, or IBI, has been very successful in southern Ontario. As I'm sure you're aware, IBI provides repayable loans to companies that have received angel investment. Of particular note is that the loans are to the investee companies, not to the angel investor.

This program serves as a model that could be replicated across the country, with positive outcomes both for productivity and for jobs. NACO likes this model and looks forward to continuing its dialogue with Citizenship and Immigration Canada, Industry Canada, and other government departments to help shape forward-looking programs that will drive economic growth and create jobs and prosperity in communities across Canada.

Thank you very much for hearing me today. I look forward to answering questions.

[The Chair, Conservative, James Rajotte]

Thank you very much.

I'll turn to Mr. Beaudry now, for your presentation.

[Charles Beaudry, Member, Board of Directors, Prospectors and Developers Association of Canada]

Good afternoon and thanks for the opportunity to present here today.

My name is Charles Beaudry, and I am here as a member of the board of directors of the Prospectors and Developers Association of Canada, PDAC, and as a member of the management team of a junior exploration company focused in the Abitibi region of Ontario and Quebec. I'm a geologist with about 35 years of experience in the mineral industry.

PDAC is the voice of Canada's mineral exploration and development industry, representing over 10,000 members. This industry is a major driver of Canada's economy, accounting for almost 4% of Canada's GDP and employing over 400,000 workers across the country, from remote communities to large cities. It is the largest private sector employer of aboriginal people.

The industry is also important to government revenues, contributing over $70 billion in the last decade to federal and provincial governments. According to the Mining Association of Canada, Canada's mining industry plans to invest approximately $160 billion in projects over the next decade.

Mineral exploration in this story is the first stage of the mineral development cycle. The purpose of this stage is to locate mineral deposits that could be economically developed. Mineral exploration is a costly and risky business, as you know. About one in 1,000 greenfield exploration programs results in economic discoveries, and even fewer become mines.

Recent data shows that making mineral discoveries has become riskier and costlier than ever before. Since 2006 the industry has been finding less even though it has been spending more, signalling that production could outstrip already shrinking base metal reserves. In Canada, per metre drilling costs, for example, which account for a considerable portion of discovery costs, have increased from $92 per metre in 2000 to $230 per metre today. This is because easy-to-find deposits have been discovered, and deposits are now deeper or in more remote parts of the country. These factors have contributed to Canada's declining attractiveness as an exploration destination. After having been the global leader in attracting exploration investments since 2002, in 2013 Canada fell to second place, behind Australia.

Rising cost challenges are compounded by the challenges companies face in their efforts to raise capital to finance exploration. In 2013 the value of financing has decreased by 23% over that in 2012, which was itself substantially below 2011 levels. Funding for grassroots exploration in particular has been hit hard, with expenditures dropping 50% in 2013. The continuation of both of these trends may compromise the ability of the mineral industry to make new discoveries in Canada, which means fewer new mines in the future.

This is why the Prospectors and Developers Association of Canada is making the following recommendations: one, to renew the mineral exploration tax credit for an additional three years; and two, to renew the targeted geoscience initiative.

One of the policy tools that has helped Canada become the number one destination for mineral exploration financing has been the mineral exploration tax credit. On behalf of the mineral exploration industry, I would like to thank the committee for recognizing the importance of the METC and recommending its permanency in your report “The Future We Want: Recommendations for the 2014 Budget”.

PDAC is recommending the renewal of the METC for an additional three years. This three-year renewal would provide longer-term stability to junior companies, enabling them to plan the financing of multi-year exploration programs and boost investor confidence.

Renewal of the METC is particularly important this year for two reasons. First of all, the industry finds itself in one of the worst financing downturns in the last 20 years. You can't explore if you can't raise money, and the METC can be a critical source of risk-tolerant capital when other sources dry up. Second, other jurisdictions are not sitting still. This once uniquely Canadian tax policy innovation is being borrowed by our closest competitor. In May 2014 the Government of Australia announced a $100-million exploration development incentive, enhancing the attractiveness of investing in that country.

As well as through its fiscal policy, the Government of Canada can also enhance Canada's competitiveness by investing in innovative public geoscience. The targeted geoscience initiative is about finding new ways to explore more efficiently and to establish camps where near-surface deposits have likely been found and developed. Technological process and methodological innovations arising out of this important initiative have already enhanced the capacity of the exploration industry to detect buried mineral deposits.

The program has already improved exploration models for a number of active mineral regions and mine sites, including the Canadian Malartic region near Val-d'Or, the MacDonald mines in the James Bay lowlands, and Cameco's millennium deposit in the Athabasca basin of Saskatchewan.

The PDAC recommends the renewal of the TGI for an additional five years and the maintenance of the program's funding at $25 million overall. We also recommend that the TGI include greater industry participation, particularly at the planning and design stages, and that enhancing discovery rates be made an explicit objective of the program.

By committing to research and development programs like the TGI and innovative tax policies like the METC, the Government of Canada can play a role in enhancing the competitiveness of Canada's mineral exploration industry and help our country regain its status as the number one destination in Canada.

Thank you. I will be available for questions.

[The Chair, Conservative, James Rajotte]

Thank you very much for your presentation.

Colleagues, I have a couple of things to mention to you and our guests as well.

There will be bells here fairly soon. I'd like to get your consent to carry on as far as we can close to the vote.

Also, I know that members like seven-minute rounds to get into more detailed discussions, but I'm recommending that we do five-minute rounds to allow as many members as possible to ask questions.

I will start with Mr. Cullen, please.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Thank you to our witnesses.

It's too bad that we're going to be interrupted. This is an incredibly diverse and important panel and I'd like to spend an amount of time with each of you, but I'll go as quickly as I can.

I'll start with Ms. Smith.

There was a recent IEA report suggesting that solar power could become the world dominant or the largest source of producing energy, supplanting carbon sources by 2045 or 2050.

[Merran Smith]

That's right. The IEA is predicting that because of the plunge in the price of solar energy, which dropped 83% in less than five years, the global uptake is significant and will be more than 50% of electricity by 2050.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Do we have a sense of what costs would be associated with the addition of those three energy sources? You want to add them to the list for accelerated capital reduction. Is that right?

[Merran Smith]

Yes. It would be about $10 million for each of those three under classes 43.1 and 43.2.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Do you have an awareness of what the subsidy is right now to the oil sector and the oil sands from the federal government?

[Merran Smith]

I could get back to you on that, but I think we're all aware that it's significant—billions of dollars.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

It's north of a billion dollars for oil at $91 a barrel today. You're asking for $30 million per year to add these additional technology-ready sources of energy for Canadians.

[Merran Smith]

That's correct. I would also love to have a conversation about broader things that the government could do to support the clean energy sector, but this is what we're asking for today.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

You mentioned targets. Does Canada have a target right now for renewable low-impact energy?

[Merran Smith]

We have a target of 90% clean electricity.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Canada does?

[Merran Smith]

Yes, we do.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

By when?

[Merran Smith]

By 2020.