Natural Resources Committee on March 19th, 2013

[Guy Drouin]

There is a major experiment starting in North America. First, the American state of California, the tenth largest economy in the world, will create a significant carbon market. There will be sufficient liquidity to have a meaningful cap and trade system. Second, in Canada, on December 21, 2012, the Quebec National Assembly passed the latest regulations and laws to establish a regulated carbon market as set out in the Kyoto Protocol.

There is a difference though. My company is very active on the California market. Americans are smart. They took everything that was good from the Kyoto Protocol and left out what was not good. They have set up a very strict market that is already working very well. Two auctions were held, one in November and the other in January. The price per tonne is $12 or $13. It is a very attractive price, which reflects today’s reality, in my view.

Likewise, I think Ottawa needs to look at what is happening between Quebec and California. Washington will be doing the same thing. If those two markets are working very well in a year or two, they can become a model for other regions, territories and provinces to enter this market. It is interesting to see who will be the leader. The American states or the provinces? It must also be said that, as part of the Western Climate Initiative, other partners might intend to become plugged into that market. Ontario is one example. There are observers such as Nova Scotia. Off the top of my head, in the U.S., there is Oregon, Utah and New Mexico. Everyone is watching and waiting.

I think the Canadian government decided to watch this experience very closely because, at the Vancouver conference, everyone was talking about the Quebec and California experience. We might say that this is perhaps a stricter model than the Kyoto Protocol, which was heavily criticized. The Canadian government rightly echoed the same criticism, but the Quebec-California market, which is relying on the Kyoto Protocol experience, might be a much more appealing market. That is what I think.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you. What you are saying is valid and important. There has been a lot of reluctance on the government’s part to assume this responsibility, but we really hope that your involvement will help make the government accountable.

I'd like to continue with you, Mr. Mabee. You mentioned the metrics around jobs or greenhouse gases. Now, we of course know that what Canada's missing, and part of the reason why we've lost half a million manufacturing jobs over the last few years, is that we don't have in place any real green technology, clean technology, strategy, and many other countries are picking up the jobs. Germany is a good example—300,000 jobs that we don't have because our government has really failed in that respect.

Would you not think that we can actually do both, that by putting in place a strategy around renewable energy, green energy, we can actually have the jobs that we're missing out on in that trillion-dollar market and have what most Canadians want, which is having Canada combat climate change?

[Dr. Warren Mabee]

I think implementing a plan to move one of these technologies forward would help with employment, there's no doubt about that. Once you start to support a technology, support its use, the use of the products, support the rollout of different spinoffs and ancillary services, you start to see this sort of ecosystem develop.

Germany has done that very well around different renewable energy technologies. Ontario has tried to do that within the last few years, with their Green Energy and Green Economy Act, with some success.

I would argue that as a nation we could do it better. We might not be able to have a single strategy that would cover the whole nation, coast to coast to coast, but maybe three strategies, the way I was talking about before, would give us something to work with.

So yes, I think you can have jobs and income. I think if you prioritize jobs, you might end up with a different strategy than if you prioritize income. Again, knowing those metrics and knowing where we want to go is important.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you very much.

To Ms. Milner now, you mentioned that the budget for the energy program, and I imagine this is paid for by the natural gas association, is $3 million over five years. That sounds to me like a very small amount.

You mentioned later on that the role of the government is to create certainty. But would it not be also the role of the federal government to show some leadership in this respect?

If we have a $3-million initial contribution from the private sector, would it not be important for Canadians, given the importance of your sector, to have a federal government that's showing leadership and providing some funding?

[The Chair, Conservative, Leon Benoit]

I need a very concise response, Ms. Milner.

[Alicia Milner]

Okay.

Just to clarify, that $3-million program is $3 million federal matched by $3 million industry in funds. So it is 50-50 to look at these barriers.

Yes, I would say we have seen leadership on this file, but we think there is so much more potential, and we think increasingly the focus is now about risk and competitiveness in a North American economy.

As mentioned, we are seeing this build-out of stations in the United States. Canada is lagging considerably. We don't see a role for direct investment, we don't see a role for mandate or subsidy, but let's at least create a timeframe of certainty so the private sector can get spending this money and do it on our side of the border, not south.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Julian.

Mr. Hsu, up to seven minutes.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thank you.

I want to thank all the committee members for making it here today, with the snow.

I want to start with biodiesel, and I have a series of questions for Mr. Thurlow.

We're far behind this objective we had for biodiesel production in this country. Why are we not at the objective now? There was a biofuel subsidy, which will terminate and not be renewed. Why did that subsidy not work? Why were refiners complaining that somehow the specifications were not met?

I'm wondering if you could give your point of view on that.

[W. Scott Thurlow]

Sure. I think that first of all, as a condition precedent, I would say that what we're doing on biodiesel and what we have succeeded with on ethanol...I mean, we had the same model in place. It was the application of that model that probably didn't work the way it was originally intended.

I want to be really clear that it wasn't the biodiesel industry that failed to meet this build-out. We have two plants that are going right now. We have a third plant coming online for 250 million litres, so that will get us very close. There are a lot of misconceptions about the use of biodiesel that I think are fuelling some of the consternation in government.

I think the first one is that.... The product is being sold to refiners today. There are people who are having trouble selling their product, but that's not because the refiners don't want to use it. It can be because of the amount of production that somebody has and the quality of that production and whether or not it meets specifications under the CGSB or ASTM. It could be the availability of cheaper product from abroad. The ecoENERGY program created for biodiesel didn't have the opportunity to succeed the way that ecoENERGY for ethanol did.

I think it's unfortunate that the government has chosen to not extend the program and to not allow for that build-out to happen, because we know that there are shovel-ready projects today that can meet that obligation of 600 million litres. I can't speak to the full rationale behind it, but I think minor tweaks to the program could have fixed it.

I'm not here to re-litigate decisions that have already been taken. This is the position of the government. I would tell the government that the program could have been even more successful than it was originally intended to be, but the decision has been made and we haven't seen the build-out there.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Thanks.

Mr. Mabee, I have a question about your statement that we're doing poorly in renewable heat generation because policies for heat and electricity have been separated. I was wondering if you could expand on that a bit, with a particular focus on anything federal.

[Dr. Warren Mabee]

Electricity policy tends to be handled at the provincial level, so we're dealing with provincial utilities and provincial governments that come up with their own targets and their own programs to support renewable electricity. We've seen that in Ontario. We've seen that in other provinces across the country.

Heat is something that we pay much less attention to in the country, with a few exceptions. We have had some federal programs to help with retrofitting recovery boilers in order to generate more heat and electricity and also to get more efficient recovery within the pulp mills. There have been other programs in the past, which are escaping me right now.

Because we treat heat with one hand and electricity with the other, we overlook the opportunity for combined heat and power generation. Combined heat and power generation is the most efficient way and the best way of getting heat out of a solid. Whether we're talking about renewable biomass or coal, it really doesn't matter. If you can do combined heat and power, you get much more efficiency because you're using the heat that's left over, and I think we need to find ways to move more of that technology forward.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Are you saying, for example, that if there's an incentive to produce renewable electricity, you should have some kind of incentive to take advantage of the heat at the same time, and that's not happening? There are two separate programs and they're not coordinated.

[Dr. Warren Mabee]

That's right. If you look at the way that biomass to electricity is incentivized in Ontario, there is little uptake. It's largely because the heat component doesn't receive a value. People may use it, and people do use it, in certain applications, but there's no value attached to it and there's no real driver, and that's a problem.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

What if you had a proper cost on electricity and heat produced from fossil fuels? Would you avoid the problem of having one incentive for one kind of renewable energy and not having it there for the other kind of renewable energy at the same time?

[Dr. Warren Mabee]

Yes. You could proxy the cost of the heat or the cost of the electricity in terms of the carbon load, for instance, or the environmental impacts, and if there were a carbon price, as we've talked about, that would tilt the balance again. Until a carbon price comes, one of the other ways to move these technologies forward would be to recognize the heat value, as I say.

[Ted Hsu, Liberal, Kingston and the Islands, ON]

Okay. Thanks.

On the last statement you made, about providing clarity on the metrics of our success, are we measuring everything we should be measuring, and are we properly measuring it? Would you suggest things that the federal government should measure better, so that we could be more clear on what those are and how close we're getting, and thus manage this?

[Dr. Warren Mabee]

A really useful measurement is in jobs. But it's not just direct jobs; it's also indirect employment. I know that my colleague from the Canadian Renewable Fuels Association will have some stats on this, but for every ethanol plant that's in place, there are hundreds of farmers, if not thousands, who are supplying corn, and that is their income. So you can work that out. There are thousands of people who are earning their income by providing feedstock. If we're looking for a made-in-Canada solution, growing the biomass and harvesting the biomass provides a lot of input back to the economy, back to communities. This doesn't get captured when you just measure the number of jobs at the refinery or at the mill. There might only be 40 people working at the plant, and that doesn't look like a big win after you've spent half a billion dollars. You have to look at the number of people whose jobs depend on various related industries. I could talk about environmental, too, but I'll stop there.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Hsu.

Go ahead, Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair, and I'd like to thank our witnesses for coming today.

Mr. Mabee, I'd like to start with you. You're talking about tilting the balance. Which biomass technologies do you think look most promising over the next 10 years? We're talking about innovation in our study here. What are the really innovative technologies that are coming?

[Dr. Warren Mabee]

We're seeing a lot of promise with thermo-chemical technologies. These are the technologies that companies like Enerkem have moved forward, using gasification. They use heat to break the biomass down. They produce a lot of heat during production, so it's very important for us to find a use for that heat. In our western provinces where we have some industries that use a lot of heat to drive things forward—and I'm thinking of the conventional energy industry—there's a nice match there.

The biochemical approach, on the other hand, has the potential to deliver higher value products, and we're starting to see some of those products emerge. We're trying to link those up to the existing chemical industry.

There's a problem with bio-products in that there is no real incentive for a bio-based component in a plastic, or a bio-based component in a chemical. Using mandates could help us there. It's something that I know they've talked about in the United States—introducing a 5% or 10% renewable content mandate. We could look at something similar here.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Mr. Thurlow, you talked a bit about cellulosic ethanol. Can you tell us where that technology is right now? We're familiar with some of the companies that have come and have kept coming and kept coming, and I'm just wondering how close to commercial viability we are with some of those technologies.

[W. Scott Thurlow]

It's the million-dollar question. If we could see six years into the future, we'd all be bazillionaires, because we'd be able to invest in those companies. I can tell you, based on the support of this government, a company like Enerkem is able to move forward with the plant that it's building in northern Alberta, just north of Edmonton. That's a technology that is going to take trash, turn it into methanol, and then convert that into cellulosic ethanol.

On the SDTC side, there are announcements on the way that will lead to the commercialization of these projects in the very near future. The line that I hear south of the border is that cellulosic is always five years away, but we see it as much, much closer than that. Enerkem could be producing as early as the end of next year.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Mr. Drouin, I'd like to just talk a bit about this market that you want to set up. When it comes to things like wood or minerals or corn, or whatever, there is a real market there. There's a demand component and a supply component. It seems to me that the reason the carbon market hasn't developed is that there has been no real market for it. What has happened is that proponents of it suggest that governments need to start the market, or control it. The problem is, it ends up being used either to change behaviour or tilt the balance. Industry is allowed to avoid its responsibilities. I'm just wondering, why has it been so difficult for a real market to establish itself if this product is a real product with a supply and demand side to it? We've talked quite a bit about not wanting to choose winners and losers, but that's exactly what something like this sets up. I understand that your profitability is tied to this. But tell us, why has it been so difficult for that market to be established?

[Guy Drouin]

First of all, in order to establish such a market we should have a regulated market. We need legislation like that in Quebec and California in order to create this market.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

The only way to start it, in your opinion, is to have the government start it. There is not a real market there that will establish itself?