Bill C-30 (39th Parliament, 1st Session) Committee on Feb. 20th, 2007

[The Chair, Conservative, Laurie Hawn]

I call the meeting to order.

Welcome to meeting 13 of the Legislative Committee on Bill C-30.

We have a big lineup this afternoon. Obviously, this is a popular committee.

The bells are going to ring for a vote at around 5:15. We won't jump up and run, but we'll have to move along fairly expeditiously.

From the Canadian Hydropower Association, we have Mr. Pierre Fortin, president; Colin Clark, chairman of the board; and Mr. Pierre Lundahl, environmental consultant. From the Canadian Nuclear Association, we have Murray Elston, president and CEO. From the Canadian Wind Energy Association, we have Robert Hornung, president. From Hydro Québec, we have Marie-Josée Nadeau, executive vice-president of corporate affairs and secretary general. From TransAlta Corporation, we have Don Wharton, director, and Dr. Robert Page.

Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

Mr. Chair, I have a quick point. In the interest of making sure this moves along quickly, I'll give up my last round of questioning so that we can keep things on track.

[The Chair, Conservative, Laurie Hawn]

Thank you for that. We'll see how it goes.

Welcome to all. We appreciate that you came today.

We normally give each organization about ten minutes to address the issue as you see fit. The issue today is large-industry energy generation. We'll try to keep focused on it as much as we can, knowing there will be a little wandering, and then we'll move on to questioning from members of the committee.

I've asked you to keep your presentations to ten minutes or less. If you can help us out a little, it would be much appreciated.

We'll start with the Canadian Hydropower Association. Pierre Fortin, sir, the floor is yours.

[Pierre Fortin, President, Canadian Hydropower Association]

Thank you, Mr. Chair.

I will introduce my colleague, Mr. Colin Clark, who is executive vice-president and chief technical officer of Brookfield Power. He's also chair of the board of directors of the Canadian Hydropower Association.

We certainly appreciate the opportunity and the invitation to be with you today.

The Canadian Hydropower Association, members of the committee, is making this submission to highlight hydro power's role in helping Canada successfully meet the combined challenge to reduce air pollution and address climate change. We will also provide comments on the proposed Clean Air Act itself, as you requested, Mr. Chair, and those will be provided by Mr. Clark.

Founded in 1998, the Canadian Hydropower Association (CHA) represents hydropower producers (over 95% of the hydropower capacity in Canada), provincial hydropower associations, as well as leading manufacturers of hydropower components, and world-renowned engineering firms. The CHA advocates the responsible use of hydropower to meet our present and future electricity needs in a sustainable manner.

The production of electricity is one of the largest sources of greenhouse gas emissions and air pollutants in Canada. If we collectively choose to develop electricity sources that are not derived from fossil fuels, then we will make a huge contribution to addressing climate change by reducing greenhouse gases, and air pollution by avoiding emissions of chemicals responsible for smog and acid rain. We can act today because Canada already has the expertise to produce clean electricity; the technology exists, it is proven and reliable.

As you probably know, hydropower is Canada's leading source of clean and renewable energy. We generate 60% of our electricity from the power of water. Furthermore, we have an abundance of resources and the know-how to significantly expand the role of hydropower.

That advantages of developing hydropower are manifold. First, there is an economic advantage. Hydropower is both affordable and efficient, and it is not subject to the price fluctuations of fossil fuel.

Second, hydro power is abundant. Contrary to the views expressed in some quarters, Canada has a very high technical potential for additional hydro power. In fact it's technically possible to develop an additional 163,000 megawatts of new hydro power, which is twice the amount currently in operation. Quebec, Manitoba, British Columbia, Newfoundland and Labrador, and Ontario hold significant resources, but there is potential available in all provinces and territories.

Third, hydro power is a clean and renewable energy source, which makes it the best energy source to address both air pollution and climate change. Hydro power produces no air pollutants that cause acid rain or smog, no polluting or toxic waste byproducts, and very few greenhouse gas emissions. Future emissions within Canada could be reduced with increased interprovincial trade in hydro power. New projects in Quebec, Manitoba, and Labrador could generate enough electricity that they would be able to export surpluses to neighbouring provinces.

The fourth advantage is that while hydro power can help Canada attain its international greenhouse gas emission reduction objectives, it can also improve air quality at a continental level because of our exports to the United States, primarily to markets that rely on coal-fired power plants. As we know, most of the electricity exported to the United States from Canada comes from renewable hydro power.

Fifth, an energy grid supported mainly by hydropower is more reliable, because hydropower plants with reservoirs are able to store electricity for meeting peak power demand and for serving as a backup in case of outages.

[The Chair, Conservative, Laurie Hawn]

Sorry. Hang on just for a second.

[Pierre Fortin]

Where did you lose me?

Finally, because hydropower is uniquely flexible—responding instantly to power demand fluctuations—it is the best source to support the development of other renewable sources of energy such as wind and solar. As the production of electricity from intermittent sources of renewable energy increases, the need for complementary energy storage systems will also increase. Hydropower is the only low emitting large-scale storage option.

With climate change and air pollution widely recognized as major environmental issues, producing our electricity from hydro power plants is the most advantageous solution open to us now and in the future. If we truly wish to address air pollution and climate change, hydro power must be recognized as part of the solution, and it must be an integral part of any clean air and climate change strategy and supported as such.

I will now turn this over to my colleague, Mr. Clark, to comment on Bill C-30 specifically.

[Colin Clark, Chairman of the Board of Directors, Executive Vice-President and Chief Technical Officer, Brookfield Power, Canadian Hydropower Association]

Merci, Pierre.

Within the context of the proposed Clean Air Act, the Canadian Hydropower Association would like to see the federal government rapidly adopt the following measures.

First, the government must send a clear signal to industry by putting in place an integrated emissions management plan, including greenhouse gas and air pollutant regulations.

Secondly, given that generation facilities have long lives, a clear and long-term view is essential for optimal investment decisions. Decisions made in the near future could entrench high emissions for the next 50 years.

Under the greenhouse gas emissions regulation, the electricity sector must be treated as a single integrated key industrial sector, or KIS, rather than be segmented into fossil fuel and other generation sub-sectors.

A domestic greenhouse gas emissions trading system, or DET, should be implemented as soon as possible. This system should allocate permits or credits to all electricity generation, including hydro power, on the basis of a single national emissions standard.

The modern combined-cycle gas turbine should serve as the baseline from which emissions are measured. New hydro power and other renewables should receive an automatic allocation of permits or credits without having to go through an offset system.

Investment in hydro power development involves long lead times. For this reason, it's necessary to have knowledge of the target caps and phase-in schedule as they become rigorous over time, to facilitate timely investment decisions to achieve the targets. An important aspect of the schedule is the transition from intensity-based greenhouse gas targets to caps. The cap targets should be put in place on a faster timeframe than that specified in the notice of intent. Once the DET has been implemented, linkages to international emissions trading systems should be pursued.

With regard to air pollutants, national standards for the electricity sector should be implemented. These should be clear, predictable, and sufficiently rigorous to lead to significant measurable improvements in air quality.

In conclusion, while there is a need to invest in new technologies, it should be noted that Canada can reduce emissions more rapidly with proven existing technology. The use of a technology investment fund as a compliance mechanism is not a cost-effective manner to obtain predictable, large-scale reductions in greenhouse gases and air emissions. Increased development of hydro power potential, wherever possible, is one of the best environmental and economic choices to meet electricity needs while addressing climate change and fighting air pollution.

However, to accomplish this, the federal government must improve the environmental assessment process of energy projects and implement, without further ado, an integrated emissions trading system with clear short- and long-term targets, thus establishing a level playing field where all new generation is held to the same standard.

Thank you for inviting us today. Merci.

[The Chair, Conservative, Laurie Hawn]

Thank you, gentlemen.

We'll turn to the Canadian Nuclear Association, Murray Elston, president and CEO. It's yours for ten minutes, sir.

[Murray Elston, President and Chief Executive Officer, Canadian Nuclear Association]

Thank you very much, Mr. Chair.

First I have an apology to the committee. We're pleased to have been invited, but the invitation comes as we're preparing for our seminar, which takes place February 28 and March 1, so we unfortunately did not have time to translate the materials I have with me. I have left copies with the clerk, and we will provide an electronic version so that they can be properly translated. I do apologize to you for that oversight.

I just wanted to let people know a little bit about the Canadian Nuclear Association. We have 22 reactors in Canada, operating in three provinces. In Canada, hydroelectricity actually produces 61.5% of the power, nuclear 15.5% of the power, coal 19.6%, gas 3.2%, and internal combustion 0.02%. Included as well is an ever-growing amount, as my friend next to me will say, of wind power, which is actually beginning to take hold. Those numbers are for 2006.

In Ontario the breakdown is 54% nuclear, 8% natural gas, 16% coal, and 22% hydro. You can see that nuclear power occupies a particularly important part in the development of electricity stocks for the country of Canada.

In fact, while we are in the electricity business, it is not only in the electricity business that we offer opportunities for the people of Canada to save against emissions. In particular, we're extremely proud of the fact that when we're operating our nuclear reactors, we are very low emitters of all kinds of materials this Clean Air Act is designed to forestall. We actually believe that an emphasis on developing more nuclear power in line with the Canadian technologies developed over the last 60 years would be an advantageous strategy for you to adopt.

We have just come by a report from the Paul Scherrer Institute in Switzerland. It is a life-cycle study of the various types of generation: coal, oil, gas, nuclear, hydro, photovoltaic, wind, and co-generation with diesel and gas opportunities. This type of study goes through the materials for cost of electricity, but then goes one step further—something I think all of you would be interested in—to deal with the so-called externality costs. In those studies, as the graph you will ultimately see will show and as my friend Monsieur Fortin will be happy to hear, the lowest of all of these is hydro, but very close behind are nuclear and wind and photovoltaic.

In terms of the costs of the externalities, the power plants for coal, for oil, and for gas have the biggest emissions of the type you are looking to check. For the rest of the items, basically it is the very small amount of emissions associated with things like mining and the transportation of products that are used in the operation of the plants and otherwise.

In any event, the Paul Scherrer material clearly demonstrates that nuclear can play a very helpful role, in an expanded sense, in helping to meet the targets for reduced emissions, helping to clean up the air, and helping to make the world a better place for all of us.

We have a second figure in these charts. It's a little bit complex to relate to you, but it goes through the breakdown of the externality costs. It underscores the fact that there are no emissions of any degree from the nuclear cycles—because this is a full life cycle—but that our biggest emission, obviously, has to do with radioactive emissions. We spend a lot of time making sure we know how to manage and control that, and it is the subject matter of a lot of the training that goes on for the personnel who work in the facilities and for the people who are outside our items.

This particular graph, while very complex to look at and even more difficult to explain without showing, goes through radioactive emissions, volatile organic compound emissions, heavy metals, particulate matter bigger than 2.5 microns, NOx, sulphur dioxide, and greenhouse gases. When you go through that, I think you will find it edifying to see the various types of opportunities that are available to avoid these types of emissions.

In any event, I have given your clerk a site for the executive summary of the full report. A full report is available; if you wish to get it through us, we can get it for you and provide it. With a little bit of manipulation of the website, you can actually get it on your own, but we certainly would be available to put it in front of the committee.

For us, the full story here is that nuclear is a good clean technology. We will be happy to be of assistance in making sure Canada has a very good record in avoiding the types of emissions you're interested in.

In addition to that, when we look at greenhouse gas emissions, a study by the Japanese Central Research Institute in 2002 went through the list of carbon emissions and went through the following: coal, LNG thermal, LNG combined cycle, solar photovoltaic, wind, nuclear, and hydroelectric. I've read the categories in order of descending numbers. Coal is the highest, at 975 grams per kilowatt-hour, followed by LNG thermal at 608, LNG combined cycle at 519, solar PV, wind, nuclear, and hydroelectricity 53, 29, 22, and 19 grams per kilowatt-hour respectively. All of this indicates that as you get to the bottom end of this particular table, you are going for the lower emitters in terms of greenhouse gases and helping to meet the targets that are part of your goals with the Clean Air Act.

A following graph that I have goes through and gives an indication of the relative cost of producing electricity with the various types of generation available. It includes nuclear, coal, gas, wind, and others. On the other hand, it actually goes much further. I think there are about twelve or thirteen, including marine and others.

The point of the graph that you will see is only to indicate that there are costs associated with any option no matter how you decide to go about this. Particularly important is that Canada decide, under the Clean Air Act, to develop the technologies that are going to be most favourable for the regions in which they are most easily applied.

This is a great country. It has many resources that are available in abundance in very specific areas, and we should take advantage of those resources. We should also take advantage of the technologies that Canada does a good job with. In particular, we've been leading civilian nuclear use in the world for a long time. In the person of Dr. Bert Brockhouse, we have received a Nobel Prize for work in nuclear physics, something most people don't understand.

We're more than a $5-billion business, and the technology that we can put to work for Canadians is helpful not only in generating electricity, but potentially for helping with other energy projects; helping to develop hydrogen fuels for the transition to a new fuel style; and also helping with the production of medical isotopes and cancer treatments as another benefit, as you all know.

So you should look very seriously at technology and at funding technology that is proven, but also take us to the next level so that we can do even better with the things we've been able to accomplish so far.

At the end of the day, we have generation three nuclear coming on. Canada is a signatory to the generation four project internationally, and we're looking forward to the continuing involvement of the Canadian government in keeping pace with the science that is required for the next stages of development. We're looking forward to the Clean Air Act as one of those pieces of legislation that will help to push us further on developing technologies that will make Canada a better place to live.

What I'm here to tell you today is that the Canadian Nuclear Association and its members are here to help Canada meet its goals with respect to emissions, and we're very pleased to participate in your hearing.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you very much, Mr. Elston.

We'll turn to Robert Hornung, president of the Canadian Wind Energy Association. The floor is yours for ten minutes, sir.

[Dr. Robert Hornung, President, Canadian Wind Energy Association]

Thank you very much, Mr. Chairman, for the opportunity to be here today.

I'll start off just by telling you a little bit about the Canadian Wind Energy Association. We have 300 corporate members, including turbine and component manufacturers, several utilities, project owners and developers, and a range of service providers to the wind energy industry.

Interestingly, our membership is quite diverse. We have some of Canada's largest energy companies. Some of Canada's major oil and gas producers are part of our association. We have a number of electricity producers that have quite a mix of fuels from which they're producing power. We have utilities that are primarily coal-fired. We have utilities that are primarily hydroelectric. The thing that unites them all is that they're all investing in wind, and they're all looking at wind as an opportunity going forward.

Wind energy does not produce greenhouse gas emissions and it does not produce air pollution. From the perspective of the Canadian Wind Energy Association, increased deployment of wind energy must be an important component of any credible strategy to clean the air or reduce greenhouse gas emissions.

In addition to its environmental benefits, wind energy also provides a number of economic benefits, particularly in rural areas, where the best wind resources can be found. Those economic benefits include investment, job creation, improvements to the municipal tax base in rural areas, and also lease payments to land owners who provide their land for placement of turbines in order to generate electricity.

In terms of wind energy in Canada, as is the case with many types of natural resources, Canada is actually blessed with a tremendous wind resource. It's probably the best wind resource in the world, and it has to be at least in the top three. Canada's installed wind energy capacity has increased from 137 megawatts in 2000, to 1,460 megawatts at the end of 2006, a fairly significant rate of growth.

At this point in time, provincial governments have established targets for wind energy in most jurisdictions across Canada. If you add all of those together, they add up to about a minimum of 10,000 megawatts of installed wind energy capacity by 2015. Having 10,000 megawatts of installed wind energy capacity in 2015 would account for about 4% of Canada's total electricity, starting from essentially zero in 2000. Most importantly, if you look at the new electricity generation facilities expected to be built in the decade between 2005 and 2015, and at the electricity that will be produced from those facilities, we project that wind energy will produce about 20% of that electricity, which gives you a sense of how wind energy is fitting into future investment plans at this point in time.

While Canada is a leader in the exploitation of some renewable energy technologies, like hydro power, which we've discussed, we've really only scratched the surface of our wind energy potential. Today, wind energy accounts for about 0.5% of Canada's electricity demand. It accounts for about 20% of Denmark's electricity demand, 8% of Spain's, 6% of Germany's, 4% of Ireland's, and 4% of Portugal's. These are all countries that are looking to significantly expand the penetration of wind energy in their systems going forward.

Canada is in a very unique situation because of our large hydro dominance in the electricity sector. Because wind and hydro are very complementary—Pierre Fortin mentioned this in his presentation—hydro can in essence serve as a storage mechanism for wind energy. That will allow us to achieve higher levels of penetration for wind energy in Canada than we might have seen in a number of other countries around the world.

I have included a couple of graphics that I won't speak to. They're there just for information. They look at the growth of Canada's installed wind energy capacity and how that capacity is distributed across Canada at this point in time.

To increase the deployment of wind energy in Canada, we need a stable, long-term, and sustainable policy framework. We've seen some initial steps in that regard at the federal level. We've had the Wind Power Production Incentive, and now the ecoENERGY for Renewable Power program. At the provincial level, we've seen a mix of renewable portfolio standards, requests for proposals for wind renewable energy, and standard-offer contracts in some jurisdictions.

Bill C-30, Canada's Clean Air Act, can play a very important role in complementing existing government policy measures by putting in place regulatory and market mechanisms to incent and accelerate investments in wind energy going forward.

From our perspective, Bill C-30 should do this through regulated limits on emissions and the rapid establishment of a domestic emissions trading system that includes mechanisms to allow for participation by wind energy and other renewable energy sources.

Reflecting the environmental benefits of electricity generation in the market will further enhance wind energy's growing cost competitiveness. I can tell you that in the last 20 years, the cost of wind energy has declined about 80%, and if you talk to people like the International Energy Agency, they will tell you with a high degree of confidence that their expectations are that the cost of wind will continue to decline going forward, which is clearly not the case for a number of other technologies.

It's important to reflect these costs in the market, because putting environmental costs into the marketplace will allow players in the market and investors in the market to have better information. Better information will lead to more optimal decisions. We can really make the market system work by essentially dealing with a market failure—the fact that these costs, the externalities are not reflected in the market at this time.

From our perspective, an emissions trading system should strive to put all new investments in electricity generation on a level playing field, and it must also provide opportunities for wind and renewable energy to participate directly in the system. There are a number of ways you could do that. You could do that through the allocation of emission allowances to wind or renewable energy. You could do that by allowing wind or renewable energy to produce emission offsets that would be able to participate in the system. No matter what path is chosen, we believe it's important that these technologies be able to participate.

Several of the preceding speakers already pointed out the importance of getting the market signals right. Investments in electricity generation are for the long term. If you put in place a new generation facility, you're going to have that facility in place for the next 20 to 60 years, along with all the attributes that come with it, positive or negative. A long-term, stable policy framework is required to provide investors with a clear understanding of emission reduction requirements and targets and of how these will evolve over time.

We believe that ultimately, if Canada wants to move forward and become a leader in emerging renewable technologies—like wind, like solar—and not just in some of the existing renewable technologies that are well established, like hydro, we'll need to do what other countries have done. Ultimately, we'll need to build on existing policies, to build a domestic emissions trading system, and actually develop a comprehensive strategy to move some of these technologies forward.

Some elements of the strategy might include targets, green power procurement initiatives, the streamlining of environmental assessment and permitting processes, education and training initiatives, research and development, and public outreach.

I'll give you one example. The country of Spain, in the year 2000, had about 1,000 megawatts of installed wind energy capacity, so we're a little bit ahead of where they were at that time. In the year 2000, their government adopted the outlandish goal of having 13,000 megawatts of wind energy in place by 2011. In 2006 they abandoned that goal, and they replaced it with a new goal of 20,000 megawatts by 2010, which they are on the path to meeting.

We can move quite quickly to put in place renewable energy technologies if we have the political will and the desire to do so. Canada has a tremendous wind energy opportunity. We have an opportunity to clean the air, reduce greenhouse gas emissions, and build an industry. In 2006, globally, wind energy directly employed 163,000 people. Investments in new wind energy capacity in 2006 totalled $23 billion U.S. globally. Wind energy now provides electricity for about 22.5 million homes worldwide. Again, ten years ago, that number was almost zero.

We remain far behind the global leaders in wind energy deployment. Bill C-30can make an important contribution to closing the gap by providing clear and sustained market signals that incent and accelerate development and deployment of wind energy and other renewable technologies.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

We now have, from Hydro-Quebec, Marie-Josée Nadeau, Executive Vice-President, Corporate Affairs and Secretary General.

Ms. Nadeau, you have the floor for 10 minutes, please.

[Marie-Josée Nadeau, Executive Vice-President, Corporate Affairs and Secretary General, Hydro Québec]

Merci. Thank you very much.

Thank you, Mr. Chairman, for inviting Hydro Québec to share with you and the members of your committee our position as well as comments on Bill C-30.

I will be speaking in French. You have been provided with my notes, and I will be commenting on each of the slides that you have before you.

Of course, when the question period comes, I'll be more than happy to take questions in French or English.

Hydro-Quebec is an electricity generation, transmission and distribution company. Its sole shareholder is the Government of Quebec.

In 2005 Hydro-Quebec did nearly 11 billion dollars' worth of business. It produces 35,315 megawatts, and 95% of the production is renewable energy. It is because of this renewable energy that Quebec has the best greenhouse gas emission record per capita in Canada.

Hydro-Quebec's net exports to neighbouring markets amounted to 6.7 TWh in 2005, for revenues of nearly $830 million. Hydro-Quebec can take advantage of 18 interconnections with markets in Ontario, New England, New Brunswick and Newfoundland and Labrador. A new interconnection with Ontario, with a capacity of 1,250 MW, is currently under construction here, just outside the National Capital.

Hydro-Quebec's exports to neighbouring markets in Canada and the United States helps reduce greenhouse gas emissions at the continental level and also helps reduce air pollution.

The energy strategy adopted by the Government of Quebec in 2006 emphasizes development of renewable energy. The strategy focuses on and gives priority to the ramping up of hydroelectric development, the development of wind energy, increased energy efficiency and more energy innovation.

As a result, Hydro-Quebec has adopted three main areas of focus.

The complementary development of hydroelectricity and wind power. Hydro-Quebec is moving ahead with a number of projects that together will account for approximately 4,000 MW of additional power. Wind energy will provide Hydro-Quebec with installed capacity of 3,500 MW following two calls for tenders involving 1,000 and 2,000 MW. The 1,000 MW call for tenders was the largest one ever issued in North America.

Energy efficiency measures have also been taken to a new level. Hydro-Quebec has adopted an Energy Efficiency Plan, which is expected to produce 4.7 TWh in annual energy savings by 2010 and 8 TWh by 2015.

We are also undertaking technological innovation to make our company even more efficient. In order to deal with the problem of climate change, it is essential to focus on land transportation. Hydro-Quebec has played an active role in this area with Cleanova II, a fully electric vehicle with an engine developed by our subsidiary TM4.

In the electricity sector, an effective federal strategy to fight greenhouse gas emissions should be based on four major principles: first, consider hydroelectric potential to be part of the solution; second, ensure fair treatment for hydroelectricity; third, apply the principle of polluter-pays, or emitter-pays, if you like, fairly; and fourth, promote—and I mean by that recognize—the contribution of all types of renewable energy projects.

Those principles will maximize the contribution of renewable energy as part of an effective policy to deal with greenhouse gas emissions and pollutants in Canada.

The environmental approval process is much shorter in Canada for coal-fired power projects than for hydroelectric projects. In fact, thermal power plants often do not even require federal authorization. A hydroelectric project takes an average of 8 to 12 years of preparation and preliminary steps before it is up and running, whereas a thermal plant of the same capacity can be operational in less than five years.

The regulatory process must be quick and effective. I would point out that the federal government has made a special effort over the past few years to speed up the project approval process. That has a direct impact on the ability of producers to respond to changing energy needs.

The recent approval of our Eastmain-I-A-Sarcelle-Rupert project at the federal level will enable us to begin providing megawatts of clean energy to Ontario as scheduled, that is, by the end of the decade. Ontario will thus be able to reduce its dependence on fossil fuels. That is an example of a concrete positive effect of developing renewable energy.

In our opinion, the main thing that Canada can do is to create an effective emissions trading market. How can we ensure that it is effective? To begin with, like my colleagues, I would say that we need to set out clear, straightforward rules—we will come back to this further on; ensure that the laws of supply and demand can operate by not having an artificial minimum or maximum; indicate clearly that emitters must assume the cost of their emissions and that non-emitters must receive clear recognition; enable companies to make good long-term investment decisions and adapt to regulatory constraints as profitably as possible.

I have just said that the rules need to be clear and straightforward. We would like to suggest a few such rules that are already being discussed in the industry and are very realistic.

All electricity projects that have become operational since 2000 should comply with a national standard based on emissions of a combined cycle gas turbine, a standard that takes into account Canada's energy budget. To go beyond that would create too heavy a burden on a number of large emitters. Under that scenario, a new plant emitting less than a combined cycle gas turbine would receive extra credits and permits up to 350 t/GWh, and would have to pay for its extra emissions, for example, by buying permits and credits on the market.

More specifically, in the context of the bill that is before you, the timetable for targets and emission caps should not create any uncertainty. As I have said, the rules regarding long-term constraints need to be specific. Maximum emissions should decline incrementally in accordance with the timetable set out in advance. The timetable might include, for example, adequate notice for companies to be able to make the necessary investments. This is particularly important in the electricity generation sector. Investment decisions are made a long way ahead and cover long, even very long, periods.

I would also like to say a word about certain ideas circulating to the effect that standards and rules might be set for various generation streams. That is not a good idea and would only result in promoting higher emissions, which goes against the objective. Comparing coal with coal, or wind with wind, would not move Canada ahead in any way.

In closing, although we recognize that there is no magic solution, Hydro-Quebec would like to emphasize once again how important the issue of climate change is. Canada must control and reduce its emissions. The clearer the rules are and the sooner they are set, the better our performance will be. All companies planning major investments are waiting. Moreover, if Canada wants to achieve the dual objective of reducing its emissions and remaining internationally competitive, it must develop its renewable energy resources.

Thank you for your attention.

[The Chair, Conservative, Laurie Hawn]

Merci.

Our last presenter will be Mr. Don Wharton, director of offsets and strategy for TransAlta Corporation. Mr. Wharton, it's ten minutes for you.

[Don Wharton, Director, Offsets and Strategy, TransAlta Corporation]

Thank you, Mr. Chairman.

Honourable members, I will be sharing my presentation this afternoon with Dr. Bob Page, who is a senior adviser on climate change to TransAlta and was formerly our vice-president of sustainable development.

TransAlta firmly supports the purpose and intent of Bill C-30 to address greenhouse gases and other air emissions. We commend the efforts of the committee to develop effective environmental legislation. The results will have a great importance for the future of the Canadian electricity industry.

By way of introduction, TransAlta is Canada's largest investor-owned power generation and wholesale energy marketing company, with operations in a number of Canadian provinces and in the U.S., Mexico, and Australia. Our facilities operate with a diverse mix of fuels: coal, natural gas, wind, hydro, and geothermal. In Alberta we supply approximately 60% of the province's electricity requirement.

Today we wish to discuss our company's perspective on the implications of Bill C-30 and the challenges and opportunities for managing atmospheric emissions.

Let me start by saying that TransAlta believes it is possible, with a rational regulatory framework, to make major reductions in its emissions profile in the decades to come. We are excited about this opportunity from both an environmental and a competitive perspective. If we lay the right groundwork, starting with Bill C-30, the potential is enormous.

Our industry is highly capital-intensive, with large facilities having long lifespans. We provide an essential public service. Provincial governments are the regulators of our industry and in some cases the owners, but there is a diverse array of regulated and non-regulated structures across the nation.

In every jurisdiction, the historic charge to the electricity companies has been to provide secure, reliable, and low-cost electricity to meet growing demand. Canada is fortunate to have a diverse set of electricity-generation fuels, which vary regionally. This also means that some regions are more emissions-intensive than others.

For companies with fossil-fired assets, such as TransAlta, big changes are tied to capital stock turnover. This is my first key point. Our plants have economic lives of 40 to 50 years. These plants are normally very large and specifically designed for burning one type of fuel. They are relatively efficient for their inherent design. Today these plants have limited ability to reduce their fuel use and emissions or to convert to alternate fuels. In the near term, then, emission reductions from existing plants will be finite and small. However, real opportunities come when existing plants are retired, to be replaced with new technology.

As a specific example, TransAlta closed three units of its Wabamun plant between 2003 and 2004 and effectively replaced them with generation from the state-of-the-art Genesee 3 plant, resulting in an improvement of over 25% in greenhouse gas emissions per megawatt hour and a net absolute reduction of 600,000 tonnes of greenhouse gases per year.

I'd like to turn over to my colleague Bob Page.

[Dr. Bob Page, Senior Advisor on Climate Change, TransAlta Corporation]

The second point is that big opportunities come from new technology. Many of the Canadian electricity industries have been working hard to develop clean combustion technology and have been exploring opportunities for carbon capture and storage.

Some of the hurdles are technical ones; some of them are economic. But solutions are on the horizon. Economical and reliable clean coal technology is perhaps five to eight years away. Retrofitting of existing fossil fuel plants is perhaps a decade away. The potential of carbon capture and storage varies by region, but in Alberta, where enhanced oil recovery might provide revenue, we are not far from a viable business case.

What kind of policy environment is required to allow us to achieve meaningful reduction goals? Our third point is that for the electricity sector more than any other, a focus on the long rather than the short term is crucial. In the period between 2010 and 2020, TransAlta is prepared to accept shorter-term targets as a means of getting started. But as explained earlier, there is a limited amount that we or a sector can do at this period to make sizeable changes in our mission's profile; thus the only option for achieving short-term reductions is to purchase reductions from other sectors in the form of offsets.

But capital spent there for compliance will dramatically dampen our ability to invest capital in the new technologies and accelerate capital stock replacement, which is our principal goal.

The quid pro quo is that we are prepared to adopt challenging long-term targets. How would that work? Our proposed model is that every plant reaching the end of its economic life would be required to be replaced with, or perform at the levels of, the best available economic technology of the day. Such a requirement would drive companies to find viable technology solutions or to retire the facility.

In the near term, we strongly support the concept of a technology fund as a principal compliance mechanism for the electricity sector. In our model, reasonably set near-term emission targets would create the impetus for company contributions to a technology fund.

It would be designed much like a trust fund. Companies prepared to build and implement new plants with new low-emission technologies would have access to this capital to overcome economic hurdles and gaps and to accelerate stock replacement.

We also support the need for a robust domestic offset system here in Canada and an active national emissions trading regime that also allows viable international credits to be transacted. Such a mechanism would facilitate the optimization of the company compliance position in any given year.

Don.

[Don Wharton]

What would be the result of such a framework? TransAlta believes it could achieve the government's proposed target of a 65% reduction in levels of greenhouse gas emissions by 2050. We believe we could achieve similar levels of sulphur dioxide and NOx emission reductions in the same timeframe. These are tremendous levels of reduction, given the growing demand for electricity in the economy.

Do we know exactly today how we can get there? The answer is no, but we trust we can find a way.

An outstanding question is, what will this cost? That will be the key issue in determining one of two outcomes: either (a) an environment in which, with punitive sanctions on emitters, yearly compliance is a struggle and minimum efforts are the norm; or (b) an environment where innovation is encouraged with accelerating reductions, and where big-step changes in emissions are possible.

Depending on the ultimate targets established, TransAlta has estimated that the cost of fossil-fired electricity generation in Canada could rise by several percent. In some jurisdictions these costs will not easily be passed to consumers, and companies could face large financial burdens. In the near term, if compliance requirements are stiff, cashflow and market valuation will become real concerns. It becomes imperative to design a system with the full understanding of its cost implications.

Compliance cost for industry will be a function of two factors: depth of target and the availability of compliance mechanisms. It is our strong advice to this committee that the setting of emissions targets attempts to mirror the fundamental realities of each industrial sector.

Electricity is different. For electricity, it would look like a slow start but big finish. That means a ramp-up, starting with modest and achievable short-term targets, and finding a way to direct capital where it will have the biggest, most sustained effect over time.

Ours is a long-term business, and we are good at finding long-term solutions. We fully understand the environmental urgency. However, we should not let short-horizon, urgent strategies undermine much more substantial longer-term approaches to make the real big gains.

What does this mean in the context of Bill C-30? We believe that the bill should establish the framework for subsequent targets and regulations that focus on measures that are measured in progressive emission reductions. Long-term, large, and sustained reductions must be the key. The challenge is to start now, start sustainably, learn by doing, and use our financial resources in the most effective manner.

In conclusion, the key issue for electricity is one of timing. Our objective is to manage through the near term in a way that allows us to finance fundamental technology change in the long haul, while staying commercial in the marketplace.

Thank you very much.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

I'll just remind those folks who have not sent briefs electronically to do so, and then we can handle them from there.

We'll start our questioning, and we're going to be pretty tight on the timing.

Mr. McGuinty, you have seven minutes, please.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you, Mr. Chair.

Thank you very much, witnesses, for coming.

I would like to pick up on a series of questions that I put to other witnesses this morning from other industrial sectors. It has to do with the comments made by our Minister of the Environment, followed by comments made yesterday by the World Bank's former chief economist at the Economic Club in Toronto, and then followed by a document that was sent to the Prime Minister and the Minister of the Environment on December 21, some two months ago. In two cases, these comments advised the government and the people of Canada that it would be a very good thing for us to take advantage of an international carbon market.

I think most of you said we should have a domestic emissions trading system that ultimately should be linked up with an international market. Could you help us understand the implications of not participating in an international carbon market, if no such market were open to your industries and your companies?

The second question is to Dr. Page and your colleague from TransAlta. Could you help us understand how your company, your chief financial officer, your board of directors, and your shareholders—particularly your institutional shareholders—are meeting their tests with respect to your three CDM projects that are now underway around the world, as I understand?

We hear constantly from the government and other sources in Canadian society that this is all about purchasing hot air. But you're in the business of doing these projects. You have a CFO, corporate standards, a board of directors, and institutional and non-institutional investors; surely you're reporting and accounting to them.

Could you please give us some indication of what you've learnt so far and the robustness of the verifiability of those offshore projects?

[Don Wharton]

Thank you very much. I'm happy to respond to that.

On your first question, we believe that simply access to international markets for emissions trading provides an additional supply of instruments for the compliance use of Canadian firms. So it is really a matter of increasing the supply available to Canadian companies, and hopefully keeping the costs reasonable for those who must use those instruments to comply.

All things being equal, we are stronger supporters of a viable domestic emissions trading market and would do business there if it were in existence. We intend to do that in the future. But we believe the international market, including north-south possibilities with the United States, is a worthwhile objective. It provides the right kind of marketplace for emission reduction instruments to be developed, purchased, and used, so we are supporters of that.

On your second question, TransAlta has been preparing for a carbon-constrained future for over a decade. We have a four-part strategy that we've been following to prepare ourselves for carbon constraints. One of the pillars of that strategy is the development of an emissions offset portfolio. As you correctly point out, we have been very active in the international market since 1996 in identifying viable, strong projects. My view is that the projects we invest in are definitely not labelled with the term “hot air”.

We look for viable instruments in the clean development mechanism, a mechanism from the Kyoto Protocol that has very stringent rigour associated with it. We apply additional rigour, from our company's perspective. So we feel that the investments we've made to date in international instruments are solid, verifiable, and would be received well in any country as a viable instrument for emissions reduction. We will continue to look internationally for opportunities as well as domestically, once that market is available.

[David McGuinty, Liberal, Ottawa South, ON]

Who from the panel would like to comment on the cost of compliance without the use of an international carbon market?

In his ten-page communication to the Prime Minister and the Minister of the Environment, the president of the Toronto Stock Exchange said on December 21 that Canadian companies would be disadvantaged with the domestic market only because the cost for each tonne of greenhouse gases reduced would be excessively high, especially because of the small size of the Canadian market.

Carbon traders in the States and elsewhere have told me that a domestic market alone would be an illiquid market, a small market. The cost per tonne of reduction would be excessively high.

Can you give me some understanding of what the impacts on your businesses and bottom lines would be if we were only playing in a domestic emissions trading system in Canada?

[The Chair, Conservative, Laurie Hawn]

Who do you want to direct that to?

[David McGuinty, Liberal, Ottawa South, ON]

It's for anybody who can answer it.

[Marie-Josée Nadeau]

I can provide you with part of an answer.

We would be looking for a fluid market. A domestic market would be much too small to provide the investors with the necessary fluidity, so the next-best thing would be a continental market, ideally an international market. The objective is as fluid a market as possible.

[Dr. Robert Hornung]

It's basic economics, in the sense that increased liquidity will lead to decreased costs.

On some of the emerging technologies, we've already seen that the clean development mechanism mentioned by my colleague has led to the installation of wind energy projects in a number of countries where there had been none before. It's facilitating their introduction in a number of developing and former eastern European countries through joint implementation to bring these technologies into the marketplace there, where they wouldn't have been otherwise.