Bill C-30 (39th Parliament, 1st Session) Committee on Feb. 6th, 2007

[The Chair, Conservative, Laurie Hawn]

Let's call this meeting to order. Welcome to meeting number five of the Legislative Committee on Bill C-30.

Welcome to all of the witnesses.

It's going to be a full two hours, so we need to move fairly briskly. As was the case this morning, the chair will be fairly strict on the question times.

We would ask the media to take their leave, please.

We'll call on each of the witnesses to give us a statement of ten minutes or a little less if possible. That way we can get through 50 minutes of statements and about an hour and ten minutes of questions, and we'll all leave here a little smarter and better informed than we were when we came in.

Welcome, all.

Was there an announcement that you wanted to make first, Mr. Warawa?

[Mark Warawa, Conservative, Langley, BC]

Thank you, Mr. Chairman.

The members of the committee asked for specifics as to when the minister would be able to come. As I've said before, he is looking forward to coming here. He will be here on Thursday. He has changed his schedule so he'll be able to be here for the full two hours, and he looks forward to meeting with the committee members.

I don't believe we have a schedule for Thursday yet, so perhaps we could just have the minister taking up the full two hours.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Warawa.

Mr. Nantais, from the Canadian Vehicle Manufacturers' Association, are we ready to go?

[Mark Nantais, President, Canadian Vehicle Manufacturers' Association]

We are ready to go, Mr. Chair. Thank you very much.

Good afternoon to the members of the committee.

Let me say that we thank you for this opportunity to address members of this committee, specifically as it relates toBill C-30 and the changes that would be implied under the Motor Vehicle Fuel Consumption Standards Act, which is contained therein.

The direction this legislation could take could have very serious implications for our member companies, their plants, and the products that they produce right here and sell in Canada.

Given the one percent emissions contribution of new vehicles to the total inventory of GHG emissions from all sectors in Canada, we believe an overly narrow focus on regulating fuel economy alone will fail to yield the emission reductions one might anticipate.

A recommendation to you is that if the government regulates fuel economy for the 2011 model year, as was referenced a couple of hours ago by the Prime Minister, those regulations need to also be underpinned by a series of integrated and mutually supportive policy initiatives in order to achieve the significant reductions that one is expecting. The integrated approach is what the automotive industry wants to talk to you about this afternoon.

With respect to Bill C-30, the automotive sector is committed to providing consumers with vehicle technologies that deliver fuel economy improvements and can achieve sustainable reductions in smog and in greenhouse gas emissions. But to achieve the meaningful emission reductions, the sector supports a series of integrated and comprehensive actions that have been proposed in Canada to accelerate greenhouse gas reductions--and I want to emphasize “to accelerate greenhouse gas emission reductions”.

Greenhouse gas emissions related to climate change, primarily carbon dioxide, which is the primary emission when one burns gasoline from automobiles, cannot be filtered or converted by technology alone. It must rather be addressed by reducing our dependency on non-renewable carbon-based fuels like gasoline and by shifting to clean renewable alternate fuels and/or advanced propulsion technologies.

In addition to new vehicle technologies, Canada really requires an integrated strategy for cleaner fuels and fuel diversification through renewable fuels, related tax and infrastructure supports and strategies, coordinated government and commercial vehicle fleet strategies, consumer incentives to support technologies that reduce greenhouse gases, support for the commercialization of new advanced technologies, as well as incentives to help retire Canada's oldest higher-polluting vehicles.

As was the case in the reduction of smog-related emissions, fuels play an extremely critical role. Canada's strategy needs to include fuel quality standards and incentives to diversify Canada's reliance on gasoline and other non-renewable fuels.

For instance, Canada should move beyond current policies to accelerate E10 availability and to support E85 biodiesel and other fuels that can cut individual vehicle greenhouse gas production by more than 50%. Incentives and support for an alternate fuel infrastructure to provide consumers with access to biofuels such as E85, biodiesel, and ultimately, in the longer term, hydrogen are also required.

For example, while flex-fuel E85 vehicles are now widely available, and we have roughly 326,000 of those vehicles now on our roads, at minimal or no cost to Canadians, the fuels that offer the most significant reductions—and I'm talking steep reductions here—are not available.

Government and commercial fleet fueling strategies can significantly accelerate the adoption of lower emission vehicles in fuels. Federal, provincial, and municipal governments should lead by example, which we haven't yet seen, with their fleet purchases. It could be purchases of hybrid vehicles, alternate fuel vehicles, and a whole slate of other fuel-saving greenhouse-reducing types of vehicles. Fuel infrastructure and vehicle incentives should similarly be provided for private fleets as well. Attaining critical levels of these vehicles and volumes will really go a long way toward actually pulling forward some of these technologies sooner than one might be scheduled to do.

Individual consumers should be offered greater incentives to purchase higher-cost low-emission fuel-saving vehicle technologies. Canada should coordinate such incentives across the country and adopt further incentives that are used in countries like Sweden to encourage the purchase of lower-emission alternate fuel vehicles, while ensuring incentive programs promote the widest array of clean technologies.

We've seen these countries use not only regulation, in some circumstances, but integrate a series of supportive policy initiatives, all of which have produced, in the case of Brazil, for example, ethanol fuels for the entire fleet. They accomplished this some time ago.

We are now seeing that in the United States, for instance, they're not only making regulations but supplementing them with renewable fuel strategies. These may include ethanol from grain, but ultimately they will focus on cellulosic production of ethanol, which really has, on a life-cycle basis, one of the lowest greenhouse gas levels of emissions.

Driver behaviour, ranging from vehicle maintenance, tire pressure monitoring, anti-idling, vehicle speed, trip planning, can all produce significantly reduced fuel consumption. Governments should consider the educational challenges in conjunction with the focus on the provision of improved infrastructure to reduce traffic congestion and offer more attractive public transportation.

As you all may know, the auto industry and ourselves--CVMA member companies, and members of the AIAMC, who are also here today--signed a voluntary agreement to reduce greenhouse gas emissions from vehicles to the tune of 5.3 million tonnes by 2010. We're the only major sector to do so. We're on track to meet those targets, just as we have met 14 other non-regulated voluntary initiatives with the federal government.

The Prime Minister also said today that the days of voluntary initiatives are over, which sort of implies that they were not successful. I would suggest that's quite to the contrary. A lot of the voluntary agreements that our industry has signed have been very successful, and have achieved the mutual policy objectives of the government as well as the industry.

Other changes are taking place in North America, with the United States introducing what we call reformed CAFE standards. President Bush some two weeks ago made reference to this. If adopted in Canada, these new standards would lock in even more stringent and challenging standards as applied to vehicles sold in Canada.

Bill C-30 proposes new fuel consumption regulations beginning in 2011. The industry will support a harmonized North American approach to fuel economy standards that recognizes the highly integrated nature of the auto industry between Canada and the United States. Again we're talking about alignment with the U.S. reformed CAFE standards. But by adopting those standards, plus an integrated strategy, as I outlined a moment ago, we believe Canada can meet its emission goals post-2010, while ensuring a vibrant auto manufacturing sector and market for Canadian consumers.

Our industry accounts for roughly 140,000 direct jobs, and some 500,000 both direct and indirect jobs. It is very important that we look at something that is feasible and economically appropriate, given the contribution our industry makes to the economy.

Let me talk a little bit about success factors.

Supply-side regulatory approaches focused only on vehicle fuel economy will fail without related comprehensive and focused strategies for fuels, fleets, and consumers. After all, greenhouse gases from vehicles are a function of not just vehicle technology but fleet turnover, quality, type of fuel, driver patterns, and the distances we all travel. Harmonized national standards are essential and have worked for reducing smog emissions from vehicles.

There's also the possibility of cross-border sales, or leakage, as we call it, which could result in consequences to Canada if we do not assume a harmonized regulatory approach. As I mentioned a moment ago, the U.S. reformed CAFE is occurring now and will deliver a significantly more stringent standard, while balancing safety and related issues in a manner that is technically feasible.

Careful, sustained, and technologically feasible solutions are essential to avoid unintended economic consequences for our manufacturing sector, already in constant transition within a global environment. We are already fighting every day for jobs in Canada, to get new mandates, to get new investment for Canada. It's something our industry is constantly doing.

On solutions, the reforms under way to enhance the national U.S. CAFE standards provide significant challenges to our auto industry as they continue to balance technical feasibility, affordability, safety, and jobs. By ensuring ongoing harmonization through a dominant North American standard--that is, reformed CAFE--Canada will lock in an even more stringent standard because of the significantly different vehicle purchase profile in Canada, which leans very strongly toward smaller and more fuel-efficient vehicles. In other words, 30% of our fleet, the vehicles that we buy in Canada, are in the compact and sub-compact category.

Canada is also a key location for research and development in engineering and manufacturing of green vehicle technologies, ranging from Quebec's leadership in lightweight vehicle materials to Canadian development and manufacturing of fuel cells, vehicle batteries, and cellulosic ethanol. We're doing those in Canada now, as we speak.

Canada should examine strategies to strengthen and accelerate Canada's role in research and the commercialization of green vehicle technologies. You may have heard today there was the industry committee, an all-party committee, which on a consensus report put forward a number of recommendations, all of which are focused at making our industry more innovative and more competitive. When I say “industry”, I'm not just talking about the auto industry, but all sectors.

While smog-related emissions from new vehicles have been reduced by 99%--and I repeat that, by 99%--there remain over one million 20-year-old or older vehicles on Canadian roads with older technology, which typically produce roughly 37 times more smog-related emissions than today's new ultra-clean vehicles. Canada should offer incentives, we believe, to the drivers of older vehicles to retire their vehicles and consider cleaner alternatives, ranging from the new ultra-clean vehicles to the public transportation alternatives.

Mr. Chairman, I hope I've been able to convey to you this afternoon and urge members of this committee to consider what can effectively deliver real emission reductions. My outline of an integrated and comprehensive approach includes new vehicle technologies, yes, because that's our responsibility, but it also requires an integrated strategy for both fuels and fuel diversification, related tax and infrastructure fuels, supports and strategies, coordination of government and commercial fleet purchasing strategies--you can imagine the buying power one could achieve if governments, whether federal, provincial, or municipal, actually coordinated their purchasing strategies.

It's really interesting, as well, that even between departments within the federal government there does not seem to be any coordinated purchasing strategy for more environmentally friendly vehicles, for instance.

We believe that consumer incentives to support technologies that reduce greenhouse gas emissions have a real role, as does the support for commercialization of new advanced technologies and incentives to help retire, as I mentioned, these oldest highest-polluting vehicles.

From our perspective, we would much rather accelerate progress with a practical integrated plan to reduce greenhouse gas emissions through technology, fuels, and fleets, which all work together in unison, as I've discussed today, rather than to put Ontario's auto industry at risk with an arbitrary west coast fuel economy number that doesn't appear to have any valid technical or economic basis other than a desire to be different and decouple Canada from the integrated sectoral approach we have benefited from so greatly since we actually signed the Auto Pact back in 1965.

Mr. Chairman, in the interest of time I'll stop there and certainly be pleased to answer any questions the committee members may have.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Nantais.

We'll group the questions at the end. Thank you very much for that.

Mr. Kenneth Ogilvie, executive director of Pollution Probe. Sir, the floor is yours.

[Kenneth Ogilvie, Executive Director, Pollution Probe]

Thank you.

I did bring about 25 or 30 copies of my brief submission. I'll just highlight some key points rather than taking a lot of time.

I did want to make the point that this file on vehicle fuel efficiency is one Pollution Probe has worked on for at least a decade, but intensively in the last two to three years in particular.

I have three key points to make, and I'll make them up front and then give some information behind them. The first is that Canada should be joining leading nations in the design and implementation of a mandatory vehicle fuel efficiency standard. And I do mean mandatory, not a voluntary one. We can talk about that.

We need a design process to do this right. It should not be a lengthy design process. We believe we could do it within 12 to 18 months and gazette a standard by 2008 in order to apply it to the expiry of the auto sector MOU that currently exists, which would mean the 2011 model year.

Finally, we agree with what I've just heard from Mark on the need for the Canadian public to be massively engaged and educated on this topic, both leading through the design of a standard and into its implementation. The consumer plays a very strong role in making this market move.

I don't need to remind committee members here, of course, about the seriousness of the problem, given the recent release of the Intergovernmental Panel on Climate Change report and the economic issues outlined by the Stern report, so I'm not going to touch on any of that. I'm going to deal instead with improving motor vehicle fuel efficiency, which we at Pollution Probe think is an opportunity.

We don't think there is any doubt that the technology exists to significantly improve upon fuel efficiency levels while maintaining essential vehicle attributes that people value. This technology is constantly improving, and we think it will present even greater opportunities in the future.

The first point is that there are no technical barriers to improving motor vehicle fuel efficiency. We have sent to every member of Parliament a copy of our 2005 report on vehicle fuel efficiency standards for Canada. We don't think there really are technical barriers to accomplishing this job.

We also think the public is ready for fuel efficiency standards. We can certainly cite various polls, like the Strategic Counsel survey for The Globe and Mail, the Decima Research poll, the Léger Marketing poll, and so on. Canadians believe government regulations are needed to increase vehicle fuel efficiency levels, and in at least one poll they're putting this measure at the top of their list of measures to deal with climate change.

Past experience with vehicle fuel efficiency standards in the U.S. can be drawn upon, as can some efforts internationally. Again, members may be aware that the oil price shocks of the early 1970s led to the U.S. corporate average fuel economy standards, which really went to a doubling of passenger fuel economy levels between 1975 and 1985. A 2002 report by the National Academy of Sciences in the U.S. estimated that 2.8 million barrels of gasoline per day have been saved due to the CAFE standards, relative to what might have occurred in their absence. That translates into roughly 100 megatons of carbon dioxide. The academy also calculated the cumulative benefits of the CAFE to be in the range of U.S. $40 billion to $80 billion, and also found no evidence that the standards had a significant impact on employment levels in the industry.

Of course, in the United States and, paralleling that, in Canada, fuel economy levels failed to increase significantly across the passenger car fleets after the CAFE standards effectively topped out in 1985. The Environmental Protection Agency in the U.S. projects that the 2006 model year fleet of cars and trucks combined will be the heaviest, fastest, and most powerful on record, but no improvement in fuel economy levels is expected over the 2005 model year, despite rising gasoline prices. The 2006 fleet is projected to be 4% less fuel efficient than the fleet of twenty years earlier. Canada, of course, does not have a regulated standard but does track somewhat the U.S. trends.

Outside of North America, other nations are taking significant steps to improve fuel efficiency levels and reduce greenhouse gas emissions. In Europe, there's a voluntary commitment by automakers to reduce greenhouse gas emissions by approximately 25% by 2008. While some automakers are on track, many are not, and the industry as a whole is expected to fall short of the voluntary commitment, so the European Commission is seriously considering a mandatory target for 2012.

In Japan, automakers are ahead of schedule in meeting a 2010 commitment to reduce fuel consumption by approximately 23%. A second round of reduction targets is being finalized now, and it is expected to require reduction in fuel consumption levels of an additional 23.5% by 2015.

So this gives us a sense of scale of what's going on out there.

China is implementing a range of measures. Australia has made some progress toward fuel consumption reduction. In California, of course, we know the standards have been set to reduce new vehicle fleet emissions by approximately 30% by 2016, with ten states preparing to follow California if those standards come into effect.

The actual costs of meeting regulations have been studied in the past, environmental regulations in general and auto sector in particular. I quote a U.S. Natural Resources Defense Council report that found that “the auto industry and its allies have overestimated the actual costs” of meeting standards “by a factor of about 2 to 10 times the actual costs”, while regulators have historically overestimated costs by as much as two times.

As I said in the beginning, Pollution Probe recommends that a world-class fuel efficiency standard should be designed for Canada over the next 12 to 18 months. “World-class” means benchmarking against the leaders out there. California's is not the most aggressive standard in the world, but it is one benchmark that's worth careful consideration, and there are others.

We believe the standard should be gazetted by 2008, to have legal effect for the 2011 model year. In agreement with some of the words that Mark put forth, we think a parallel suite of complementary measures should be developed to help Canada achieve the standard and provide for further reductions in levels. And by “complementary measures”, we mean such things as fuel efficiency labelling; consumer information and awareness programs; retirement programs to accelerate the replacement of older, more-polluting vehicles; incentives and measures to pull cleaner technologies into the market; and support for research and development on new cleaner automotive technologies.

In other words, the standard doesn't just stand by itself. It as to be attuned to the Canadian market and to Canadian circumstance and opportunities, but it should be forward looking, not defensive. It shouldn't be just trying to parallel what the U.S. federal government has recently announced. We should look at our own interests, look at our opportunities and get the most economic and social benefits out of the standard, but definitely work toward a very clear leadership position on a standard.

Right now, Canada has an obligation to do this, to share its expertise, and to put into effect a really good standard. Leadership by governments is something the public is demanding now, we believe, and we think the public is going to be in a position where they want to see hard numbers and hard targets, not general discussions on where we should be going. We urge all parties to come to some agreement as part of this process on the need for a standard and on some targets and timelines.

Thank you.

[The Chair, Conservative, Laurie Hawn]

Thank you, sir.

We'll now turn to Buzz Hargrove, president of the Canadian Auto Workers Union.

[Buzz Hargrove, President, Canadian Auto Workers Union]

Thank you very much, Mr. Chairman and members of the committee, for the opportunity to be here today to present the position of our union.

I'm here on behalf of about 150,000 people who work directly in the industry, as well as tens of thousands of others who work in related industries and rely on a successful production system in Canada's most important industry for their jobs.

First let me say, considering the Clean Air Act, Bill C-30, I believe the committee's responsibility, and the government's, as my colleagues have said, is to strengthen our country's commitment to environmental sustainability. Our union supported the Kyoto accord when it was brought out. We still support the principle of international obligations, and we believe it is the only road to take if you're going to deal with global warming or reduce greenhouse gases. It's a lot longer and tougher than we had anticipated, but we still believe that it is the only road to take collectively, as a world of nations.

I just read about three weeks ago in Time magazine that in Japan, including the city of Kyoto, in which the accord was adopted, carbon has increased by 8%, in spite of some of the major efforts they've made. They still have a problem, and it is a much larger problem than we have.

I do want to say to the committee members that this is a human problem in terms of what the impact of the environment is on the people of Canada and our neighbours. It's also a human problem in terms of how it impacts on the people who work in the industry.

The major manufacturers who invest in this industry are General Motors, Ford, and Chrysler. They provide 80% of Canada's investment in the auto industry, year after year. They provide 80% of the jobs. They buy almost 85% of the automotive parts that are made by traditional manufacturers, mainly in the provinces of Ontario and Quebec, and by some minor operations in other provinces. They're all struggling. Each of them will lose big time in their North American operations in 2006 and 2007. At the end of 2006, Ford announced a $12.7 billion loss on top of losses from the year before, and they're saying they can't turn the corner until 2009. Whatever we do, it can't be so onerous that it takes already crippled companies that are providing jobs for people and undermines their ability to survive.

I want to reinforce what my colleague from the CVMA said, which is that our industry is responsible for about 12% of greenhouse gases but that if we look at the vehicles produced in the last two or three years, you're talking about 1%. If we could get rid of all the vehicles that were built more than five years ago, the auto industry would have no need to even be talking to us about our commitment and what we've done. We are still willing to work with the government and work with others to try to improve our record.

In our view, the government should put in place standards that will drive environmental improvements in the vehicle industry. The standards need to be achievable, effective, and constructed in a manner that compels improvements at the same time they strengthen Canada's automotive industry. Other countries around the world are adopting tougher standards, but there's a lesson in it for us. In doing so, they are adapting standards that strengthen their industry. Each country is different. There's no uniformity in the European nations, in Asia, or in the United States as to where they go. We have some examples, but I won't go through them. If somebody wants to raise the question in our presentation, Mr. Chairman, I will be glad to deal with them.

I do want to raise a couple of points that have created a problem for us. Our major competition right now, which is killing us, is Japan, South Korea, and the European Community. They're areas of the world that want to build and ship into North America--the most open market in the world--but they won't accept any vehicles being sold back into their market. Where they do, they offset those by exporting themselves. Less than 5% of vehicles sold in Japan are built outside of Japan, and you can't get in no matter what you do unless you're wealthy and willing to pay a huge price to get over the barriers that are there and to buy a very expensive car. In Korea it's less than 3%. In the European Community it's about 12%.

In 2006 the European Community imported about 2.7 million vehicles as that 12%, but it exported 3.3 million vehicles, so it's a net exporter.

For the last 25 years, our country has had the most successful auto industry of any place in the world—quality, cost, productivity, and profitability. We meet every standard. This year we're going to have the first deficit in over 20 years, because of the lack of government recognition of our problems. So in looking at and talking about standards, the government must consider what it's doing to the jobs of Canadian workers in this industry.

We're in favour of new fuel economy standards, on the basis of reviewing the strengths and weaknesses of our domestic industry, and of developing standards that recognize the influence of the U.S. market on our production. We're the only country in the world with an auto industry that is fully integrated with that of another country that is 90% larger in market and production. We're also in favour of establishing standards by market class that will promote and reward technological developments, rather than encourage product substitution.

Because of our development under the 1965 Auto Pact, we build the major big vehicles—minivans, crossover SUVs, pickup trucks, and large cars—and the vast majority of these are shipped to the U.S. Mr. Chairman and committee members, two-thirds of the 2.5 million vehicles built in Canada last year were in the largest size categories.

More than 80% of the engines we build in our plants are V8 engines, and the rest are V6. We do not build a four-cylinder engine. To take a V8 engine plant and build one to produce the four-cylinder engines requires at least $1 billion, and you need to have a market for the fours that is not there today. So those things can't be ignored.

Despite our strong sales last year, our production fell by about 4%. Production has fallen from a peak of over 3 million units in 1999 to less than 2.5 million last year. We've lost over 500,000 vehicles per year from our peak, or 17% of our production, without any threat from mandatory standards that the industry cannot meet.

We are losing jobs in assembly. We are down from our peak in 1999 by 6,000 jobs, and we're down some 7,000 jobs in auto parts. We also have several thousand other jobs scheduled to be lost this year. Jeff Watson will tell you that in the city of Windsor there are over 2,000 Ford workers, and Chrysler's going to make an announcement next week that will also have a major impact on Windsor and Brampton. So our industry is going through incredibly tough times.

I'll end with our union's proposal, Mr. Chairman. We support fuel economy standards. We support the principle of mandatory fuel efficiency standards. In 2003 we joined with one of the political parties and a major member of the environmental community to sign a commitment to improve fuel efficiency standards by 25% by 2010, for the 2011 model year.

We still support a 25% fuel efficiency move, but it must be across all classes of vehicles. It can't apply so that some companies with smaller car or smaller engine production can take advantage to the disadvantage of others. So if it covers small cars, large cars, SUVs, and minivans, it will get us to the same point and not give advantage to some producers over others. We believe that we can reach this by 2014, if my colleague from Pollution Probe was correct and the technology is there.

The industry should be forced to do it. We also have to have enough flexibility as a government to say the industry has put its best foot forward and we've gotten part way there, but it may take a little more time. But I believe the standard is still achievable.

Regarding renewing the fleet, I won't repeat.

Regarding getting old vehicles off the road, I raised this with Mr. Flaherty. Currently we have incentive programs to improve houses, whether it's replacing windows and doors or putting all kinds of things in place to cut down the use of fuel. The same principle applies here.

The quickest way to reduce greenhouse gases in Canada would be a major program to get older vehicles off of the road. I believe the industry should be required to offer incentives. General Motors already does for vehicles over 20 years of age. If you scrap the vehicle—and I mean scrap it, so it can't come back through a used car dealer—they offer a $1,000 incentive on top of every other program.

We also support and propose a new fee rebate program called the green vehicle transition fee. It will be assessed on each manufacturer that sells into our market, based on each company's total Canadian sales. Under our proposal it would be $500 per vehicle. It would be earned back by those companies that make Canadian investments in green automotive technologies.

Finally, reducing greenhouse gases means reducing the amount of fossil fuels we consume. In addition to greater fuel efficiency and new technologies, we need a transportation strategy that will increase the availability, firstly, and the use of alternative or renewable fuels and reduce the use of vehicles overall. This requires investment in clean and alternative fuels, and major investments in mass transit, rail, as well as other efforts to reduce gridlock.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Laurie Hawn]

Thank you, Mr. Hargrove.

Representing Climate Action Network Canada, we have Mr. John Bennett, director, atmosphere and energy, from the Sierra Club. Mr. Bennett.

[John Bennett, Director, Atmosphere and Energy, Sierra Club of Canada, Climate Action Network Canada]

Actually, I'm here on behalf of the Climate Action Network Canada as executive director, so two jobs.

I first want to thank you for the opportunity to present the views of the Climate Action Network. We're an organization of over 50 environmental, labour, faith, and aboriginal organizations that was founded in 1989 to call attention to the impact of climate change and to contribute to developing policies, practices, and regulations to reduce greenhouse gases.

I realize today's session is about transportation, and I'll make some specific recommendations regarding the Motor Vehicle Fuel Consumption Standards Act. However, I'd like to begin by reminding the committee that the Climate Action Network has submitted a list of necessary recommendations for changes to Bill C-30, and we hope you'll consider them as you go forward.

The recent IPCC report makes it clear beyond any doubt that climate change is happening and that human activity is causing it. It's incumbent upon all of us as stewards of the earth to do all in our power to reduce greenhouse gas emissions as rapidly as possible. I also remind the committee that Canada has a legally binding commitment to abide by all the terms of the Kyoto Protocol. We are not free to pick and choose convenient sections and claim we are complying. The target of 6% below 1990 levels is a promise we made, not only to the world of today, but to the world of tomorrow. So Canadians are watching and they're demanding real action. We hope that through this committee we'll see some real action for a change.

Before I move on to cars, I'll just say that Bill C-30 is only part of what needs to be done, and would echo the comments that have been made previously about the need for a comprehensive approach to climate change as well as to transportation. I'll have specific recommendations to the Motor Vehicle Fuel Consumption Standards Act, but it has to be done within the context of a wider program to promote better use of transportation throughout the Canadian economy.

I'd also like to point out that the automotive industry has a long history of opposing every single regulation that's ever been proposed. If we had taken their advice, we would not have seat belts, energy-absorbing bumpers, airbags, or catalytic converters. None of those things were economically possible or warranted, according to the industry as we went through time, and now we're still hearing similar arguments.

The industry has had to be regulated at every turn. Fuel economy regulation came into force in the 1980s, and it's very interesting listening to Mr. Hargrove explain the present state of the automotive industry in North America. I know all of us aren't, but I'm old enough to remember the late 1970s, and Mr. Hargrove's description of the industry was absolutely the same in 1979. At that time the U.S. government was proposing fuel economy standards, and the industry was saying they couldn't do it, it wasn't fair. They didn't want to have a standard that meant they all had to do the same thing. Because of the oil crisis at the time, the U.S. government went forward, and as a result the fuel economy of cars increased over 100% in a decade.

Since 1990 we've had about a 7% improvement in fuel economy, despite huge amounts of money being contributed by the Canadian government and largely by the United States government to help the industry develop fuel efficiency technologies, which have not been put into the vehicles.

You can also find quotes from the early eighties from the president of Chrysler reminding the industry that fuel economy standards probably saved Chrysler. If you remember back in 1979, Chrysler actually went bankrupt and had to be bailed out by the U.S. Congress, but the fuel economy standards forced them to redesign their vehicles from large gas guzzlers to the K-car that morphed into the minivan and was the engine of Chrysler's huge resurgence of the last 20 years. So I don't think we need to be so concerned about the present state of the industry when we know that in the past regulation has actually improved things for them, not hurt them.

I'm going to leave with the clerk a section of a report called The Initial Statement of Reasons, published by the California Air Resources Board in August 2004. The section I'm going to submit has a complete list of all the technologies and an examination of the cost factors that led the California government to conclude that the standards it was proposing for 2009 were both economically and technically achievable.

The California Air Resources Board has looked back on its 50-year history of regulating cars, and it has repeatedly proven that its suggestions in terms of the actual costs of complying with its regulations are far closer than the costs suggested by the industry. So I would like to just leave that on the record.

As for some specifics in terms of the Motor Vehicle Fuel Consumption Standards Act, of course you realize this act was passed in 1981 and has never been proclaimed. The government has suggested in its Bill C-30process to actually proclaim it and bring it into force. Unfortunately, in the act itself it doesn't mention exactly what it does, other than it gives the minister the authority to set a target. We think that this committee should write into the act the initial target and make a few changes. I'll just list them for you.

First, it should replace the notion of classes and provide a combined target for cars and light trucks. It's the fleet that we want to reduce the fuel consumption of, the overall fleet, not individual vehicles in different classes. A class system will lead to gaming, as we've seen in the United States. There, an extra couple of hundred pounds of weight are added to vehicles so that they become out of class, in a different class. We don't want to see that type of gaming. We want a combined target. We want to see a number embedded in the act for the 2011 model year of 6.7 litres per 100 kilometres for a combined fuel economy for each fleet. We want you to create a section in the act that will require from there an annual improvement of 4%, so that from now on the vehicle fleet will constantly be being improved. It will be one of the things the car companies are required to do.

We would also like to see you—and I think Mr. Nantais would approve of this suggestion—write a provision into the act that if the U.S. rules have the equivalent effect, car companies can abide by those rules in Canada.

We would like to see you require the Governor in Council to establish fuel economy standards for medium-duty trucks. One of the fastest-growing areas of emissions in Canada is medium-duty trucks. These are the UPS diesel trucks you see on the streets in town. These are ideal candidates for using hybrid systems because of the stop-and-go use of them. They are running on diesel and there are no regulations governing them. We would also like to see the Governor in Council have the authority to establish fuel economy standards for heavy-duty trucks. For both classes of trucks, we should also embed a 4% improvement annually henceforth.

This way, we can put this to bed right now and the details can be worked out later, but we'll have a system in which the automotive sector is constantly improving its products and constantly improving its efficiency. That's something that we need to do. The government recognizes that it needs a long-term target going out to 2050. Let's establish a step-down process and not go back to this process every five or ten years and have the same fight over and over again.

I'll be glad to answer any questions.

Thank you very much.

[The Chair, Conservative, Laurie Hawn]

Thank you very much, Mr. Bennett.

Our final witness will be Mr. David Adams, president of the Association of International Automobile Manufacturers of Canada. Mr. Adams, the floor is yours.

[David Adams, President, Association of International Automobile Manufacturers of Canada]

Mr. Chairman and honourable members, thank you for the opportunity to appear before you today, and a special thank you to Mr. Watson and Mr. Godfrey for their role in securing my attendance before the committee today.

Our belief is that it's important to hear from our side of the industry as well, because in terms of regulating the automotive industry we are looking at a product compliance issue, not a stationary source issue, as we are in other industries.

By way of background, in 2006 the 13 members of the Association of International Automobile Manufacturers of Canada, who come from Europe, Korea, and Japan, sold over 733,000 new vehicles in Canada, representing 45.5% of Canada's new vehicle market. Additionally, our members sold 61% of all passenger cars in Canada, with fully 50.5% of all sales to consumers.

While our member sales have grown, so has their Canadian investment and employment commitment, with fully 77,000 direct and indirect jobs responsible from our members' involvement in the Canadian economy.

Our members have invested over $6 billion in manufacturing facilities alone. Annual production reached a record of 900,839 new vehicles in 2006, with over 697,000 of those, or 77%, being exported out of the country.

Importantly, a higher percentage of our members' products built in Canada are also sold to Canadians. For instance, 56% of the vehicles that are built at Honda of Canada manufacturing are sold to Canadians. Fully 84% of the vehicles sold in North America by Honda are built in North America by Honda.

On CAC emissions and greenhouse gas emissions, even though the number of vehicles on our roadways will continue to increase, as pointed out by Mr. Nantais earlier, cleaner vehicles will be replacing older vehicles, allowing smog-causing emissions to drop from 9.5% in 2005 down to less than 5% in 2015.

On greenhouse gas emissions, 12.6% of all greenhouse gas emissions arise from the 18.7 million vehicles on the road.

Much of the success enjoyed by the AMC member companies in the marketplace can be attributed to the fact that these companies focus on producing and marketing both affordable and premium fuel-efficient vehicles, incorporating the latest advanced technologies, resulting in reductions in greenhouse gas and smog-causing emissions. Indeed, AIAMC member companies were award winners in eight of ten categories in the EnerGuide Awards for fuel efficiency.

They also continue to research and introduce hybrid technologies, advanced diesel technologies, fuel cell technologies, direct injection technologies for both gas and diesel vehicles, alternative fuel technologies, and the application of lightweight materials, among others, with the goal of reducing the impact of the motor vehicle on the environment.

The proposal under Bill C-30 is to amend and promulgate the Motor Vehicle Fuel Consumption Standards Act. The members of the AIAMC have a demonstrated commitment to providing consumers with vehicle technologies that have delivered real-world fuel efficiency improvements, with attendant reductions in greenhouse gas emissions. Our commitment in this regard will continue.

However, some advanced vehicle technologies are more costly to incorporate into vehicles, and incentives to offset these technology premiums should be considered by government, while being as technology neutral in their application as possible.

Regardless of the employment of any of these new technologies in new motor vehicles--the vehicles subject to regulation--as pointed out by Mr. Hargrove and Mr. Nantais, this will address only 1% of Canada's greenhouse gas emissions. Therefore, in order to address significant emission reductions from the remaining 99% of emissions from the on-road light-duty fleet, other policy levers or incentives need to be exercised.

I'd like to talk about fuel quality for a moment. The quality of Canadian fuels has been a longstanding concern to the automotive industry. While tailpipe emissions from the vehicle are being regulated to increasingly stringent standards, there is no nationally regulated standard for the quality of fuels. Therefore, while vehicle manufacturers are required by regulation to provide a lifetime emissions control performance, there is no federally regulated fuel quality standard pertaining to the fuel that is burned in these vehicles to support the regulation of the vehicle's hardware. The regulation of fuels will benefit not only the introduction of advanced technologies but will also be a significant contributor to the reduction of emissions from the entire on-road fleet.

The lack of high-quality diesel fuel is inhibiting the introduction of advanced diesel engine technology, which has a potential to lever significant GHG emissions benefits.

The use of alternative lower-carbon-content fuels such as liquid propane gas and compressed natural gas and renewable fuels such as ethanol and biodiesel is an important factor in achieving significant life cycle reductions in greenhouse gas emissions. In this regard, the AIAMC members are supportive of the government's renewable fuels mandate that would require fuel producers and importers to have an average annual renewable fuel content of at least 5% of the volume of gasoline that they produce or import beginning in 2010, with a 2% renewable content for diesel following 2012.

The notice of intent pertaining to Bill C-30 appears to contemplate a systems approach to the regulation of Canadian fuel, vehicle, and engine air pollutant regulations in alignment with the U.S. standards. Whether in reference to renewable fuels or traditional carbon-based fuels, national federally regulated fuel standards should be an important objective of the proposed Clean Air Act.

In our view, it is inexcusable that the notice of intent with respect to Canada's renewable fuels mandate on December 30, 2006, suggests that fuel quality issues are best left to private industry rather than imposing these specifications through regulation.

In summary, unlike many of the other sectors addressed in the climate change debate, our industry is a consumer-facing one. Emissions from our products are both the function of technology and consumer choice, factored by vehicle kilometres travelled. As a result, to be effective, government policy must address all of the variables. This leads to issues not only of regulating the product but influencing consumer behaviour through fuel prices, vehicle choice and use, and other alternatives.

Canada also cannot ignore the fact that its automotive industry is integrated on a North American basis with respect to both vehicle manufacturing and vehicle sales. With a Canadian sales market of just over 8% of the entire North American market, unique fuel consumption regulations and an integrated production and sales market are problematic.

Discussions with the government to date pertaining to the regulation of the automotive sector have confirmed that the regulatory approach in Canada will be consistent with that of the United States, so as to allow manufacturers to continue to produce and sell vehicles for the integrated North American market.

A fuel economy regulation for Canada that is aligned with that of the United States provides the least disruption in the marketplace and best balances consumers' purchasing requirements pertaining to vehicle utility, vehicle safety, fuel economy, and emissions. Regulation in Canada linked to the U.S. reformed CAFE would have the effect of imposing a more aggressive standard, given the smaller size of the Canadian fleet.

Those are my remarks. Thank you very much.

[The Chair, Conservative, Laurie Hawn]

Thank you very much, Mr. Adams.

I think we have just enough time to get everybody in, if we keep moving. We will be fairly strict on the timing.

Mr. Godfrey, for seven minutes, please.

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

Thank you very much.

Thank you all for coming.

Hearing you collectively, one might draw this conclusion, but if anything is wrong with my summary, please correct me:

Firstly, there is no connection, historically, between the problems that the North American auto sector has and the introduction of environmental standards or safety standards. Sometimes the claim is made, but historically, over time, the claim has been disproved.

Secondly, it would seem, at least in some cases—cited by Mr. Bennett and confirmed by Mr. Adams—that not only is there no negative correlation with the imposition of environmental standards, there seems in fact to be a positive correlation, and it is one of the explainers of the success of Mr. Adams' group of companies. Fuel efficiency has not proved to be a barrier to sales; it has been, in fact, an incentive.

Thirdly, when we did impose, as part of the North American process, fuel efficiency standards at the end of the 1970s and the early 1980s, the industry could get there very fast. When we took our foot off the throttle, we failed to make the improvements we could have continued to make over that period of lost time.

The question I'm going to ask the auto sector is, first, if my summary of the past 25 years is correct. Second, given the urgency to not allow what happened in the 1990s to continue--that is to say, the decline in fuel efficiency, which we didn't want --is there anything in the suggestions of Mr. Bennett or Mr. Ogilvie that suggests that we can't meet, as we have before, historically, the more aggressive fuel efficiency targets that are being discussed here today?

I put it to Mr. Nantais and Mr. Adams. If Mr. Hargrove wants to come in, that's fine too.

[Mark Nantais]

Mr. Godfrey, let me begin, if I could. Others will possibly join in after.

I think we have to remember here that sales and market share are being fiercely competed for as we speak. Every vehicle manufacturer has a full slate of fuel-saving technologies that are more fuel efficient. There are different perspectives on what the historical scene has been, both in terms of why things happened or didn't happen in terms of fuel efficiency, or the fact that the auto industry has resisted regulations. That's not true. In fact, the auto industry has actually been responsible for the development of things like catalytic converters and what not. It was the development by one company sharing them with other companies that actually got us to catalytic converters on vehicles, which resulted in huge-step reductions in emissions.

Now, of course, we have a different scene. We have a different circumstance out there. We have people now who are clamouring for more fuel-efficient vehicles. Why? Certainly some of the references to climate change and IPCC reports, for instance, obviously have put a different perspective out there, and a fairly persuasive one. But they're also responding to fuel pricing in the marketplace, which is something they've had in Europe and other jurisdictions. There they have always had a smaller, more fuel-efficient fleet because they've had proper high fuel pricing signals in the market. We've never had that in North America, and we still don't have it in North America, quite frankly.

It's very difficult to bring forward and sell vehicles that are more fuel efficient when you have fuel prices that are relatively low. It's very constraining on us to sell these vehicles, which is why we're saying that we need this full suite of supporting policies. It's clearly stated and clearly documented by various studies that fuel pricing is probably the most effective means to reduce greenhouse gas emissions in the transportation sector. That's well documented. But we don't have that, and nobody seems to have the political will to do that.

We're saying that if we can move forward, recognizing the integrated nature of the North American market, the integration of our industry, the fact that we are looking at a more stringent fuel economy standard in the United States.... And we're not kidding when we say that it's a challenge. There are always reports, as I say, that we are overestimating the costs. Well, all of our studies I know have been done by independent research and consulting firms. The fact of the matter is we don't have high fuel prices, so we have to look to this other slate of supportive policies. Clearly the economic impact and the fact that we can bring forward these technologies on an integrated basis at less cost to Canadians means that we can ultimately make it more affordable for them. Being more affordable means that they can buy more of them, which is why we have a higher percentage of smaller vehicles in our fleet.

We have to consider all these things and provide these vehicles in a way that people can afford them and turn over the fleet as fast as we can, which takes us to the point about the higher-polluting vehicles. We also have to look at the co-benefits here. If we're turning over the fleet, we get real safety benefits. All of the reductions in fatalities and serious injuries to date have been primarily due to the technology we put on our vehicles. If we could turn over the fleet now, you would see a 50% reduction in those fatalities. That's tremendous.

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

If we work on those other factors, that is to say, the other cost factors and so on, does the North American-based industry have the capacity to respond to the challenge and produce vehicles every bit as fuel efficient and in as timely a manner as those of your imported competitors, even though some of them are manufacturing here?

[Mark Nantais]

Let me tell you about that. We all have those technologies. It's not those companies versus ours. We all have those technologies. You have full slates of hybrid technologies coming to the fore. You have various other technologies, right through to fuel-cell technologies. So it's not them versus us. We all have them and we're all moving forward with that because we're all competing very fiercely in the marketplace for market share, and that's what's bringing those technologies to market.

[The Chair, Conservative, Laurie Hawn]

Thank you, sir.

Monsieur Bigras.

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

Thank you very much, Mr. Chairman. I want to thank the witnesses as well. We'll be hearing from a broad cross-section of witnesses who will give us some insight into issues such as climate change and greenhouse gas emissions within the automobile industry. We'll be hearing from all of the major stakeholders.

It's clear from its notice of intent that the government wants to wait until 2010 before regulating Canada's automobile industry. On the one hand, Mr. Nantais informed us that members of his association favoured a voluntary approach. On the other hand, the MOU between the automotive industry and the government contained a number of provisions that I would like to review with you. Article 9 of the MOU reads as follows:

The Parties agree to interim GHG emission reduction goals of 2.4 Mt in 2007, 3.0 Mt in 2008 and 3.9 Mt in 2009, to be measured against the Reference Case for the subject year. Commencing in 2005, the Canadian Automotive Industry will report its projections for GHG emissions for the coming model year by November 30.

Have you reported your projections for GHG emissions?

[Mark Nantais]

The entire auto industry, every vehicle manufacturer in Canada, signed that agreement. There is no requirement to report publicly in the first year. We did so with the public report without having to do that requirement. So the first real report is for the 2007 model year in 2008. We have not missed any requirement to report. We fully intend to meet every interim target that is stated in that memorandum of understanding.

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

You are obligated to report your projections. Do you feel that your projections are in line with the targets set out in the MOU between the government and the automotive industry?

[Buzz Hargrove]

If I could, Mr. Chairman, on that, we attended a meeting that was chaired by Mr. Flaherty and that was attended by Rona Ambrose, who at that time was the environment minister. Mr. Bernier and Mr. Lunn were there. There were a number of others there and the total industry was represented. The minister agreed at that meeting that the early reporting of the industry not only had met but had exceeded the standard for 2005 and 2006. So it has been reported. Whether the government has made it available or not is another question. The wait until 2010 is out of respect for an agreement that was signed between the Government of Canada and the industry. So any law, any regulation, should take place after 2010.

In response to John's question, there are two ways to get at issues. One is to let the market dictate what's going to happen. If we left that here, we'd be in big trouble. In spite of all of this rhetoric about how concerned people are about greenhouse gas and vehicle purchases, CTV on February 1 conducted a study. I'll just make one point. In fact buying a vehicle that was better for the environment ranked 23rd among 26 factors for purchase. So people talk one way and act another. Another survey said that everybody, huge numbers, want the government to do something about the environment. Then they asked the next question: “Would you accept higher fuel prices for your home heating oil?” The answer was no.

The market won't take care of it; regulation hasn't. And the industry has resisted, but it has never resisted getting there; it has always resisted the timetable to get there.

I just want to correct Mr. Bennett. I appreciate him giving me credit going back to 1979. I may look that old, but I'm not. I was not the spokesperson for our union in 1979. I got elected in 1992, but I recall that period, as a union representative, when Chrysler was facing bankruptcy. It was only after Lee Iacocca made a statement. He made a lot of statements. I would like to show you the contradictions of Mr. Iacocca. All you have to do is read his book.

We're for fuel efficiency and we're for Kyoto, but we're for an intelligent path to get there that doesn't disrupt our industry. Right now the importers and my colleague Mr. Adams, on behalf of the importers, talk about the vehicles we build here and what we sell here as we undermine those who put the new investment and jobs here. He never mentioned the fact that his country, where they build and ship--25% of the vehicles sold in North America are built in Japan or Korea or Europe.... They never mentioned why they won't let anybody sell theirs. It's very nice to come here, and in addition to being here and selling, to ship over two million more vehicles from your home country in here and throw a lot of people out of work. That's not logical and not acceptable, I wouldn't think, to the committee.

[The Chair, Conservative, Laurie Hawn]

We'd like to bring it back to the issue of Bill C-30 and stick to that topic, if we could.

Go on, Mr. Bigras.

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

Thank you, Mr. Chairman.

Some predict an economic disaster -- specifically in terms of job losses -- if Canada were to adopt measures and standards comparable to the ones adopted in California. Some countries, notably in Asia, have opted for higher standards. How is it that this approach can work in a market like California's, which is comparable to the Canadian market, and yet not in this country?

[Buzz Hargrove]

If I could answer again, Mr. Chairman, California makes up about 10% of the North American market. Canada is slightly under 10%. Over 60% of their market in California is bought from Japan or South Korea or the European Community, so they don't have any industry to speak of. They have one assembly operation. So Governor Schwarzenegger can say he's going to bring in tougher standards, and it doesn't throw a lot of people out of work. There are three or four other states that do the same thing.

We have an industry that is so successful that we produce one and a half vehicles for every one we sell. Why would we want to throw a lot of people out of work? This is not California. It's a much different environment.

Look at Japan. Thirty percent of the vehicles sold in Japan are mini-cars that are subsidized by tax writeoffs to get people to buy them. But the industry makes no money. The next 30% are the smaller vehicles they sell there, and the remaining 40% are the largest ones, and they're sold, 95%, by Japanese producers in that country. The only way they make any money is that 80% of their profit is made by taking the larger vehicles and shipping them to North America, or in addition to that, by coming to North America, producing here, and selling here.