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

[The Chair, Conservative, Laurie Hawn]

We finally have quorum.

Thank you to the witnesses for coming.

I am obviously preaching to the people from the committee who aren't here, but if you could ask your colleagues to please be more timely, it would be much appreciated. We have a full agenda today.

This is meeting number 14 of the Legislative Committee on Bill C-30.

I want to welcome, from Alcan, Mr. Daniel Gagnier, senior vice-president, corporate and external affairs; and Mr. Patrick Tobin, director, government and corporate relations. From the Canadian Steel Producers Association we have Ron Watkins, president; Denis Fraser, president and CEO of Mittal Canada; and Jim Stirling, general manager, environment and energy, for Dofasco Inc. From Interface Flooring Systems (Canada) Inc., we have Rahumathulla Marikkar.

We are waiting—but we'll start—for Mr. Avram Lazar, president and CEO of Forest Products Association of Canada; and from the Mining Association of Canada, Mr. Gordon Peeling, president and chief executive officer.

I've just been advised that Mr. Lazar is not here; he will be here another day. That gives us 10 more minutes.

What we do typically for witnesses is give you about 10 minutes—or less, please—to talk about your interest in Bill C-30. Obviously we're going to learn something about your industry or your company, but we'd like to keep it as focused as we can on Bill C-30, Canada's Clean Air Act, and what can be done to make that act stronger. Then we'll get into the round of questioning.

We will start with Alcan and Monsieur Gagnier or Monsieur Tobin.

It's Monsieur Gagnier, for 10 minutes, please.

[Daniel Gagnier, Senior Vice-President, Corporate and External Affairs, Alcan Inc.]

Thank you, Mr. Chair.

I will spare you the company commercial. You can read about it in the presentation. But I'd like to start off basically by outlining some of the things we've been doing and how we've approached the issue of clean air and greenhouse gas.

I'll begin by talking about Alcan and greenhouse gas emissions. To us, climate change represents both a commercial challenge and a business opportunity. Our strategic approach has been driven by a win-win philosophy based on both environmental and economic benefits. The energy measures Alcan instituted in the early 1990s showed that it was indeed possible to reduce GHG emissions significantly, while maintaining economic growth. Our experience in Quebec has shown that governments and industries can work together in order to achieve voluntary reductions.

Concerning Alcan's early actions, the record will speak for itself. Total smelter GHG emissions from 1990 to 2005 were reduced by an actual 25%; smelter GHG emissions by intensity—and we measure both—were reduced by 45%; there was an 80% reduction in PFC emissions, which has a high concentration of greenhouse gases; and there were production increases of up to 40%. That's worldwide.

In Canada, from 1990 to 2005, total smelter GHG emissions were reduced by more than 30% and smelter GHG emissions intensity was reduced by 50%, while we increased production by 50%.

So we've established, I think, the bona fides of our approach to the issue of clean air. We have another 10% further in targets that were announced in Montreal at the beginning of this week, between now and 2010.

The next slides from the deck that you will see are merely proof points showing the trend lines on PFC emissions, on reducing emissions of air pollutants—fluoride emissions in particular—on polyaromatic hydrocarbons, and on total emission reduction by installation over the years.

Now, let's take a look at what we are doing today.

Process-related improvements to older technologies are continuing, and Alcan is intensively modernizing its Canadian assets with new technologies. Those efforts are leading to significant positive impacts in energy efficiency and reductions in GHG emissions. Alcan's AP35 series electrolysis technology is the most energy and GHG efficient technology in use today. And, while we continue to enhance that technology platform, we are also investing in its future, namely AP50, by building a US$550 million pilot plant in Jonquière, Quebec.

To give you an idea of the potential convergence of this technology and other technologies, we believe that in five years, GHGs will have dropped and energy efficiency will have improved by 20%.

We are aggressively pursuing win-win opportunities in the downstream applications of products and their inherent energy and GHG benefits, through development, promotion and sales of a range of aluminum products, including a focus on end-of-life recycling benefits.

These efforts and their results are proving that economic growth and competitiveness, and responding to environmental challenges, can be mutually supportive objectives.

On slide 17 in the long deck you'll find a chart on the cost of abatement that is very complicated, but I'll simplify it for you. Everything below the line shows things that we can achieve today, and if you look above the line, for nuclear, wind, forest, solar, coal-to-gas shifts, and avoiding deforestation, you have a series of technologies that can be invested in and that will yield results.

On policy and regulations—slide 18 in the longer deck—to leverage existing solutions and encourage future solutions and build on early action to date, Canada and companies like mine need a smart policy framework. We need smart regulations and we need pragmatism in terms of the tool kit at our disposal that we can use.

The strategic combination of policy, regulations, and tax as an incentive to strongly encourage investment in technologies and energy efficiency will assist companies in leveraging business plans and investment cycles and we believe will contribute to win-win solutions.

We need a suite of approaches that recognizes what companies have already done. We need these approaches to be flexible, in the sense that all sectors deal with different realities, and while we need incentives on the technology front to do more, there's much that we can do and have already done. Sectoral approaches within Canada can be effective to build on, where provinces have already taken a lead, as they have done with the aluminum industry in Quebec, including voluntary measures within the tool box used by regulators.

Let's talk about our coordinated approach.

Federal-provincial cooperation is critical if we are to effectively regulate GHG emissions and emissions of air pollutants. Provisions on equivalency in Bill C-30 need to be passed to facilitate the avoidance of overlapping or conflicting regulations. Equivalency of effect will achieve the same results as equivalency of regulation in meeting overall policy objectives.

We support the federal government's power to regulate directly, when necessary, but advise caution in revisiting standards for a sector such as aluminum when it is already being well-covered provincially on both air pollutants and GHGs with significant results to date, and concrete plans moving forward.

On policy and regulations, slide 21, mandatory targets need to be an important part of the tool box, as they set clear, transparent, and consistent long-term objectives and represent a strategic intent regarding where we want to be. Long-term targets set clear mandates along the way to unleash competitive market forces. But we also need short- and medium-term targets that provide the foundation for an immediate call to action. Some of us have already started to act.

Finally, on market tools, the government needs to establish the rules and regulations of the market aimed at ensuring proper market functioning, including emissions trading and offsets, and then pull back to let the market forces operate effectively.

As for targets in the aluminum industry, for some industries like aluminum it will be important to measure both the actual and the intensity level of emissions to know where we are, until reductions from downstream applications are also recognized. To put the context around intensity targets, they merely allow us on an efficiency basis to continually improve and to set the benchmarks. That's why they're important. However, absolute reduction targets that don't take into account consideration of growth, capital stock turnover for product, and recycling opportunities can severely handicap the ability to leverage the inherent energy- and GHG-saving qualities of any material.

In conclusion, Mr. Chair, Alcan has been taking this challenge on both air pollutants and greenhouse gases, and the general challenge on environmental performance, seriously since 1990, and we've demonstrated many successful actions to date. If we want to be competitive—and there is an issue of competitiveness here—we will all have to take action and we will need smart, pragmatic approaches that foster environmental performance improvement while enhancing Canada's economic competitiveness.

Our message is that we've had that belief for some time and we believe that now is the time to act.

Merci beaucoup. Thank you.

[The Chair, Conservative, Laurie Hawn]

Now, for the Canadian Steel Producers Association, who will be leading off?

Mr. Fraser, you have 10 minutes for your organization.

[Denis Fraser, President and Chief Executive Officer, Mittal Canada Inc., Canadian Steel Producers Association]

Good morning, Mr. Chairman, committee members, and members of this panel.

First of all, on behalf of the Canadian Steel Producers Association, I welcome the opportunity to appear today on behalf of the Canadian steel industry.

We recognize the need for concerted action to protect the environment, and we believe it is possible to achieve environmental and economic performance that will generate sustainable growth and prosperity in the Canadian economy and the industry. Our companies have demonstrated a strong commitment to achieving substantial environmental gains, while maintaining an economic balance.

In my remarks, I will first highlight the strong performance of our industry in addressing clean air issues over the past 15- plus years, surpassing the Kyoto targets on greenhouse gas emissions and achieving large reductions of other emissions.

Next, I would like to advocate our approach to sustainable success, which combines environmental and economic performance. I would stress the need to continue investing in break-through "clean" technologies.

Thirdly, I would like to highlight some of our industry's efforts to contribute to a sustainable steel sector that will continue to benefit Canada.

It is unfortunate that too much of the general public perceives the steel industry to be a large contributor to Canada's air pollutants and greenhouse gas emissions. In reality, as Environment Canada's publication indicate, we produce only 1.8% of Canadian greenhouse gas emissions and 1% of air pollutants.

We're a small contributor in relative terms, but we have worked to have a larger impact on our footprint. We were an early mover in reducing emissions, even before 1990. And since 1990, a period during which Canadian steel shipments grew by 13%, our industry has reduced greenhouse gas intensity by 24%, and we have reduced absolute greenhouse gas emissions by almost 15%. Indeed, we exceeded the Kyoto target of a 16% reduction very early in 1991.

Similarly, we have reduced harmful pollutants significantly. For example, between 1993 and 2003 we reduced benzene emissions by 75%. We have a CEPA code of practice target of 90% by 2015, which we expect to meet in 2008, a full seven years earlier than the target set.

These statistics clearly show that our industry has made strong efforts over an extended period to improve our environmental performance. We will continue to improve, but we believe it is important that all sectors, and Canadians at large, work together in a manner that fairly and sustainably addresses the issue.

Canada's steel industry has managed to move the needle very significantly in the past two decades because our members showed tremendous early commitment to coupling environmental sustainability with financial performance and investment. We have successfully worked to reduce emissions of major air pollutants. From continual adaptation of environmentally efficient technology to investments in energy efficiency, we have maintained that leadership role.

We're understandably very proud of these results, and we trust that in setting any new regulatory framework and targets, the government will fully recognize what has been achieved to this point. We further seek recognition of the practical limits to what more can be done in the short term. It would be wrong, we submit, to ignore this track record and to assume that large gains remain immediately or easily before us.

We believe it is vital for Bill C-30 to develop a policy framework that advances Canada's global environmental objectives with domestic policies that combine both environmental and economic sustainability.

The two are inextricably linked. If we, as a country or an industry, are not economically viable, we cannot invest in advanced environmental technologies. We know that investment, innovation and environmental improvement go hand-in-hand. Over the past two decades, Canada's steel companies have invested billions of dollars in equipment and processes that have brought the environmental progress I just discussed. Without economic as well as environmental returns, the steel industry could not—in fact would not, have made those investments.

Looking forward, Canada and other countries will need to make major investments and work collaboratively to develop and implement break-through environmental technologies, if we are going to achieve major additional gains in sectors like our own. I emphasize break-through technologies because the scope of further improvement in the short term is very limited, given what we have already done.

For this reason, new legislation and regulations must take into account several considerations.

First, as I said at the start, there are practical limitations to achievable improvements in the short term. If appropriate and affordable technologies do not exist, they cannot be deployed. This is not a Canadian-only perspective. Our counterparts around the globe agree that it will take a quantum leap in technology to achieve the same kinds of greenhouse gas reductions in the future that we have achieved over the past 20 years.

A second reality we face is cost and complexity of capital stock turnover in our plants. Our business operates on 25 to 30-year investment cycles, with long pay-back periods. So do our competitors abroad. We cannot quicken the pace, since to do so would escalate our already enormous capital costs to uncompetitive and unsustainable levels. This would cause migration of investment out of Canada's steel industry.

If a standard is set that is economically or technologically unachievable, the impact will be seen in the marketplace. What is not made in Canada for our market will simply be imported. Canada has probably the most open steel market in the world; already over 50% of our steel is imported. It would therefore frustrate our economic and environmental goals if it became necessary to replace Canadian steel with products from other countries with lower environmental standards. This would raise, not lower, global greenhouse gas emissions, and we would not be earning the capital to reinvest in productive technologies for the future.

Let me be clear, we do not advocate for lower standards than our competitors in the other advanced nations. What I'm saying is that Canadian policies must recognize that we do not operate in an environmental or economic vacuum. Our legislative and regulatory framework needs to allow Canadian steel to be competitive and environmentally responsible at the same time, in an international as well as a domestic context. We're looking for a legislative and regulatory approach that is sensitive to our capital investment realities, our performance and commitment to date, and the need for breakthrough technologies in the future. This means setting realistic medium- and long-term targets, not unachievable ones in the short term.

The Canadian steel industry wants to be part of the solution and to partner with governments and others to do so. To this end, we are working, on many different levels within our industry, on critical issues such as energy efficiency and improved emission performance. In 2005 we negotiated a memorandum of understanding with Environment Canada and the Ontario ministry to work together on short-term and longer-term means to address reductions in greenhouse gases without undermining the competitiveness of the Canadian steel industry. The MOU provides a valuable framework for ongoing analysis and collaboration, which we wish to continue.

In addition, we focus seriously on energy efficiency, which improves environmental performance. We play an active role in the CIPEC program of Natural Resources Canada. We're working in conjunction with the Brussels-based International Iron and Steel Institute to benchmark best practices throughout the world, based on the best available technology economically achievable for individual steel processes. This is a critical principle that needs to be followed in the short term.

For the longer term, we're working in partnership with the Government of Canada in an international research program through the IISI to develop precisely the kinds of breakthrough technologies that other steel-making nations will need.

Let me conclude my remarks by highlighting a number of our specific concerns.

Most of all, we're asking you to appreciate that Canada needs a steel industry that is both environmentally and economically sustainable, one that can continue to generate the capital necessary to improve performance in both areas, just as we have for more than two decades.

Second, we ask that the government consider the relative size of the contribution our industry has made so far and the significant improvements we've already made.

Third, we ask that any regulatory regime not duplicate or contradict existing requirements for industry. Recognizing provincial governments' regulations through equivalency agreements would minimize the compliance burden on government and industry.

Fourth, we ask that regulations be developed that recognize the limits of science and technology that can be applied to our process in the short term. A failure to do so will simply tax the sector and push production to other countries. We also ask that you support policy and fiscal measures that stimulate investment in new technology, understanding that environmental improvement as well as reduction in energy usage will flow from investment in new products and processes.

Ladies and gentlemen, I thank you for the opportunity to appear before you this morning.

[The Chair, Conservative, Laurie Hawn]

Merci beaucoup, monsieur Fraser.

We'll turn now to Interface Flooring Systems (Canada) Inc., and Mr. Marikkar, for 10 minutes.

[Rahumathulla Marikkar, Interface Flooring Systems (Canada) Inc.]

Thank you, Mr. Chairman.

The cry for sustainable industry has emerged as industrial manufacturing process emissions poison the air we breathe, disrupt food chains, damage vegetation, and contaminate soils. Industrial wastewater is often returned directly to streams and rivers. Elevated levels of suspended solids and metals lead to water quality problems and potential risks to public health. The temperature and pH of effluent can also negatively impact the biological and chemical oxygen demand of living systems, damaging the global ecosystem.

Clean air and water acts were established in the 1970s to enforce reductions of harmful air emissions and water pollutants, with a particular focus on global climate change subsequently, but mainly to address acid rain. Interface targets beyond compliance to eliminate all toxic releases into air and water from our facilities around the world.

Interface Inc. was founded on what were then revolutionary ideas and introduced technologies and products scarcely heard of in the global commercial interior market. Over time, we have experienced growth through both strategic alignments and the acquisition of many companies. Interface has manufacturing facilities on four continents and sales offices in 110 countries.

Our current goal is to be the first name in industrial ecology worldwide. It means creating the technologies of the future—kinder, gentler, and responsible technologies that emulate nature's systems. We are completely re-imaging and redesigning everything we do, including the way we define our business. We are creating a company that addresses the needs of society and the environment by developing a system of industrial production that decreases our costs and dramatically reduces the burdens placed upon living systems.

Industrialism developed in a time of fewer people, less materialism, and plentiful natural resources. What emerged was a highly productive, take-make-waste industrial system that assumed indefinite supplies of resources and infinite sinks in which to place our industrial waste.

Although the capacity to move mountains of material with a resultant lifestyle used to be desirable, today just the opposite is true: the rate of material throughput is endangering our prosperity, not enhancing it. At Interface we recognize that we are part of the problem. In order to reduce the amount of material we take and the waste we create, we first need to analyze all our material flows—everything that comes in and goes out. Only then can we begin to address the task at hand.

Our experience with sustainability has shown that the cure to resource waste is profitable, creative, and practical. This also makes precious resources available for the billions of people who need more. For us, sustainability is not the veritable low-hanging fruit of recycling or changing light bulbs, although those are certainly important steps; what we call the next industrial revolution is a momentous shift in how we see the world, how we operate within it, which systems will prevail, and which will not.

While there is no one solution to the impact we now have on earth and its ecosystems, the company shares one vision: to lead the way to the next industrial revolution of the 21st century. We realize it's a daunting task, but it's making us competitive today and sustaining us for future growth.

Interface has laid out a path designed to achieve sustainability on seven ambitious fronts.

The first is to eliminate waste. The first step to sustainability, QUEST—quality utilizing employees' suggestions and teamwork—is Interface's campaign to eliminate the concept of waste, not just incrementally reduce it.

Second is benign emissions, a prioritized focus on eliminating emissions that have negative or toxic effects on natural systems. Interface has identified 192 stacks as point sources for air pollution in North America, Europe, and Asia. Although all Interface companies comply with current environmental regulation, our goal is to move beyond compliance and eliminate emissions completely. Interface's Cool Carpet products carry climate-neutral third party certification, negating greenhouse gas emissions throughout the life cycle of the product.

Third is renewable energy, reducing the energy demands of Interface processes while substituting non-renewable sources with sustainable ones.

Fourth is closing the loop, redesigning Interface processes and products into cyclical material flows.

Fifth is resource-efficient transportation, exploring methods to reduce the transportation of both materials and people.

Sixth is sensitivity hookup, creating a community within and around Interface that understands the functioning of natural systems and our impact on them.

Seventh is redesign of commerce, redefining commerce to focus on the delivery of service and value instead of the delivery of material, and engaging external organizations to create policies and market incentives that encourage sustainable practices.

In order to conquer the above seven fronts, a holistic manufacturing model was developed by Interface in 1994. This 12-year journey has brought reassuring success and double-digit business growth. We have seen profits grow, exports increase, increased employment, and elevated quality and performance of product, while experiencing renowned brand recognition.

In the last twelve years, some highlights of the Canadian facility's achievements include a total savings through sustainability efforts of $13 million U.S. and $299 million worldwide.

We eliminated nine out of eleven air emission stacks at Interface in Belleville, and we revoked the certificate issued by the Minister of the Environment.

There was 69% of fossil-fuel-based energy reduction, 64% greenhouse gas reduction, and 92% reduction of indoor air pollution from our products. We received the Ontario Lung Association acknowledgement through Movement for Clean Air Now, C.A.N. DO, until the program was discontinued two years ago.

In 2006 we switched to 100% renewable electricity through the purchase of renewable energy certificates.

We have a zero-effluent facility through elimination of all process-connected sewage pipes. Carpet industries are known for a heavy amount of effluent, but the facility in Belleville is zero effluent. There are no effluent pipes attached to any process.

Water usage is down by 93%, landfill use is down by 97%, and last year alone, 800,000 pounds of post-consumer carpet were recycled.

We have third party certification such as EcoLogo, EPP, climate-neutral, ISO 9001, and ISO 14001, etc.; employee awareness and incentive programs that reward sustainable practices; and above average employee pay increases.

In essence, a sustainable business model means doing well by doing good. We encourage the enactment of policy regulations and incentives to achieve clean air. We also encourage governments at all levels to use the leverages they have at their disposal—for example, greener procurement.

I thank you for this opportunity.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Marikkar.

We'll turn to our final witness, Mr. Gordon Peeling, from the Mining Association of Canada. Mr. Peeling, for 10 minutes, please.

[Gordon Peeling, President and Chief Executive Officer, Mining Association of Canada]

Thank you, Mr. Chair.

The Mining Association of Canada is the national organization of the Canadian mining industry. It comprises companies engaged in mineral exploration, mining, smelting, refining, and semi-fabrication. Member companies account for the majority of Canada's output of base and precious metals, diamonds, oil sands, and uranium.

As an organization, MAC was honoured by the GLOBE Foundation, winning the 2005 industry association award for environmental performance.

Canada is one of the world's leading mining countries. We rank among leading producers of uranium, nickel, magnesium, titanium, aluminum, and zinc, among other minerals. The industry employs 388,000 Canadians and contributes $10 billion in gross domestic product in mining and extraction, and a further $32 billion in gross domestic product in mineral manufacturing.

The industry is investing around $1.4 billion in Canadian exploration this year, and we're a main employer in over 100 Canadian communities, while we are world leaders in mining finance in large cities such as Toronto, and in exploration expertise in other major cities such as Vancouver.

The Canadian industry is also a major international player. For example, our TSX-listed mining companies have around 4,000 mining projects in play in foreign countries, and our industry has around $50 billion in direct investment stock in other countries.

I really wanted to make three points. Number one, we are responding as an industry to the challenge. Three groups of our members—smelters, iron ore pellet plants, and the oil sands companies—are subject to the notice of intent to develop and implement regulations and other measures to reduce air emissions, and will be affected by this committee's deliberations.

I note that for the purposes of the notice of intent the government has included oil sands production within the petroleum sector. I have grouped my remarks to the committee under these three headings.

First, it is important to note that our industry recognizes the need to reduce its impact on the environment. MAC member companies have been very active over the past 15 years, investing billions of dollars in process and environmental improvements. MAC's Towards Sustainable Mining initiative, to which all our members adhere, includes performance measures, targets, and externally verified reporting in a number of environmental areas, including energy use and greenhouse gas emissions.

In terms of specific improvements, MAC member companies have reduced the amount of mercury releases into the environment by 91% over the past decade. Cadmium and zinc releases have each been reduced by 71%, and lead by 68%. These reductions have occurred across all subsectors of the industry.

Even in the oil sands, where significant expansion has occurred, total releases of substances such as mercury, sulphur dioxide, lead, arsenic, and cadmium have declined significantly. Table 1 at the end of this paper provides further details regarding progress over the past decade by MAC members with respect to sulphur dioxide emissions. These significant improvements reflect the success of investment by mining companies in cleaner processes and technologies, in response to early-stage voluntary actions and Canadian laws.

The specific example of Inco in Sudbury is worth noting in this regard. The company is now known as CVRD Inco Limited and has recently commissioned a new facility that will reduce sulphur dioxide emissions from its Sudbury operations by 34%. This fluid bed roaster abatement technology is state-of-the-art and required a $115 million investment on CVRD Inco's part.

Beyond these improvements in specific key pollutants, the industry has also improved its energy management practices, and consequently its performance on greenhouse gas emissions. For example, the metal smelting and refining industry has reduced its energy requirements from 50 terajoules per kilotonne of production output in 1990 to 42 in 2004, or a reduction of 18%. These improvements reflect industry investment in energy management and efficient process technologies.

In terms of absolute emissions, the mining industry, not including the oil sands, has more than met Canada's 6% greenhouse gas reduction target commitment to the Kyoto Protocol. Table 2 at the end of this paper provides further detail regarding industry progress on GHG emissions and intensity.

The oil sands sector has been investing in innovative ways to reduce energy use. Between 1990 and 2004 Syncrude, for example, reduced per barrel greenhouse gas emissions by 14%, reflecting investments in new technology and equipment.

The second area I want to address is paying attention to what drives investment. It's important to keep this particular critical factor in mind, in terms of what drives investment in Canada. In this case, targets must be achievable, and harder targets can be made easier through an effective regulatory and tax regime. In a global marketplace, companies invest in those regions where there are market opportunities, where the government has an efficient regulatory system, where the transportation network is modern, and where smart tax incentives are in place.

So in deciding the type and scale of requirements to be placed upon Canadian industry, committee members should consider the broad range of criteria that influence where global investments are made. This is doubly important when one considers that major emissions reductions are generally achieved through fundamental technology changes. Investments will occur over long time periods as new technologies are developed, perfected, and implemented.

A stable and transparent investment regime is also very important to companies as they look to invest. For example, in fairness to those mining companies that have taken action to reduce greenhouse gas emissions, we believe that Canada's approach should aim to reward investment leaders rather than penalize them. In this regard, historical improvements since the Kyoto base year of 1990 should be recognized, and future targets should not be arbitrarily inflated by assuming that past actions to reduce emissions can be repeated in the future.

It is also important that the committee take an integrated and life cycle approach to its environmental analysis. Care needs to be taken to integrate emission reduction requirements, particularly sulphur dioxide and greenhouse gases, as in some cases an investment to abate the former may require additional energy and the associated greenhouse gas increases that would go with that. In other cases, the only feasible methods for reducing sulphur dioxide emissions may be the use of carbonate-based chemicals, again leading to increased carbon dioxide emissions. Emissions targets need to reflect relative risk so that pollutants exhibiting the highest risk are targeted.

Emissions reduction targets also need to take into consideration the impact of the value chain. For example, in the case of our iron ore sector, the production of value-added flux pellets increases relative greenhouse gas emissions at the iron ore stage, though it reduces emissions by a significant amount at the downstream steel blast furnace stage. One must be very careful about rewarding or punishing producers in an arbitrary manner without considering the inputs and outputs of the entire production continuum.

Taking the continuum and life cycle point to the next step, it is also logical for Canada to develop targets that consider how to encourage increased recycling of electronic and other secondary feeds in Canada.

My final point on the subject of investment is that accelerated capital cost allowance treatment for clean technology contributes to a positive investment environment. A number of industry associations, including MAC, have called upon the government to consider a two-year write-off of investment in clean processes and technology. This was also the subject of recent recommendations of the industry committee. Such treatment would further encourage our companies to invest in modernizing their smelters and refineries. Other opportunities exist in the areas of research and development, where current industry-government partnerships on issues such as carbon sequestration can be expanded and accelerated to improve the economics of new technological solutions.

My third and final message with respect to the climate change issue is to note that our industry is a global industry. Indeed, in terms of international presence, it is difficult to find a more global sector than Canada's mining and metals industry. The majority of Canadian output is sold abroad, and our leading companies are active investors and explorers in other countries.

Canadian mining, be it base metals, iron ore, diamonds, uranium, or oil sands, competes internationally with prices established on global exchanges in London and elsewhere. Companies compete on their ability to explore and access reserves and to control costs. Many of our international competitors operate in countries with significant competitive advantages and with less stringent environmental standards and without reduction targets under the Kyoto Protocol. In the case of the iron ore sector, for example, it is these competitors in Brazil and Australia, among other countries, who establish prices. Canadian producers are price-takers and unable to pass additional costs on to their customers.

In this sense, while we support progress on this issue, we ask the committee and the government to also consider the global context that surrounds each particular industry sector when establishing specific targets. Let's find solutions that are win-win, that improve our environmental performance without turning off investment and job creation.

Thank you very much for your attention. I appreciate the opportunity to be here today.

[The Chair, Conservative, Laurie Hawn]

Thank you very much, Mr. Peeling.

We'll turn to our question round, and I'll remind folks that we're going to stick pretty tightly to the schedule because we have a bit of business at the end as well.

Mr. McGuinty, for seven minutes, please.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chairman.

Thank you, gentlemen, for showing up this morning and being with us. I'd like to go back to a line of questioning that I've been putting to a number of industrial sectors. Many of you have addressed this in your presentations, but I just want to get it on the record in terms of your views on three different fronts.

I'd like to get this from you quickly, since we've only got seven minutes. Could you address the three following elements in this question.

Question one: To what extent have your industry sectors already been actively engaged in the entire Kyoto process—that is nationally, here, and internationally?

Question two: The government has ruled out the participation of Canadian industry in international carbon markets. That's clear. We've asked that question four times now and have had four very clear answers. We're not participating in international carbon markets. The Toronto Stock Exchange president says this is going to cause very excessive costs for Canadian companies who may be trading only on a domestic market, for example. Can you tell me, and tell Canadians, in dollars and cents, what this will mean for your companies if you cannot participate in the international carbon markets?

Question three: Many of you have talked about the fact that that you've already met your Kyoto targets. You've exceeded those Kyoto targets. Can you help us understand how you would like to be treated in terms of credit for early action, the action you've already taken since 1990? I think maybe two or three of the presenters have said straight up that your Kyoto targets are met. Would you like to see the treatment of your sectors reflect that you should get credit for early action—and using 1990 as the baseline, not 2003, as the government is proposing?

On those three elements, please, I'd like to hear from you, if I could.

[The Chair, Conservative, Laurie Hawn]

If that's 12 questions all together, you have 25 seconds for each answer to each question.

Mr. Garnier.

[Daniel Gagnier]

Let me put a card on the table. I'm the chairman of the International Emissions Trading Association. I just want to declare my position before we start.

The Kyoto Protocol basically was the incentive that got Alcan to accelerate its efforts in this area. The decision made by the board and the executive committee in 1997 was, let's not wait; the sooner we learn how to do this, the more advanced we will be and the more of a competitive advantage we'll have. So the Kyoto Protocol was a catalytic action. It was something we took seriously and decided to move on. If you look at it going forward, I think the important issue with Kyoto is what do we do after 2012. Otherwise, if we don't have a new set of targets, whether we reach the ones we have or not, it's going to fall apart, and carbon markets will not have an incentive to properly price carbon.

On carbon markets and international markets, I don't want to be parochial—I'm a good Canadian and a good Quebecker—but it doesn't matter; we're going to do it anyway. We've accessed the European trading system, we've accessed the Asian trading system. If Canada has a domestic market, we'll access that one. I do believe, however, that in terms of competitive advantage it doesn't make sense to merely have a domestic carbon market going forward. You're going to need a North American market in order to offset some of the other blocs that are working.

Second, you have to look at carbon markets as, one, the most efficient way of setting a pricing signal for carbon, and two, as a value enhancer for people to reduce greenhouse gas emissions. Now, the Europeans are still learning, but they've had one up and running and they will reform it. It will continue. The forward price for carbon for 2009 this morning was about €13. So there is a pricing mechanism.

On meeting or exceeding the Kyoto targets, yes, we have. Credit for early action was something we gave up on in the round tables that we sat on for five years, and we said, quite honestly, drop it. But there is a way that government in regulation, in setting targets for specific sectors, can recognize what companies have done, and that is that you don't have to go back to 1990, but if you're a leader and you've exceeded your target, you can set your base year differently. You can say, okay, for this industry they've met targets, so their base year will be 2000, not 1990. For people who have not met their targets, you can allocate the base year differently. There are ways in which, from a regulatory perspective, you can recognize what industrial sectors have done and then allow them to get that benefit for early action. That's up to the regulators.

[David McGuinty, Liberal, Ottawa South, ON]

Who's next?

[Gordon Peeling]

Let me just echo Dan's comments with respect to the credit for early action. That's a point we have continuously made, because we have been committed to energy efficiency since the 1970s, as an industry, and we have set long-term targets of 1% per annum improvement in our energy efficiencies. Those, of course, set the stage for us, in actual fact, to start measuring our greenhouse gas reductions that went with that energy efficiency improvement and to then move to more absolute reduction targets. So although we want credit for early action—and I think that's a very elegant point, that you can set different starting points as to when the base year is—we do find it frustrating that the government never seemed to want to make a distinction between those who had engaged in early action and the laggards. And consequently, it had one system to apply to all, which really was a penalty for those who had moved early and a reward for those who had done nothing.

That being said, there are ways to deal with this. It's not that we don't want targets. We remain committed to targets. We will continue to improve our processes going forward. And we want reasonable targets in that process. The bigger ones are going to have to come through process change, and that's going to take long-term investment, so things like the investment fund aspect become extremely important.

Let me say, with respect to the trading system, that a thoughtful approach, from our point of view, would be that we need a design for an emissions trading mechanism, because there is a risk of creating market distortions or of allocating improper caps to specific sectors and facilities. That process has to be done extremely well. A mechanism would require a sufficiently large market, a measurement and verification process, consistency of application, and a low administrative burden. The design of a domestic greenhouse gas emissions trading mechanism needs to be capable of eventually linking to international markets. Regional markets for air pollutants may be feasible in some regions. We can think of SO2. You don't necessarily need to stop at greenhouse gas in terms of cap and trade systems or emissions trading systems, and so on.

We do think that if the government wants to restrict itself in the first instance, we would have concerns about the liquidity of that market and the size of that market. But starting there, at some point, as Dan has also indicated, you have to link to the international trading system to get a big enough pool to operate in.

[The Chair, Conservative, Laurie Hawn]

Thank you. We'll have to move on.

Mr. Bigras, you have seven minutes.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Thank you very much, Mr. Chairman.

First of all, I would like to welcome our witnesses.

[The Chair, Conservative, Laurie Hawn]

Mr. Marikkar, we have to move on, I'm sorry. The time was up, so we'll get a chance to come back to that, hopefully.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Thank you for being here today.

Mr. Gagnier, I'm rather surprised you advocate this morning that we drop the concept of credits for early action. This week, Hydro-Quebec representatives appeared before the committee, and said that the equity principle should be respected. I think it is critical that we ensure that businesses that have achieved considerable GHG reductions, not only intensity-based reductions but absolute reductions, can be rewarded.

I would like you to explain how we could integrate the equity principle into a sector-based approach, insofar as we drop the rather hasty measures often requested by industries. We know that the aluminum industry is strongly linked to the energy sector, particularly in Quebec. How do you reconcile the fact that Hydro-Quebec is demanding rapid measures—both in the system and in the approach—while your industry, which is so closely linked to the energy sector, is not making the same demands?

[Daniel Gagnier]

In the area of electrolysis, we have a competitive edge in terms of green energy because we own our hydroelectric power plants. There are two ways of doing the calculation. There is an indirect calculation, where we look at energy sources for industrial processes. When you talk about Hydro-Quebec in particular, or BC Hydro, both have a competitive and geographic edge because of the hydroelectric basin. That is quite natural. So both provinces have an edge. Alberta does not have that edge.

In Alberta, direct emissions are generated in both the primary and secondary aluminum manufacturing processes. We would say there is not a single government in Europe, Asia, Australia or anywhere else which would tell us we were so energy efficient they would give us all the credits we wanted, retroactive to 1990. Those are Kyoto Protocol countries that have a margin, an envelope of credits to allocate. If you allocate all credits to companies that responded quickly and delivered significant GHG emission reductions, you will have fewer left to encourage the others.

We therefore believe that a more pragmatic and a more realistic approach is needed in considering what means should be applied. For example, the steel sector—which has invested hundreds of millions in reducing its GHG emissions—could be told that targets will be established by industry, but with a baseline of 1996 or 2000, rather than 1990. This would effectively compensate the sector for what it has already achieved, and put the emphasis on the future by asking what the sector plans to do in the coming years.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

This morning, you said that you could handle absolute targets, but the option you are advocating is an intensity-based one.

This week, representatives of the Toronto Stock Exchange said that an intensity-based approach could create problems. Even the Pembina Institute said straight out that the European system was based on absolute emissions, and that it would be very difficult to incorporate a Canadian carbon exchange if we opt for an intensity-based approach.

How can you advocate an intensity-based approach when some industries say that it would create administrative costs, additional costs with the market, while the EU says there would be a problem if Canada chose to go with an intensity-based approach.

I would like to hear your views on this.

[Daniel Gagnier]

We have done both calculations. There are some standards, such as ISO 14064, which Alcan has worked on, which establish benchmarks and standards to guide our GHG reduction audits. We do two calculations. First of all, we do the intensity-based calculation, which is important because it is a mark of continuous improvement. You become the benchmark in the industry.

For example, if we were to become the international benchmark for the aluminum industry, the International Primary Aluminum Institute has calculated that if the industry were to apply the average best practices of all aluminum smelters in the world, by 2017 the aluminum industry would be neutral in terms of carbon emissions. So that means we have to raise the rest of the world up to the same level of operational excellence. We do our calculation on the basis of current levels, which do not cost any more because we use a formula. So when we issue our figures, we issue both sets of figures at the same time. If you end up with a cap and trade carbon exchange, you won't be selling intensity but absolute levels.

Alcan went to the United Kingdom, France and other countries to sell absolute credits. However, in Canada an intensity-based approach makes it possible for us to continue improving emissions per pound, per kilo and per tonne of aluminum produced in our system. So we do both at the same time.

[Bernard Bigras, Bloc, Rosemont—La Petite-Patrie, QC]

Excellent.

I have one last question. On page 18 of your brief, in the last paragraph you stated, and I quote: "Sectoral approaches within Canada can be effective to build on where provinces have already taken a lead, such as with the aluminum industry in Quebec [...]"

We have always promoted a territorial approach to fighting climate change because we believe it is the most effective. You seem to be saying that on one hand you favour a sectoral approach, but on the other hand would like territory to be a consideration, that is, you would like efforts made by some provinces to be taken into account.

Do you believe there is a way—and here, I don't want to cite the European model, which establishes a critical approach, a sectoral approach and a territorial approach—to reconcile these two approaches, the sectoral approach and the territorial approach, to make the system more fair?

[Daniel Gagnier]

Yes. In Quebec, an agreement was negotiated with the government. This was an executive agreement, audited by a third party, that established a reduction target of 200,000 tonnes of CO₂. We delivered over 600.

The approach you could use in Alberta would be completely different, because your industrial focus is oil and gas. There again, targets may vary, but basically we need to have GHG emission reductions at the end of the day.

[The Chair, Conservative, Laurie Hawn]

Thank you. We'll move on now.

Mr. Cullen, for seven minutes, please.

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

This is just a point of clarification on what's happening. How much time—?