Bill C-30 (39th Parliament, 1st Session) Committee on Feb. 22nd, 2007

[The Chair, Conservative, Laurie Hawn]

I believe it's just the commencement. I don't think there's anything going on. We'll check.

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

Okay, thanks.

Thanks, gentlemen, for being here this morning.

Over the witnesses we've seen so far, I believe this is our 13th or 14th meeting on this particular bill and two and a half years of study. I was handed a document yesterday that showed a New Democrat member raising the issue of climate change in 1983 in the House of Commons. We've been at this quite a while.

The debate that seems to be shifting right now between Kyoto or not Kyoto seems to have moved more towards precise action and what is the best course of action. The question of economic pain over meeting our international obligation seems to be shifting as well. From the witnesses we heard this morning, as Mr. McGuinty pointed out, most have talked about meeting or exceeding their industrial targets while growing as industries—the steel industry, the mining association, and Alcan in particular.

Let's start with Mr. Peeling. The concept that to meet hard targets, to meet an international standard that the country agrees to, equates to economic pain--is this a simple quid pro quo, that if a country sets out a target that has something to do with GHGs, then the economy must suffer for that target being set?

[Gordon Peeling]

It's all in the manner of setting the target and the tools that are in the tool box and how to achieve the target. The more inflexible it is, the tougher it's going to be for industry.

That's why I made the three points of keeping in mind the capital stock turnover, the investment climate issues, the tool box, and how you incent the industry to get beyond. We're in a 30-year capital cycle. Our technologies are in place for a long time, and to move to that next level of technology—and in many cases they don't yet exist and we're investing in those—that clearly needs a push.

We need those things. So it doesn't need to be pain. With the right tool box, it does not need to be pain.

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

Which is what many of us have believed and hoped for a while.

Even with the conditions under which your mining association has operated where the government set some targets, the government of the day didn't do much in terms of those many—There were quite a few round tables and discussions. The consultations went on for years. But there weren't a lot of economic incentives. There weren't a lot of tax-shifting incentives. The industry was, in a sense, left to its own devices. Yet the numbers that you pointed out today showed significant progress towards energy efficiency and lowering greenhouse gas emissions. I can only imagine if progressive policies were in place how much more could get done.

This is the point on which I wanted to turn to Mr. Fraser as well. You talked about an increase. The industry grew by 13% while lowering greenhouse gases by 15%.

[Denis Fraser]

Yes, and what allowed that was the use of better technology. As Mr. Gagnier communicated for the aluminum industry, it's pretty much the same thing for most of us involved in what we describe as heavy industry. We continue to progress through the application of the best technology available.

And just to reinforce the message in your prior question to the mining industry, it's all in the manner that the targets are going to be set. Once the target is set that respects the limit of known technology and what is justifiable from an economic sense, the pain will be alleviated in an appropriate economic environment to sustain that. But if you go beyond what is possible with what mankind knows today, it is just a tax.

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

Understood.

But just to understand in terms of those tools available, we've clearly heard that international trading is important as a tool in the tool kit. We've also heard that under your own numbers, an absolute reduction in greenhouse gases while economic improvements happened was possible, and is possible into the future. I think that's important, because there's a dialogue going on that apparently industry in Canada can't see their way to an industrial hard cap, to an absolute reduction in greenhouse gases, because it'll suffocate the economy.

But we've just heard from some of the largest industrial sectors this morning that you have achieved a reduction in absolute greenhouse gases while also achieving economic growth. So I think it just needs to be disbanded.

I need to turn to Mr. Gagnier just for a moment. In Quebec, the power generated is done almost primarily by hydro. How is that an advantage for your company in terms of energy costs, and also in terms of pollution emitted?

[Daniel Gagnier]

There's a pecking order in terms of emissions, from nuclear to heavy oil and coal. And in each area there are technologies that will help decarbonize or capture and store carbon. So we have to move into those areas. That's why Alcan is advocating that the government provide the right kind of environment for investments in carbon capture and storage and clean-coal technology.

But our advantage is only an advantage if you look at the full cost of what you use from your resources. For many years Alcan took the cost of its hydro-electricity and said, we have lots of it; we'll make aluminum, and if we're not terribly efficient at using that energy, we're still going to be profitable. Today we have a system in place where we can't do that. We can't do it with power. We can't do it with water. So we are really looking at full-cost pricing so that we can be much more efficient, as you raised, in how we use the resources.

We have reduced, for example, the use of water. We have lots of water in Canada. We've reduced the use of water by over 90% in our industrial processes. But we did that because we believe that water has a cost.

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

Let me understand something. In terms of the creation of Alcan in Quebec, one of the key pieces was the ability to generate low-cost power and low-polluting power. It turns out to be an advantage. We didn't know that 60 or 70 years ago, but we know it now. The water, though, is a commodity owned by whom?

[Daniel Gagnier]

The water is owned by the people. It's owned by the state. Alcan's rights in Quebec, and in B.C., are basically agreements that provide to Alcan the economic stewardship, and the environmental stewardship, of those hydraulic basins. If we don't do that better than anybody else can, then at some stage the people and the state will take them away from us.

To date we're running two hydraulic basins, one of them the size of Switzerland. And we are good economic and environmental stewards of those resources. That's why the communities and the provinces support that kind of activity. We've invested, just since I've been with Alcan, over $150 million in maintaining those systems.

So we invest, we use private sector capital to keep those infrastructures up. To use an example, during the Quebec floods in the Saguenay, a lot of dams broke. Thank God, none of the Alcan dams went, because it would have been disastrous. Lac-St-Jean is our reservoir.

[The Chair, Conservative, Laurie Hawn]

We'll have to move on. Thank you very much.

Mr. Warawa, for seven minutes, please.

[Mark Warawa, Conservative, Langley, BC]

Thank you, Chair.

Thank you for the witnesses being here. Thank you for the handouts and the very good presentations.

Mr. Gagnier, you've said in your presentation Canada needs a smart policy framework, smart regulations, and pragmatism, a tool box. We need to know where we're going. The government has worked hard on Bill C-30, and that's what we're discussing today. I'm sure each of you has looked at Bill C-30 and the notice of intent. I'm sure you're all aware that includes short-, medium-, and long-term targets that will be set. The short targets are intensity based for greenhouse gas emissions, to be announced very soon. And they're hard caps, on the short, relating to pollution levels.

You've also mentioned the frustration in the lack of direction being provided by the previous government, and you've moved ahead on a voluntary basis, where Bill C-30 takes us from a voluntary to a mandatory regulation regime.

So do you agree that we should be moving from the voluntary? There is the memorandum of understanding, and each of you has made mention that you've been actually doing the work anyway. But are you sensing much more clarity in direction from this government? And I don't mean that politically, but are you sensing a much clearer direction that we are moving to achieve greenhouse gas emissions through Bill C-30? Are you happy with the basic structure?

[Daniel Gagnier]

I think I will make my comments in a non-partisan way.

We need regulation. That's the first thing. Alcan's call is, give us a regulatory framework. It doesn't have to be the most intrusive, but it has to be a path on the road to an outcome. It took us 10 years to learn how to do this, so whether it's a government here or a government in Europe, we're all learning. What we want basically is to put in place something that provides some consistency. We have to invest over $10 billion to renew the capital stock. We have to build a $550 million plant in Joncquière; we're building a $150 million plant for spent potlining treatment in Quebec; we have to modernize Kitimat, so there's $2 billion. I could go on and on. Those investments aren't going to be made if our government, any government, says we don't know what we want to do in terms of regulation.

Regulation for us—and you may not have heard this from many people in business—is absolutely fundamentally critical to how we're going to make our investment decisions. The sooner we have it, the sooner we know how you as politicians are going to enable that investment climate and that environmental target setting, the faster we can move.

[Mark Warawa, Conservative, Langley, BC]

Mr. Peeling, could you comment on the importance of certainty in the market for investment?

[Gordon Peeling]

Yes, absolutely. I would echo much of what Dan has said. It involves bringing clarity to this process so that industry understands the terms and conditions, and the realities, under which it has to invest and renew its capital stock, the investment it needs in new technologies and processes, and the enabling infrastructure to achieve that.

Some of this will be in pre-competitive and government-supported research as well. Government has to be a partner in this process, but setting a level playing field. We've been taking the lead in this because managing our energy costs, which are significant, is hugely important. That's why we've invested a lot of time and money over the years in managing energy, and we think we can still make improvements with the existing technology, but we also need that support and the infrastructure that's going to really require new processes and technology in the future. Certainty is absolutely key to the investment picture.

[Mark Warawa, Conservative, Langley, BC]

We've heard from witnesses generally on the importance of having that clear framework, and we believe Bill C-30 provides that, but as a government we're open to how to strengthen it and make it better.

We've also heard from a few select people that there is a silver bullet in making an additional charge for manufacturing. For example, yesterday I believe it was, or on Tuesday, it was said that adding an extra dollar per barrel in the oil sands would be the silver bullet to help us meet the Kyoto target. What we've seen over the last 10 years were dramatic increases in Canada in greenhouse gas emissions, yet our goal is to be down here. Is there a silver bullet, or do we need a very clear plan that will take us down here—not immediately, but on a very clear trajectory, provide an inertia that will bring us to that goal?

[Daniel Gagnier]

If I may, I don't believe in silver bullets. I don't even believe in aluminum bullets.

What I do believe is that there's going to be a cost, and some pain, for everybody. That starts with consumers making the right choices and changing the way you design products and the way you do many things. I think it was Gord Lambert who testified before the committee that it may be helpful, it may solve their problems, to add $1 to the cost of a barrel of oil. But I would point out to you what other jurisdictions have done in trying to reform the tax system in a way that you have revenue neutrality, but you shift taxes to look after areas where you can incent a change in behaviour. They call it ecological tax reform. What, for example, the Europeans have done is gotten rid of manpower taxes in some areas and shifted that to other areas, while maintaining a neutrality in terms of their overall tax load.

My big fear, and I'm not a politician, is that if we just think of taxes and taxes, and taxes and levies, at some stage people are not going to change their behaviour, and they're just going to get fed up.

So I believe there are no silver bullets. You're going to have to make a lot of bullets and get a lot of tools in this tool kit and be able to make sure you get the right kinds of behaviour from different sectors and from the consumer.

[The Chair, Conservative, Laurie Hawn]

Thank you very much. We have to move on.

I'll only point out to members that a couple of witness groups here may be feeling unloved.

Mr. Godfrey, for five minutes, please.

[John Godfrey, Liberal, Don Valley West, ON]

Let me simply begin by going back to the notice of intent to regulate for Bill C-30. It is stated under targets for GHGs, “Short-term (2010-2015)”, that it would be based on emissions intensity and not until 2020 to 2025 would there be a switch from intensity targets to absolute targets. It's what the legislation would support.

I'm hearing from all the witnesses that you're there, and maybe we just have a lucky bunch of witnesses here. In fact, if we were to ask you to accept the Kyoto target in absolute terms from 2008 to 2012, you could meet it. Is there anybody at the table who couldn't meet it?

You're all there.You're past the intensity argument. You can meet your Kyoto targets. One thing that comes through is that you're already ahead of where you ought to be.

Let me ask you this question. Is it true that the sooner we establish a hard cap system for everybody and a domestic trading system that integrates with other systems and allows you to trade the excess, the more it would be to your economic advantage, because right now you can't sell the stuff? Is that a fair comment?

[Daniel Gagnier]

Yes, it's a fair comment, but we didn't do it to sell the stuff. If we had a cap and trade system and a domestic market that was liquid, we would basically be giving an incentive to our plant managers, who are very creative people, to go after additional greenhouse gas reductions and use those credits. It depends on how you design the system, both the emissions trading system and the offsets.

It's the same thing with the CDM. If Europeans use the CDM and get those credits or half credits back into their economy, then they're going to develop a competitive advantage. On a CDM basis, I think it would be a mistake for the government to say Canadian-based companies cannot take part in CDM. It's the one international kind of mechanism wherein I think we have the potential to do things.

[John Godfrey, Liberal, Don Valley West, ON]

I want to pursue that line of questioning.

When some people generalize the international trading system as being about Russian hot air, and I mention no names, your answer is that the clean development mechanism is legitimate and desirable from a Canadian business point of view.

[Daniel Gagnier]

It is, unless we want the Europeans to eat our lunch.

[The Chair, Conservative, Laurie Hawn]

Mr. Peeling.

[Gordon Peeling]

I have one quick comment.

To be absolutely clear, if you look at the subsectors in the mining industry, for our iron ore pellet plants we have one plant that would be under-meeting the Kyoto target within the timeframe. We have another one that would not meet its target because of the nature of the steel product demand for an acid flux pellet, which has a higher greenhouse gas intensity. These are the most energy-efficient pellet plants in the world, and it depends on what the steel plants want.

It's why I made the point that if you draw an arbitrary line and you don't understand the continuum between iron ore and a steel plant, the fact that it makes an acid flux pellet is actually a huge benefit at the steel end in terms of greenhouse gas reductions, but it looks bigger at the iron ore side. It's why the system has to take those things into account, because if you isolate it there, you're going to penalize the plants that are already the most efficient in the world.

[John Godfrey, Liberal, Don Valley West, ON]

One technical answer would be to group the whole process line.

[Gordon Peeling]

Yes.