Bill C-30 (39th Parliament, 1st Session) Committee on Feb. 27th, 2007

[Mark Warawa, Conservative, Langley, BC]

Okay. Thank you.

Dr. Keith, you mentioned also that “Kyoto” stood in the way. Again, without dealing with the word “Kyoto”, but with achieving the objective of dramatic reductions of greenhouses gas emissions, you've said that success depends on how well we regulate, how well it's managed.

We're on Bill C-30, Canada's piece of legislation, and we want to know how to make it better. Do you have any specific recommendations on improving the wording and regulations? Bill C-30 includes a legislative framework, but also a notice of intent to regulate. So do you have any specific recommendations on how it can be strengthened?

[Dr. David Keith]

I think the crucial thing, and the lesson from other regulatory regimes, is you need a regulation simple enough that it gets through to the engineers in a company, not the lawyers—and no offence to lawyers, as I love them. But the advantage of something that sets a clear carbon price—a tax, or a really unequivocal cap and trade—is that people stop lawyering and the engineers in the company actually start thinking about how to reduce their operating costs, which is what they're trained to do, and they do that under a carbon price.

There's enormous evidence from the U.S. NOx market of that success. We previously had a command and control regulation, and after the NOx price mechanism was introduced, people found all of these other reductions they had never looked for before, because the guy in the central office would phone up the power plant manager and say, this NOx is costing us, and people would actually think about how to do adjustments to reduce it.

So my overwhelming thing is that we must set a real price.

I guess the other issue is to set a target. We need to set a target that begins to bend the curve of emissions growth down pretty dramatically, because I think the rest of the world will, and should, move quite quickly towards managing this problem. Canada needs to do its part, and in some ways more than its part, to really manage the climate problem.

But I think the issue with Kyoto is that it involves grandstanding on the television everyday, which goes on here and everywhere else. We need to get beyond arguing about Kyoto in this country and argue about what we're actually going to do to cut emissions.

[Mark Warawa, Conservative, Langley, BC]

Great. Thank you.

Mr. Kaufman, to move forward with carbon capture and storage, we're looking at existing infrastructure and also at new infrastructure as technology.... Well, Dr. Keith has said we already have the technology, and he's encouraged us by saying let's start cutting metal and building it.

What's the cost of building new infrastructure, as opposed to retrofitting existing infrastructure? What are the dynamics here, particularly in getting investors to invest in existing infrastructure, not in creating it?

[Stephen Kaufman]

It's an excellent question.

In theory, going at some of the existing facilities could conceivably be cheaper, because we have some hydrogen production areas where we have relatively pure CO₂, and you may have heard that capturing CO₂ from hydrogen plants already there is easy to do. Well, it's easy to do, but it's not easy to send a bunch of welders into a 30-year-old plant you're trying to keep operating. So the costs of retrofitting, in fact, in our estimation, are dramatically higher than the costs of doing it in a new facility.

A large part of the ongoing operating costs of CO₂ capture and storage involve energy use. We have to apply a calculation that says if we reduce 100 tonnes of CO₂, we can only really count for, let's say, 85 tonnes of reduction, because we have to buy some more electricity from TransAlta or EPCOR, and that puts CO₂ in the air. So it's a very energy-intensive process.

If you design it into a new facility that's being built, whether an oil sands upgrader or a coal gasification plant or a refinery, then you have an opportunity to do a much better job on energy efficiency and an opportunity to use a better scale of technology that's less expensive.

[Mark Warawa, Conservative, Langley, BC]

Thank you very much.

That's it.

[The Chair, Conservative, Laurie Hawn]

Okay. We'll move on to the five-minute round.

Mr. Godfrey for five minutes, please.

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

I want to pick up on a point that David Keith made, the fact that we used to be in the lead on carbon capture and storage and now we're not. The question is, how do we get there again?

The challenge I'm hearing from the witnesses—unless I'm missing something—is that this is such a crucial technology, an enabling technology unlike like any other. We find ourselves almost in the same situation we were during World War II, when there was a shortage of natural rubber. We just said, we've got to build an artificial rubber plant in Sarnia, we're going to call it Polysar, and it's going to take us 18 months. Or we needed a breakout technology in the destructive world, and we did the Manhattan Project. I mean, we just got on with it.

I'm trying to reconcile what seems to be an extraordinary opportunity here with the attitude, don't mandate, don't specify; just put in the signals and the best technology will emerge.

So I'm asking, Dr. Keith, if we're going to do the Manhattan Project on CCS without telling anybody what to do, how do we privilege the choice?

[Dr. David Keith]

That's a great question, and I wish I had a really great answer.

I think if you'd asked me a few years ago, I would have stuck to the idea that you just have to put in a price or a regulatory cap and trade. I have no big opinion between them. I think the reality in a relatively small country is that we do need to do some level of picking technologies. But we need to be very careful about how we do it.

One of the reasons I said the Australians and the Norwegians are essentially ahead of us in this technology now--and the Australians have actually had auctions for pore space--is because they're smaller countries and they just freely picked winners.

We have to be very careful about that. I certainly wouldn't advocate picking CCS as the overall winner, because I don't think it is. I think the potential for wind power, say in Quebec, is just huge. And there are many other ways throughout the economy that we can squeeze carbon out. CCS is by no means a magic bullet.

What I think we need to do is this. On the one hand, we ought not to pick winners, but on the other hand, we really do need to get over the hump and incent a couple of projects. I think we need to get industry to be the principal agent on those projects so an individual industry player really feels it has its survival, or at least the economic viability of that project, at stake.

There is a problem with government demonstrations. They sometimes demonstrate that technology is more complex than it really is. If industry really is doing something, they do it in a simple way, if they're watching their costs.

I think we should look at mechanisms that don't choose an individual winner such as ICON--not that I have anything against it, I think it's a great project--but that provide a prize for the first major projects to actually begin putting CO₂ in the ground for storage.

For example, I've had conversations with some senior people at NRCan suggesting that we not have a reverse auction, but we actually say there is going to be a certain number of dollars per tonne for the first x million tonnes you put in the ground through storage. Then that number goes down. That automatically gives an incentive to first movers. The first movers get the high price and the later movers get the lower prices.

You also have to think about oil prices. There was a comment about the very large profits the oil companies are making. That depends on a fluctuating oil price. If you want to craft a policy that provides a prize for CO₂ storage, you might want to have that prize go down as oil prices go up.

At this point we could see oil prices go back to $30 a barrel and the oil companies could have a much less profitable year. On the other hand, we could see nuclear weapons used at a Saudi terminal and we'd have a price of $200 a barrel. Nobody knows what is going to happen.

You need to put a policy in place that doesn't bind you, and the policy should essentially give less incentive at higher oil prices.

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

Are you sufficiently convinced about the maturity of the technologies that we could put a regulation in tomorrow--or at some point--that all new major carbon-emitting facilities be built, not with a facility to capture it, but capture-ready? In other words, you just set aside enough land and you make sure the pipes line up. It's a whole lot cheaper than actually putting in the rest of the system, but at least it's also a lot cheaper than having to do it later.

[Dr. David Keith]

It's tempting. There has been a lot of talk about capture-ready in the last five years. But after our first few years of being excited, when you really talk to the leading industry consultants there is less there than meets the eye. Capture-ready is pretty fuzzy when you get down to what you'd actually do in the prices.

I'm skeptical about a hard command and control regulation because things are so heterogeneous, particularly in the oil sands where each project is really different in various ways. I think a command and control for some parts of electricity might be more plausible, but I think we have to be very careful.

My instinct is that we need strong regulation and some incentives to get individual technologies going--not just CCS, but other technologies as well--but probably not something that is a one-size-fits-all regulation. I think there's a lot of evidence that this doesn't work that well.

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

Thanks.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

Mr. Jean for five minutes, please.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Thank you very much, Mr. Chair.

I'm actually going to take up the same topic, in essence.

Mr. Kaufman, I understand, of course, that most of your costs are proprietary, but I'm wondering, you're the only person at the table who didn't answer what the cost of carbon sequestration would be. We heard last week from the Pembina Institute that it would be around 70¢ to $1.20. In essence, it's a dollar range per barrel to sequester carbon.

But after doing some research, I also discovered that it seems to depend a lot on how much you sequester, how efficient it is, as Mr. Keith said, and other issues.

Quite frankly, we've heard evidence that oil sands cost recovery is about $25 to $30 per barrel, compared to the Saudis, whose cost is about $1.50 to $3 per barrel. I have heard and seen other things in my research that indicate carbon sequestration could actually cost about $8 to $10 a barrel.

I'm not asking for specific proprietary information, but I'd like a range. I'm sure you have 5 or 10 or 50 or 100 engineers who go through and cost this out. Could you give us a range as to what it would cost?

[Wishart Robson, Nexen Inc., ICON Group]

Thank you. You're right that an awful lot of numbers are being thrown around lately on what the cost of carbon sequestration would be. I was here last week when the Pembina Institute gave out those numbers, which I believe were not for sequestration but for buying your way into compliance through the use of offsets. I wouldn't want to confuse numbers presented as offsets and carbon sequestration numbers.

Because we represent a number of companies that produce different industrial products, ICON has tended to use the common denominator of dollars per tonne of CO₂. That's because we have people who produce electricity, bitumen, synthetic crude, different minerals, and hydrogen, and we need a common denominator to do that. It is up to individual companies to do their project-specific work on the cost of carbon capture and storage for their operations. Particularly with reference to the oil sands, as Dr. Keith has said, each of the projects is very different, whether you're in mining or SAGD, or whether you're doing gasification, a minimal amount of upgrading, or a significant amount of upgrading. That all enters into the calculation of what your sequestration costs will be.

As a group, ICON has not gone into differentiating that because we wanted to present a common front. But I understand the interest in having a number like that. Some of those discussions have taken place within the industry association on a very informal basis, quite apart from the association of companies known as ICON.

Gasification is a very topical issue in the oil sands. There was an article in the paper this morning about the amount of natural gas from the Mackenzie delta that could be diverted to the oil sands. There is also the fact that the Alberta government sees value in the petroleum coke and asphaltenes that are byproducts of the oil sands operations. There is interest in that gasification process.

We looked at gasification for a new facility, and costs would be in the range of $4.50 to $7.50 per barrel for a complete system. I don't know if any one company has done those calculations, but my company has started to look at those for our subsequent phases. We believe the cost for a new generation project with collection of CO₂ from gasification would be in that range. I do not want to leave you with the impression that that would involve 100% capture, because there are other sources of energy, including some natural gas.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Is it fair to say that to retrofit an existing plant would be much more expensive than that?

[Wishart Robson]

Yes, and if you went after post-combustion, it would be significantly more expensive.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Are you talking about it costing twice as much for a retrofit?

[Wishart Robson]

I haven't looked at the retrofit numbers myself, but for the work we've looked at, both in ICON and out, it would be more than double for the post-combustion capture than the numbers I just gave you.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Looking at both ends of the equation, you talked about natural gas coming from the Northwest Territories. Wouldn't it make more sense to have an integrated approach with provision of energy such as nuclear or some other form for SAGD, and save natural gas to be used as clean-burning energy in homes and other things? We've heard nuclear battered around, and I know this is about tools, but I think saving on the front end can be just as good as saving on the back end. I"m curious as to ICON's interest in that particular method.

[Wishart Robson]

That has not been the point of the group getting together in ICON. We've been looking strictly at the carbon capture and storage issue, the infrastructure in place, and the infrastructure that's planned over the next 15 or 20 years. We haven't discussed other forms of energy for the oil sands.

[Brian Jean, Conservative, Fort McMurray—Athabasca, AB]

Has your corporation looked at nuclear as a possible form?

[Wishart Robson]

I'm not aware that we have.

[The Chair, Conservative, Laurie Hawn]

Monsieur Lussier.

[Marcel Lussier, Bloc, Brossard—La Prairie, QC]

Thank you, Mr. Chairman.

Mr. Kaufman, in your brief, you mentioned that Bill C-30 must seek to encourage CCS, or CO2 capture and storage.

Could you tell us how?

[Stephen Kaufman]

Thank you for the question. On some of the specific challenges in developing Bill C-30 into regulations, the government has asked for responses on it, and we provided a letter to the Minister of the Environment in December regarding the new Clean Air Act. It outlines some of the areas that we felt needed to be addressed.

In particular, we don't believe the targets should be prescriptive in choosing one technology over another. Companies need to be allowed to have flexibility and choose the right way for them to achieve reduction targets. We also believe that an offset system is an important element, because it could be a less expensive tool for companies to use in achieving their targets.