Industry Committee on Nov. 2nd, 2006

[The Chair, Conservative, James Rajotte]

Thank you very much, Dr. Raymont.

We'll start right off with Ms. Kadis for six minutes.

[Susan Kadis, Liberal, Thornhill, ON]

Thank you, Chair.

Thank you, and welcome, gentlemen.

I'm particularly interested--and you touched on it already in some of your comments--in the R and D in the areas of alternative energy in our universities. What are your views on the status of that and the resulting research--again, that's been referred to--on how well it's being properly transferred and used in our industry?

First, Dr. Frise.

[Dr. Peter Frise]

AUTO21 does quite a lot of work on energy-related issues in manufacturing both to improve the energy efficiency of processes and to develop new materials that will basically take weight out of the car and yet retain safety, which is a critical issue; and that will impact the energy consumption of the vehicle while retaining safety. It's important to never let go of that. Then we work on direct energy-related issues such as fuel economy, vehicle emissions, things like that. We have innovative work in clean diesels and fuel cells and alternate fuels and so on.

We have what I would term a very effective program. It's been internationally peer-reviewed and judged to be of very high quality. The key thing--and I think my colleague would support me here--is to connect the people creating the knowledge with the people who can eventually put it to use. If that is done, Canadian researchers can compete with any researchers in the world, and the implementation by Canadian companies will be top-notch.

The problem we run into--and I really support what my colleague said--is when researchers are working in isolation without a place for the knowledge to go. This idea that knowledge is good school of thought and that if you create the knowledge they will come--I'm sorry, it just doesn't work that well.

[Susan Kadis, Liberal, Thornhill, ON]

In your view, it's not just a function of funding, although I'm sure that's an important aspect of it, but also of closing that gap and the collaboration.

[Dr. Peter Frise]

I think before more funding is applied, a more effective program design has to be developed.

[Susan Kadis, Liberal, Thornhill, ON]

As you've mentioned, there are examples you feel should be replicated that have been successful and built on.

If I have more time, I'm interested to ask Mr. Raymont about biomass energy and why it's not considered at this point a more significant component of Canada's energy supply.

[Dr. Michael Raymont]

There are two issues really with biomass energy. One is that biomass can only be collected and transported economically over very short distances. So think of a 20-mile or 30-mile radius around some type of a processing plant that will produce a useful energy byproduct.

The second thing is that the variability of the feedstock is very substantial. There are, however, processes being developed today that will much more economically work on small unit quantities of stuff, be it corn stover or waste wood, and so on and so forth. I think you'll appreciate that you couldn't collect all of B.C.'s supply of wood waste and send it to a central processing plant. It would simply be uneconomic and impractical.

The other issue is that the outputs from biomass energy processes need to be integrated into the conventional energy infrastructure we have, and this is a challenge for all renewables and all alternate sources of energy. Sure, there are significant technological challenges in developing those processes themselves, but above all it is being able to get the outputs of those, be they biodiesel or electricity or whatever else, integrated into the pipeline and wire networks we have in this country, so they can be delivered to consumers, as consumers are used to receiving them.

[The Chair, Conservative, James Rajotte]

Thank you Mrs. Kadis.

We'll go to Monsieur Vincent.

[Robert Vincent, Bloc, Shefford, QC]

You said that there are many government programs, 200 as a matter of fact, which are too difficult to implement. Could you give us some examples that would explain why we are unable to make use of existing programs?

[Dr. Michael Raymont]

In general they're far too diffuse. They have maybe a very narrow focus, and the typical amount of money is very small. As I indicated in my comments, the biggest difficulty in the commercialization phase is to put together demonstration projects that are high risk that the industry private sector alone cannot fund, but that might be $10 million or $100 million projects.

For many of the programs I refer to here you can get $500,000, $200,000, or $1 million, but it might take a 44-page document to get it. So frankly, a lot of small companies simply don't have the time, energy, and ability to stick with it, to apply through such a complex system for such small grants that would have such small impacts on the latter stages of commercialization. They help with early science, but not the latter stages of commercialization.

[Robert Vincent, Bloc, Shefford, QC]

Do you believe that it would be preferable to have fewer programs but that they be better targeted and more accessible? At least, in that way, that money could be used for research and development.

[Dr. Michael Raymont]

Yes, but I would argue that they need to be agglomerated. We don't need 200 programs, and one program would be far too simplistic. We need perhaps 20 programs where significant dollars would be available and targeted to different areas.

My comments should not be taken as arguing against the need for basic research in the early stages of research. We absolutely need that, but in general in Canada we have put $11.7 billion of new funding into university and basic research. That's excellent for both training people and providing the raw material for commercialization. But unless we provide significant funding, partnering and, as my colleague pointed out, a new paradigm or a new way of actually commercializing technology, we're going to find that the investment in basic research develops virtually nothing in economic benefit to this country.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

Mr. Frise, you've referred to research on materials. In the automobile industry, there is a lot of talk about using magnesium and aluminum. What is the status of research on using magnesium and aluminum to build automobiles?

[Dr. Peter Frise]

AUTO21 has done a great deal of research in both magnesium and aluminum. We have worked on new casting and forging processes for these materials. We have worked on sheet aluminum and sheet magnesium, which would allow the production of very lightweight body structures. The key is to always retain safety while using these lighter-weight materials.

We have also worked on joining these materials, which is quite a challenging thing to do because, contrary to popular belief, they will actually corrode extremely quickly if you don't do the right things with them.

I would like to offer a very brief remark about a key government initiative that's been announced, and that's the move of the materials technology laboratory of Natural Resources Canada from Booth Street to Hamilton, Ontario. I think this is an excellent initiative. It's exactly the right thing to do, because it puts those people and their resources right in the middle of where they can best be accessed by researchers and industrial people across the country. It gives them a new facility that will help keep Canada competitive.

The materials industry in Canada is quite fundamental to how everything else we do in this country works, so I really want to support that.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

My question is for Mr. Raymont.

This document is extremely provocative because you don't believe at all that we could be able to reduce our dependence on oil. I believe this is absolutely contrary to the position of Canadian and Quebec environmental organizations about the use of oil as a source of energy. How do you feel working against the youth movement of today? You're completely out to lunch.

[Dr. Michael Raymont]

Whose opinion do you mean? What I've said there is not about oil; I have said that Canada can and should produce more energy. It's not a question of oil. I am not here to represent the oil industry. I represent no industry whatsoever.

What I'm telling you is that you will fundamentally change society in a way that I don't think the economy can stand if policies are brought into place to limit or reduce the quantities of energy that this country consumes. We can alter the gradient of the curve of energy consumption, but I can tell you that on a global basis there is absolutely no doubt the world will consume more energy--vastly more energy--in the future than it does today.

I am certainly not against energy conservation measures in any way, shape, or form, and indeed one of the major programs in our organization is energy conservation, but as I said, that is only one of a combination of magic bullets. To actually reduce energy production and still have and enjoy the society and the social benefits and the health care benefits and everything else that we enjoy today is simply not possible.

We see in Quebec that Hydro-Québec has announced, rightly, an increase in hydro production and an increase in corresponding wind power. That's a perfect combination of, as I said, energy production being increased in a responsible way, and that's what we argue for. Energy production and consumption per se are not bad, and they will not destroy this planet; it is the byproducts of them that will. If we mitigate the byproducts, we can go on increasing energy intensity, enjoy prosperity, and help underdeveloped countries enjoy prosperity too, and that is a fact. It sounds controversial because most people won't acknowledge it, but if you read the blue ribbon panel that was just released, they make exactly the same point: energy intensity is not bad; it is the byproducts of energy that cause the problem.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Carrie for six minutes.

[Colin Carrie, Conservative, Oshawa, ON]

Thank you very much, Mr. Chair.

I'm really welcoming your comments talking about partnering between academia and industry and government and really taking a look at a new paradigm, because I feel what I've learned--and I've visited AUTO21 down there--is that we're going to win by innovation, human resources, and looking at this multi-disciplinary approach.

I do have some questions for you. Specifically, if we can talk auto industry for a minute, the entire auto manufacturing industry in Canada is foreign owned, the assembly part of it. We have GM, Ford, Chrysler, Honda, Toyota. Since they are foreign owned, quite often their R and D is done in the home country. I was wondering, how can the federal government help increase the R and D here in Canada as opposed to having this go overseas?

You mentioned Australia. Are they actually doing better than we are now or are they just climbing up the ladder as well?

[Dr. Peter Frise]

Thank you very much for your question.

First of all, you're right. The OEMs, the automakers, are foreign owned, but what has been found--and this has been the case for a long time, and each of the OEMs is a little different in this respect--is that of the five companies, the Canadian arms of at least a couple of these companies have very strong research and development mandates within their companies.

They have to compete internally for those mandates, but the folks in Oshawa at the General Motors' regional engineering centre, the people in Windsor with DaimlerChrysler Canada's ARDC, and the soon-to-be-opened Ford innovation centre in Oakville, and also the international truck and engine innovation centre in Windsor have competed very successfully within their respective companies to be the people on a certain issue. No company would have all its R and D in just one place.

The other key point to make is that research and development activity in the world in more recent times and into the future tends to follow the talent. That's where it goes. It goes to where the people are available, who have the knowledge and the energy and the insight to make contributions. Whether those people live in our country or in somebody else's country, that's where the work will go.

So we find within AUTO21 that we're drawing interest from elsewhere in the world to access Canadian talent and know-how, and the trick is to do that without giving it away. The fact of the matter is that I think the talent we generate here will bring investment to Canada and be a net benefit.

Finally, in the parts part of the sector there are quite a large number of Canadian-owned companies whose headquarters operations are in our country, and we need to support those folks very strongly to make sure they keep their innovation activities here and employ our young people.

[Colin Carrie, Conservative, Oshawa, ON]

You mentioned support, which leads me to my next question. You talk about these public-private partnerships. Sometimes it's known as a dirty word, but it seems to be working very well for you. How can the federal government encourage greater investments in these partnerships? Do you like the tax cuts that have been put forward? Traditionally there have been subsidies, things along those lines. What can the government do to help encourage more of these partnerships?

[Dr. Peter Frise]

Let me preface my remarks by saying I'm not an expert in economics or in trade. But I will tell you this, from my observations of the automotive sector around the world--sorry, I would also say I'm a taxpayer, so I have a problem with excess spending. That's why I keep emphasizing that we don't object to strong reviews at all.

But at the same time, I think that being dogmatically against having public and private sector operations working together is just unwise, because every other jurisdiction in the world, especially in large industries like automotive, are doing it. If we don't do it, our lunch will be eaten for us by somebody else. We don't have a choice. If we don't form these partnerships and keep them vibrant and healthy with continued sustained investments over a long period of time, we will lose every battle.

The statistics have shown...and I don't have hard numbers here, but I heard at the CAPC meeting last week that the typical payback period for many of these public sector investments in automotive facilities is in the three- to five-year range. Then those investments are sustained for many years after that, with employment and tax revenue from employment and all that sort of thing.

This works. That's why everybody else is doing it. So we need to as well.

[Colin Carrie, Conservative, Oshawa, ON]

All right. Do I have time for another quick question?

[The Chair, Conservative, James Rajotte]

About 30 seconds.

[Colin Carrie, Conservative, Oshawa, ON]

Mr. Raymont, I really liked your Canadian innovation scorecard. Well, I didn't really like it, but I'm looking at the ratio. Finland and the United States seem to be doing much better at attracting private investment in R and D. Can you give us an idea of how you think we can help improve that?

You talk about shared technology, strengthening Canada's innovation supply. How do you think the federal government can help improve those numbers? I'm not seeing great R and D ratios from Canada.

[Dr. Michael Raymont]

Absolutely true. Since this ratio is probably the most critical metric of all to a healthy innovation system, one could cynically say that if the private sector isn't going to put up the R and D dollars, the government should put up less to bring that balance back to three to one, because that three to one, or in fact greater than three to one, has been shown to be absolutely optimal for an innovative economy.

But having said that, I'm not arguing necessarily for less contribution. It's focused contribution in the right way. If you involve the industry very directly in what the activity is, you will find that they will be willing to put more money into R and D. I don't think it takes any single policy--and again, I'm not a tax expert, but looking at, for example, SR and EDs alone, it's a non-holistic way of looking at it and all you will do is affect one portion of the supply chain. You have to look at the whole supply chain and see how you can encourage more R and D by the private sector.

A short-term move in the right direction would be to provide more private sector governance into some public sector funding such that you would have more market pull influence as well as technology push. You need both. You cannot do it with one or the other; you need both. But as I've shown, we have an imbalance between technology push and market pull.

So let me give you an example. I was at CANMET's lab in Devon yesterday, giving a talk there. I walked out with some industry people who said, “Fantastic facility. Great, extremely bright people. Not working on problems that are of interest to us. Why is it being done?”

So if you focused that money and that facility on more of a partnership and said, “We'll put in the money. You put in the money, private sector, but you get to drive the agenda that pulls the technology to answer the challenges you face”, I think you'd find they'd come on board pretty fast.