Bill C-311 (Historical)

Climate Change Accountability Act

An Act to ensure Canada assumes its responsibilities in preventing dangerous climate change

[Justin Trudeau, Liberal, Papineau, QC]

Thank you, Mr. Boag. I appreciate that.

Most likely that was the low-hanging fruit, things that you could upgrade. Further reductions, you might say, particularly in the order of Bill C-311, would be significant challenges, I'm sure.

I'd like to talk a little bit about the government's targets of 2006 as a baseline level and a further reduction of 20% from that. How easy is it going to be for you all to reach the 20% from 2006, without looking at any credit for early adoption of what you've done during the 1990s, for example?

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Mr. Chair, I certainly appreciate an opportunity to ask some questions.

Just to set it into context, we in this committee have been studying Bill C-311 for what feels like forever, but it has been a couple of months. So far we've heard from countless environmental non-government organizations. We've heard from those influences representing the European Union and other countries, the United States of America, which would obviously give their two cents on how Canada should run its own domestic internal affairs, but which I look at through the eyes of a bit of a skeptic. And we've had the forestry sector and the electricity sector before us. Other than that, this is, finally, the first opportunity to ask real questions of Canadians who actually represent industries, who represent real people who have jobs and are accountable to society.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you, Mr. Chairman.

Mr. Lloyd, you said earlier that over the long term the emissions reductions provided for in Bill C-311 were very high, but that you did not know how they could be realized. The long-term targets contained in this bill are on the order of 80%, which represents more or less the same targets as the United States will be adopting for the period between now and 2050. That is what Europe and all of the other stakeholders adopted. Contrary to what Mr. Woodworth just said, witnesses have indicated that in Europe, using 1990 as a reference year, the target is 34%.

This bill only refers to a 25% target using 1990 as a reference year. So, we are not talking about 80% within a few years. In the long term everyone agrees. That seemed to be what was bothering you earlier—we don't know how we could reach such a high target. However, everyone has the same target.

Something else was said which is that the Kyoto Accord is no longer being discussed, but rather the Copenhagen agreement, which will be much more demanding. The reductions will be much greater and all countries are preparing for them.

Could you tell me, Mr. Lloyd, why you believe that such a bill would favour the United States?

[Stephen Woodworth, Conservative, Kitchener Centre, ON]

That, I think, is our government's concern. This cuts across all sectors that are trade exposed and energy intensive.

The other thing I've noticed is that not a single expert this committee has heard from knows of any country in the world being asked to reduce emissions at the drastic rate and cost that Bill C-311 requires. Not a single country in the world is being asked to bear such a cost.

Mr. Lloyd, you made an interesting point about the fact that international credits in Canada are selling at $200 rather than the $75 the Pembina report assumes. I have some real difficulty understanding that. I'm wondering if you might be able to help Canadians understand why carbon costs are so much higher in Canada, for example, than they are in the European Union.

[Ron Watkins]

I'm not sure what their ultimate position would be, for example, on Bill C-311. As I say, we talk to them about the importance of addressing the competitiveness concerns, the sectoral--

[Ron Watkins]

Yes, we have discussed the aspects of climate change policy with the United Steel Workers, which is a principal union in our industry. We have not discussed specifically Bill C-311, but in terms of the issues and the concerns that I've brought forward in this discussion, we've equally had that kind of policy discussion with the unions.

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Thank you, Mr. Chairman.

You are all here to testify on Bill C-311. You represent the most important industrial sectors in Canada.

Did you consult your unions with regard to your position on Bill C-311? Do they believe as you do that this bill would devastate your industries and consequently exert downward pressure on the number of jobs in your companies, in your industries? Did you consult your unions, who are stakeholders as well, clearly?

[Mark Warawa, Conservative, Langley, BC]

Thank you for that challenge. I appreciate that.

What we've heard from every witness, even those who support Bill C-311.... Some of the environmental groups said they acknowledge that a harmonized approach with the United States, because it's our number one trading partner, would be the preferred way to go.

There was a logic in Europe for why 27 European countries, all with different abilities and some uniqueness, came together with a European target and a European commitment. Canada and the United States together have a harmonized approach and a continental target. We came up with our target of 20% absolute reduction two years ago. The United States has adopted a very similar target, which President Obama will be taking to Copenhagen.

The question I would like to ask--and what makes the hairs go up on the back of my neck--is about what the cost of energy will be for Canadians if we adopt Bill C-311. We heard from the witnesses an encouragement that we have to adopt energy prices similar to Europe's. If we're accepting European targets, we'd be looking at $2.50 a litre for gasoline. We heard that the electricity prices in Denmark were six times what we pay. There would be a massive loss of jobs. We heard that it would be a major burden on industry and therefore there would be a loss of jobs. There's a lot of concern.

Is there any truth to that? If Canada were to adopt the European targets, move away from a harmonized approach, and have massive increases in energy prices, what effect would that have on industry, all your industries?

Mr. Lloyd.

[Tony Macerollo, Vice-President, Public Policy and Communications, Canadian Petroleum Products Institute]

It's a function of demand, simply put. It's a function of demand from your constituents. It's a function of demand from many of the other industry sectors that use our products.

I really want to come back to the issue of Bill C-311, to very specific points of disagreement.

One, we're not talking Kyoto anymore; we're talking Copenhagen.

Two, the rules are going to change. The rules have changed since Kyoto. The U.S. pulled out.

Three, you've given a phenomenal amount of regulation-making power to the government with no accountability or parliamentary oversight. Regulation-making power is done by cabinet. The only mechanism you have is the Standing Joint Committee on Scrutiny of Regulations. We have specific examples of how that produces unintended consequences in other areas of fuel combination.

Finally, Canada is one economy. To say that you can apportion it from province to province fundamentally defies what we have been doing since Confederation, whether it be forms of equalization, whether it be specialized programs--

[Dennis Bevington, NDP, Western Arctic, NT]

Thank you, Mr. Chair, and to the witnesses for coming here today and sharing their interesting and important points of view on this subject.

I want to focus back on the bill, because that's what we're here for.

Mr. Lloyd, you indicated that you didn't support the bill. I've been listening to everything that's been said here, and I don't understand in what way Bill C-311 will not allow flexibility in determining which industries are going to provide the greater carbon dioxide reduction targets. Could you tell me a little bit more about why you think this bill is not appropriate?

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chair.

Thank you, ladies and gentlemen, for being here today. I would like to begin by asking the same question I ask all the witnesses who have appeared here on Bill C-311. So I put the question directly to Mr. Lloyd, Mr. Boag, Mr. Watkins, and Mr. Boucher: do any of you have in your possession a domestic climate change plan for Canada? If you have a copy of that plan, can you share it with us?

Mr. Lloyd.

[Pierre Boucher, President and Chief Executive Officer, Cement Association of Canada]

Mr. Chairman, members of the committee, good morning.

My name is Pierre Boucher and I am the president of the Cement Association of Canada. I am accompanied today by Bob Masterson, who is our policy director.

I thank the members of the committee for giving us this opportunity to present the viewpoint of the cement industry on Bill C-311.

The Canadian cement industry has been very engaged in productive consultations with the Canadian government on its environmental agenda. We fully support the efforts of the government to address global climate change.

As you may know, cement is a fine grey powder that is mixed with water, crushed stone, and sand to make concrete. Cement is the glue that holds the concrete together. Cement is a strategic commodity and vital to Canada's infrastructure. Cement is the key ingredient in concrete. Little is built without concrete.

Globally, 2.5 billion tonnes of cement are produced annually. Global cement production is expected to double to five billion tonnes by 2050. In Canada, 14 million tonnes of cement are produced annually, 10 million tonnes are consumed in Canada, and four million tonnes are exported to the U.S.

Every year Canadians on the average use 30 million cubic metres of cement, that is, one cubic metre for each Canadian man and woman.

Cement is an energy-intensive industry. When considering cement emissions reductions, it is important to take into account that 60% of the total emissions associated with cement production are fixed process emissions. These fixed process emissions are a direct consequence of the chemical reaction resulting from heating limestone, the raw material required to make cement. These process emissions cannot be reduced.

The remaining 40% are combustion emissions associated with the use of coal or petroleum coke, our primary energy sources. This 60-40 split is important to fully understand where emission reductions can take place. The good news is that the cement industry can reduce its combustion emissions.

The Canadian and global cement industry is moving forward to implement its plan to reduce combustion emissions. These are: continual improvements in energy efficiency; increasing the use of blended cement and cement substitutes; substituting coal and petroleum coke with low- and zero-carbon energy sources; and research on manufacturing processes and materials.

Regrettably, a number of policy and regulatory barriers at all levels of government impede or squarely prevent the implementation of the cement industry's plan on climate change. Key barriers include: fractured and non-integrated approaches to policy making and the uncertainty in the adoption of harmonized environmental and energy policies to address the specific challenges facing the cement industry; lack of government policy support for fossil fuel substitution with low- or zero-carbon energy sources; a costly, lengthy, and incoherent permitting process; and a slow building code and standards developing process.

Paradoxically, European governments recognize and facilitate the implementation of the cement climate change plan. As an example, in Europe the fossil fuel substitution rate is as high as 80%, but averaging approximately 40%, while the Canadian average is a mere 7%. Quebec, however, is a real leader in this field, and this year we will replace fossil fuels at a level of over 25%.

In order to mitigate investment and emissions leakages, the cement industry calls on the government to address the following issues while developing its climate change regulations.

The Government of Canada must take a coordinated and harmonized national and continental approach to climate change. Cement is an energy-intensive, trade-exposed industry and a price taker. Therefore, we cannot sustain multiple price signals and multiple regulatory regimes within Canada or the U.S., our largest trading partner. The Canadian cement industry must remain globally competitive.

As we speak, British Columbia and Quebec apply a carbon tax on cement production. As a consequence, cement imports, mainly from Asia to Canada, are increasing because cement imports do not have to pay these carbon taxes. The end result is the following: (1) a net increase in global emissions from cement production in countries that oftentimes have less stringent environmental regulations; (2) a net increase in global emissions resulting from the transportation of cement from Asia to Canada; and (3) the creation of an uneven competitive playing field.

The Canadian cement industry cannot be subjected to both a cap-and-trade regime and carbon taxes. All this simply leads to investment and emissions leakages.

In addition, a one-size-fits-all recipe for climate change does not work. The cement industry has been calling for a sector-based approach, since it is essential to take into account the specific characteristics of the cement sector when designing a climate change regulatory regime. The cement industry has developed its globally applied greenhouse gas reporting protocol that will facilitate benchmarking of the North American cement industry.

In the study of Bill C-311, we encourage the committee to take into consideration the following.

First, the Canadian cement industry operates in a global market and faces competition from around the world. These forces are magnified in the Canada-U.S. context. The U.S. is the Canadian cement industry's single export market and of course Canada's most important trade partner. In designing greenhouse gas regulations, the government must align Canada's trade and climate change efforts to those of the U.S. on such issues as price signals and on mid- and long-term climate objectives to avoid disruption of cross-border trade due to differences in the approaches to greenhouse gas mitigation.

Thirdly, the Canadian cement industry cannot have divergent environmental policies imposing unnecessary regulatory frictions or allowing uncertainty when it comes to decisions of where to invest and create jobs.

To conclude, we firmly believe that the cement sector approach based on harmonization and alignment with the U.S. will result in real emissions reduction and sustain the domestic and continental competitive position of the cement industry. Again, this is dependent on getting climate change regulations right.

In addition, all levels of government must also introduce and/or modernize complementary regulatory regimes, fiscal policies, and programs that support the implementation of our climate change plan. The government must now decide on emissions reduction targets for the cement sector and continue to develop a plan with Canadian stakeholders and the U.S. government.

Close cooperation between the cement industry and the government is necessary if we are to implement our common plans and strategies to reduce greenhouse gases.

I thank you for your interest and your attention.

[Ron Watkins, President, Canadian Steel Producers Association]

Good morning, Mr. Chair and members of the committee.

The Canadian Steel Producers Association is pleased with this opportunity to contribute to your deliberations.

The Canadian Steel Producers Association represents 10 members who produce steel in five provinces, from Quebec to Alberta.

In 2008, our industry produced approximately 15 million tonnes of steel. It had shipments of $13.5 billion and employed some 30,000 people. While production is down significantly this year, a competitive domestic steel industry is essential to our economic and environmental future. This includes steel products for a greener economy, ranging from wind power to lighter and stronger steels that improve vehicle mileage.

Our climate change policy position reflects a number of principles that are important to our industry.

First, we see climate change as a global challenge that requires significant and concurrent action by all major emitting nations.

Second, targets, regulations, and compliance mechanisms must recognize the competitive and technological realities facing our industry and minimize trade and investment distortions.

Third, climate change plans must integrate environmental and economic objectives, including provisions to accommodate sustainable industry growth.

Fourth, the requirements to reduce emissions must be equitably shared among all sources, including industry, transportation, and consumers.

And fifth, Canadian governments must work to avoid overlap and duplication in establishing climate change regulations. Both the regulators and the regulated will benefit from a single set of regulatory requirements.

Unfortunately, Bill C-311 provides no indication of how these principles and several crucial features would be addressed in practice.

I would like to comment on certain of these key issues from a steel industry perspective. In doing so, I won't comment on some of the additional points we also support that have been raised by our colleagues, including issues related to trading systems, for example.

First, as an industry, we account for fewer than 2% of Canada's total GHGs, and we have made significant improvement over many years. Since 1990, emissions are down over 20% in absolute terms and 25% in intensity. In other words, we grew throughout the period but still reduced below the Kyoto numbers. This betters the Kyoto target, and we are committed to continuous improvement with near-term technological and economic constraints.

Second, steel-making is inherently energy intense. It requires a lot of heat to create virgin steel from iron ore, coal, and other materials, through the integrated or blast furnace method. The other popular method, the electric arc furnace method, applies high-voltage electricity to remelt scrap steel for essential products such as rebar and pipes. This method is less intense from a CO₂ emissions perspective, with the added environmental value of recycling large volumes of steel scrap—a true life cycle benefit for our product. Last year our industry recycled almost 8 million tonnes of scrap steel. As noted, both of these production methods are energy intensive, thus the GHG regulations on our energy inputs will also directly affect the cost of producing steel.

Third, our sector is highly trade exposed. We compete principally in the NAFTA market, but we compete against many others. We must also compete globally for new investment capital. Globally the dominant player in steel trade is China, which today produces close to one-half of the world's steel, more than the next 10 countries combined. A decade ago it was only 15% of this total, less than NAFTA.

China has become a major factor in global steel markets, backed by a national steel policy and, frankly, a web of market-distorting subsidies and other support. Environmentally it has an even more disproportionate impact, both directly and indirectly. Thus comparable action on GHGs by China and other major steel producers is essential, both to achieving significant and balanced reductions globally and to avoiding further economic distortions.

Within North America our market dynamics call for a high degree of Canada-U.S. regulatory compatibility due to the impacts on trade and investment. I will return to this point.

The fourth factor is technology. As mentioned above, our members have already invested in capital equipment and processes to make substantial improvements in energy efficiency and therefore in greenhouse gas emissions. We will continue to make incremental improvements, but the scope for large-scale gains in the near term is limited by commercially viable technologies. We also have a relatively high proportion of fixed process emissions that are irreducible with current technologies.

For the longer term, we are part of a global steel industry effort that is actively working on a range of CO₂ breakthrough technologies to reduce steel emissions by over 50%.

Putting these factors into a policy and regulatory perspective, I would emphasize the following.

First, steel is a primary example of an energy-intense, trade-exposed sector. New CO₂ regulations will impact us directly, and also indirectly, since our major inputs, iron ore, coal, energy, and transportation, will also bear new CO₂-related costs. These will flow through to us as consumers of those particular products and services. If our GHG regulatory costs significantly exceed those facing our competitors, there will be both economic and environmental impacts. Carbon leakage is also economic leakage. That is why Canada's cap-and-trade policies must include provisions and allowances that adequately address the challenges facing the EITE sectors. This factor has been recognized in recent major studies, and it is also reflected directly in the draft plans of the EU, Australia, and the U.S., the latter also including border adjustment measures as a further potential mechanism.

Second, CSPA agrees with the need for a high degree of regulatory alignment between Canada and the U.S. to minimize trade and investment distortions. If our obligations are significantly more demanding, we will be less competitive in the market and in attracting investment to Canada versus the U.S., for example. Conversely, if Canada's regime is judged by the U.S. government as less demanding, we stand to be subject to U.S. border measures. The need for compatibility includes not only caps and timelines, but also important implementation conditions at the sectoral level.

Third, turning to technology, we seek policies to facilitate investments in near-term process improvements and other measures directed at longer-term global efforts to develop new low-carbon breakthrough technologies for steel-making. This has implications for fiscal measures, such as capital cost allowances, conditions for the earlier proposed technology fund, and, in some cases, direct spending on government R and D programs.

Finally, the bill includes provisions that allow subnational jurisdictions to set different climate change policies. This creates potential overlap, duplication, and inconsistency, which will make compliance more costly and investment planning more complex. We encourage the federal and provincial governments to agree, in effect, on one set of rules and compliance procedures.

In summary, Mr. Chair, while our steel industry is a relatively small part of Canada's GHG emissions, we have a significant record of progress to date. We are committed to doing more within a regulatory plan that integrates environmental, economic, and technological factors in our sector.

I trust the steel industry perspectives assist you in your deliberations.

Thank you, Mr. Chairman, members of the committee.

[The Chair, Conservative, James Bezan]

We'll call this meeting to order.

We will continue with our study on Bill C-311. This is the last panel we will have on Bill C-311.

Joining us today is an industry panel. I want to welcome to the table, from the Canadian Chemical Producers' Association, Gordon Lloyd, the vice-president of technical affairs. From the Canadian Petroleum Products Institute, we have Peter Boag, who is the president, and Tony Macerollo, the vice-president of public policy and communications. From the Canadian Steel Producers Association, we have Ron Watkins, who is president, and Katie Chan, manager of environment and energy. From the Cement Association of Canada, we have Pierre Boucher, the president and chief executive officer, and Bob Masterson, the director of policy.

I welcome all of you to the table. We are looking forward to your opening comments.

We are going to kick it off with Mr. Lloyd.

Federal Sustainable Development Act

[Francis Scarpaleggia, Liberal, Lac-Saint-Louis, QC]

Mr. Speaker, this afternoon, it is my pleasure to speak to Bill S-216, which seeks to amend a bill adopted in the dying days of the 39th Parliament. The bill was sponsored by a former colleague, John Godfrey, who retired from the House just before the fall 2008 election.

Mr. Godfrey was a member of the Standing Committee on the Environment and Sustainable Development. I remember that he did everything in his power to ensure that his bill would make it through the committee stage and be passed in the House before the end of the spring 2008 session, because he realized that the Prime Minister was likely to call an election in the fall, which is exactly what happened.

Mr. Godfrey's bill, which is now a Canadian law, requires the federal government to develop a sustainable development strategy for its departments and agencies. Among other things, it requires the federal government to submit a preliminary version of this strategy to a House of Commons committee to be evaluated. Following the evaluation, the preliminary version would become the final version.

The purpose of the bill was to force the federal government to show leadership on environmental issues through its own activities. To that end, it must set an example for the rest of Canada and the world by taking action to protect our environment and fight greenhouse gases.

Bill S-216 would resolve a significant shortcoming in Mr. Godfrey's bill. It states that the government must consult both the House of Commons and the Senate. In other words, if Bill S-216 is passed, the preliminary version of the federal government's sustainable development strategy will be referred to committees of both the House of Commons and the Senate.

It seems very clear to me that the Senate must play a role in evaluating the Government of Canada's sustainable development strategy, and I will explain why.

First, there are many senators who consider the environment a priority and who have been interested in the environment for many years. These senators have something to say about sustainable development, and we need to ensure that their knowledge and experience will be brought to bear in developing the federal government's sustainable development strategy.

There are four senators who come to mind. The first is Senator Grafstein, who will retire from the Senate before the holidays.

Senator Grafstein has a special interest in water and has been working on this issue for years. There is Senator Lapointe, a great Quebec artist, actor and star, who has an awareness of environmental issues. There are also Senator Grant Mitchell of Alberta, who considers the environment a priority, and Senator Banks, who, when he chaired a Senate committee a few years ago—I do not know whether he is still the chair—released an extremely important report on water in Manitoba, Alberta and Saskatchewan.

The Senate, in terms of the senators who sit there, is well equipped to take a considered and informed look at a federal sustainable development project.

Second, we know that the Senate is sometimes a bit more representative than the House of Commons, because senators are appointed. For example, aboriginal Canadians represent 1.62% of members of the House of Commons, but nearly 6% of senators. There is also greater representation of women in the Senate than in the House.

The diversity in the Senate's membership is quite interesting. In the case of aboriginal senators, I would like to point out that these senators represent sectors or regions which, unfortunately, suffer the most devastating effects of climate change. We have Senator Watt who represents the Arctic. The Arctic is unfortunately seriously affected by the negative impact of climate change. These aboriginal senators often have a great interest in the environment. Because of the diversity in the Senate's membership, I believe that it is very important that it be consulted on these matters.

I would like to address another point. It is well and good to want to refer a bill on sustainable development to a committee, but we all know that the House committees are swamped. For example, the Standing Committee on the Environment and Sustainable Development is presently conducting a number of studies. The work has backed up somewhat like traffic at rush hour on the Turcot interchange in Montreal. We are currently studying Bill C-311 on climate change. Next, we want to study the oil sands and water resources. We are also conducting the five-year statutory review of the Species at Risk Act. And we have other work.

The House committees are very busy. Why not ask a Senate committee to also have a look at it? This is another reason why I believe the Senate should be involved.

As I mentioned at the beginning of my speech, Mr. Godfrey's bill, which we are attempting to amend, required the federal government to show leadership on environmental issues. It is the type of leadership that the Liberal party has always exercised, especially with respect to climate change. Consequently, I believe that it would be a very good thing for our country if the Senate were to be more involved in this matter.