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

[Jeff Watson, Conservative, Essex, ON]

Fair enough.

Then can you tell us which sectors will be impacted by job loss, and to what degree in the next four years, if we try to meet the Kyoto target and timeline?

[Andrew Jackson]

It's impossible to answer that question. It depends on what policies would be adopted to go as rapidly as possible.

I can give you a few examples of where I think emissions could be reduced quite substantially at—

[Jeff Watson, Conservative, Essex, ON]

Can I give you a more specific question that might help that one—

[Andrew Jackson]

No, I'm just answering your question.

If we take fugitive gas emissions, for example, from the oil and gas sector, I think that's generally considered to be low-hanging fruit in terms of large emissions reductions that could be achieved fairly quickly.

[Jeff Watson, Conservative, Essex, ON]

Fair enough.

Ms. Clarke-Walker, in your presentation you said that modest initial emissions caps...so no production would be transferred to other countries without domestic environment benefit occurring. How do you square that with the Kyoto target timeline? Who will have to cut emissions under your scenario? How would you meet that target? Would that be by credits?

It's a fair enough question. Those are your words, not mine, so—

[Andrew Jackson]

We recognize that given the fact that emissions have increased very significantly since we ratified Kyoto, we will have to purchase international credits in all probability to meet our Kyoto commitment. I believe this to be the case, based on evidence that's being presented to this committee that there are bona fide international credits that can be purchased from the point of view of the global environment. Whether those emissions actually take place in Canada or in a bona fide way elsewhere is essentially irrelevant.

So we can meet our Kyoto commitment through that mechanism.

[Jeff Watson, Conservative, Essex, ON]

Fair enough.

Thank you very much.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

We'll move on to Mr. Holland for five minutes, please.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Thank you, Mr. Chair, and thank you to the witnesses.

I will start with Mr. Baker.

I'm concerned right now with the fact that recently Canada has been importing ethanol from Brazil and, worse yet, subsidizing it, which seems preposterous to me, particularly when the advantages of utilizing domestic ethanol are so clear. I'm wondering if you can talk to me a bit about this. What actions do you think the government needs to take to stop it?

[Bliss Baker]

Thanks for the question.

You're right. Under the current tax regime, there's a federal excise tax exemption on ethanol in Canada. That tax exemption applies equally to all ethanol, whether it's Brazilian, American, or Canadian, because the tax code cannot discriminate under international trade laws.

We have proposed to the federal government that it repeal that excise tax exemption and replace it with a domestic-only support program or a tax credit program that is trade compliant but applies to domestic ethanol only, thereby stopping the subsidy of imports.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Thank you.

One of the problems we're obviously going to have with biofuels, aside from the production side of ensuring that we have adequate domestic production to meet demand, is also being able to retail it, having places to retail it. Do you have any specific recommendations on what policies we should have?

I know that Sweden, as an example, made it mandatory that there be a biofuel option at every station. What should Canada be looking at to ensure that consumers have this choice when they go to the pumps?

[Bliss Baker]

Our advice to the government and our recommendation to anyone is that the renewable fuels mandate, if you will, should be flexible. If oil companies are required to contain 5% ethanol in their gasoline, then it should be up to them and the marketplace to determine where they put that ethanol. As long as there's 5%, then we're indifferent.

We think the market should decide where it goes.

[Mark Holland, Liberal, Ajax—Pickering, ON]

I have a question for Mr. Passmore, if I could.

First, I know that Iogen has been seeking for some period of time to build a plant in Canada. There was a recent announcement that the American government was giving, I believe, $80 million, and now they're going to be building a plant in the United States

What are your thoughts on the things the Canadian government needs to be doing to encourage the development of cellulosic ethanol or to help companies such as yours develop domestic capacity, as opposed to losing it to other countries?

[Jeff Passmore]

First of all, what was announced yesterday in Washington was an invitation to commence negotiations with the U.S. Department of Energy. It was not an award of funds. It was an announcement that they intend to start discussions for an award of up to $80 million U.S. That whole process will unfold as it will over the next few months.

It does not guarantee that we would build a plant in the U.S. The grant money that is being proposed is going towards the project that we are proposing to build there, but you still need to cover the debt financing component of the facility. In that case, the instrument that the U.S. government has chosen to use is a loan guarantee.

To the extent that we are talking here about tax policy, the federal government doesn't have a lot of levers at its disposal, but one of the strongest levers it has is tax policy. We've had discussions for many years with the Canadian government, looking at a combination of economic instruments. They could be loans, they could be grants, they could be loan guarantees, they could be any combination of the above. Certainly we've had a lot of support from the Canadian government with respect to cost-shared R and D and repayable contributions through the Technology Partnerships Canada program, but the Department of Finance has decided, in their wisdom, that loan guarantees are not an economic instrument that this government wishes to use. At least, that's been their position so far.

Another country where we're looking at building a facility is Germany. For the German government, loan guarantees are just a common way of doing business to encourage emerging technologies. In fact, it's such a common way of doing business in Germany that PricewaterhouseCoopers has a standing contract with the Government of Germany to manage their loan guarantee program for emerging technologies.

The U.S. government is kind of halfway in between Canada and Germany. It does not have a standing program, but it instituted in legislation in August 2005 a loan guarantee program to cover the technology risks associated with emerging technologies--not just cellulose ethanol, but the next generation of nuclear, something called coal to liquids, and so on.

We continue to have discussions, quite positive ones, with the Canadian government. With respect to the coming budget, we hope to see some initiatives put in place for the commercialization of cellulose ethanol in Canada.

[Mark Holland, Liberal, Ajax—Pickering, ON]

Just to emphasize the fact, you feel that loan guarantees are an important tool that the government should be considering using.

[Jeff Passmore]

Absolutely.

Basically, if you're looking at financing a project with a combination of equity and debt, I have a project financing bible on my desk, and there's a chapter in there that says “no new technology”--if you're a lender, do not take technology risk, because you'll go beyond a normal financing risk. You do not lend to new technology unless that debt is guaranteed by a strong credit rating, such as a government, so that's one instrument the Canadian government could use. If they choose instead to use a combination of other instruments such as grants or loans, that's fine.

I have a very quick follow-up, by the way. I'm sorry, Mark, if I'm not answering your question, but Mr. Cullen asked a question that I didn't follow up on. With respect to the life cycle analysis of cellulose ethanol, there's a very positive net energy balance in the greenhouse gas emission reductions, based on studies done by reputable U.S. government labs. The Argonne National Laboratory in Chicago, for example, looked at GHG emission reductions from cellulose ethanol in the 80% to 90% range, and in some studies it's up to 100%.

[The Chair, Conservative, Laurie Hawn]

Thank you very much.

We'll move on to Mr. Warawa.

[Mark Warawa, Conservative, Langley, BC]

Thank you, Chair. Five minutes is not enough, but that's all I have.

I have just a very quick comment. I appreciate Mr. Jackson's comments on carbon credits. Some of the witnesses who have been before this committee, for example, Professor Boyd from UBC, Professor Mark Jaccard from Simon Fraser--I'm quite sure you're aware of them--Ms. Donnelly from the west coast.... There is a common theme that we've heard about carbon credits, and I'll just quote Mr. Jaccard:

Buying credits is an option often discussed but little understood, Mr. Jaccard said. “Buying international credits in a four-year timeframe is virtually impossible because you have to buy it from someone. Someone somewhere has to have done some greenhouse gas reductions and we have to be able to verify that they did that. That is really difficult,” he said.

So that was the theme, but I don't want to go down that path. We all basically need to reduce our greenhouse gas emissions, and this government is committed to doing that.

I want to ask Mr. Passmore questions about the cellulose ethanol. I had a tour of and was very impressed with the demonstration facility we have here in Ottawa, and I'm very optimistic that it is a technology that will help us to dramatically reduce greenhouse gas emissions and to provide cleaner fuels by using, basically, a waste stock.

You have these giant bales. You pulverize the straw, and then by adding an enzyme, you create alcohol, like in a big still. You then add gasoline to come up with 85% alcohol and 15% gasoline to create what is call ethanol E85. Am I understanding that correctly?

For the benefit, maybe, of the people who are watching today, and to understand how the technology works, what can you use for a stock? You are using straw at Iogen right now. What other type of stock can you use? Is it grasses, wood? What can you use to create ethanol?

[Jeff Passmore]

Thank you very much for the question.

Let me start off by saying that ethanol is ethanol. The molecule that we make at Iogen using cellulose is the same molecule as Mr. Baker makes using grain. Ethanol is ethanol. But you're right, our ethanol comes from various feedstocks that are high in cellulose content. We can use any number of grasses.

In Canada, if you were building a plant in Ontario, you'd be using corn cobs and stocks and leaves, because we grow a lot of corn in southwestern Ontario. In the Prairies--in Manitoba, Saskatchewan, and Alberta--you'd be using cereal straw. We grow a lot of wheat and barley in western Canada, so we would use the straw from the wheat and barley.

We can also use things like switchgrass, which is a native prairie grass that grew back in the days when the buffalo roamed. The U.S. Department of Agriculture has identified switchgrass as a dedicated grass that it would like to see farmers start to grow as an energy crop on land that they're not currently growing crops on, or on marginal land where they could actually grow an energy crop such as a native prairie grass.

Your description of the process is correct. We bring in these big bales of straw, and we add enzymes. Enzymes are no different from the saliva in our mouths that helps us digest food and starts to break it down the minute we put food in our mouths. These enzymes attack the cellulose and convert that cellulose to glucose. Glucose is just sugar, so you ferment it and distill it to make alcohol.

It doesn't have to be used in an E85. Right across the country--and this is a little bit to the question that member Holland asked--E10 blends can be used by all cars today. All car manufacturers warrant up to the blending of 10% ethanol. It goes seamlessly into the existing infrastructure.

As for the E85 that you talk about, which is 85% ethanol and 15% gasoline, we have a fleet of vehicles at Iogen that run on cellulose E85. These are called flexible fuel vehicles. They exist because of U.S. law, not because of Canadian law. The U.S. CAFE standards--corporate average fuel economy--require that across your vehicle fleet, if you're an automotive manufacturer, you have to have a minimum of...I forget if it's 28 miles to the gallon. If everybody were buying Geo Metros, that would be easy. If everybody is buying SUVs, it's hard to meet those mileage standards, but you get a credit against your CAFE standards for alternate fuel vehicles. So if you can run a vehicle on 85% ethanol....

Chrysler makes them, Ford makes them, General Motors makes them. There are about, I can't remember, six or eight million of them on the road in the U.S. today. We have a fleet of E85s. I've been running my Chevy Impala on cellulose E85 for the last two and a half years.

[The Chair, Conservative, Laurie Hawn]

Okay. We'll have to cut it off there. I'd like to remind witnesses and members alike that the issue today is fiscal issues, tools.

Mr. Lussier, you have five minutes.

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

Thank you, Mr. Chairman.

I will go directly to the fiscal issue.

Mr. Thompson, or Mr. Arsenault, in paragraph 20 of your opening statement, you say that the matter of fiscal reform was discussed as part of the 2002 World Summit on Sustainable Development Plan of Implementation. In the last line, you mention “harmful subsidies”. Have you had the opportunity to examine the sustainable development plans of various departments? Have certain harmful subsidies been targeted?

[Ron Thompson]

Thank you, Mr. Lussier.

We're doing quite an intensive audit on a number of these SDSs just now for reporting on in the fall. In terms of looking at the harmful subsidies, I'm not aware that we've found them in there yet, but I've only looked at this current year's.

Perhaps Mr. Arseneault would know a little bit more.

[Richard Arseneault]

It is the same for me. I must say that it is rather disappointing when we see the departments’ sustainable development plans.

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

Disappointing?

[Richard Arseneault]

Disappointing, because one would expect that these documents be strategic documents explaining the direction they will take, detailing how they will ensure that sustainable development becomes a reality. This is a long-term objective, but we are seeing rather weak commitments on the part of departments, commitments that are not aligned with their corporate plans. Sustainable development plans must be well aligned with what the departments are attempting to deliver, but unfortunately, this is not what we are seeing. Obviously, we are carrying out a detailed audit of a certain number of strategies in order to determine if upper management within these departments is really properly involved in the development of the strategy. We want to see proof of this. At the Earth Summit, commitments were made by Canada and other countries. One would have expected a Canadian action plan, but there is none.