Economic Relationship between Canada and the United States Committee on March 16th, 2021

[Mark Agnew, Vice-President, Policy and International, Canadian Chamber of Commerce]

Chair and honourable members, it's a pleasure to appear before the special committee on Canada-U.S. relations. Likewise, it's good to see some familiar faces from the international trade committee around the virtual room. The chamber looks forward to working with this committee at all stages of its work on Line 5 as well as on the other matters it will take up in future studies.

For those I have not met before, my name is Mark Agnew. I'm the vice-president, policy and international, at the Canadian chamber. I'll be splitting the opening remarks with my colleague, Aaron Henry.

Members of the committee know the importance of Line 5 to Canada's energy security and economic competitiveness. In conversation with our members on the priorities we need to advance in the North American context, energy issues are a foundational element. Foreign policy and international relations can seem abstract at times, but Line 5 is a tangible issue with a real impact on Canada, as we'll explain in a few moments. Although others have said it before, it is worth underscoring that Line 5 is not Keystone XL. We were disappointed to see Keystone XL's permit cancelled, yet Line 5 is materially different as a piece of infrastructure already in use.

Disputes between the closest of allies happen. Although ideally we would resolve our disputes through diplomacy and advocacy with U.S. decision-makers, history has shown that this is not always the case, as we've seen with softwood lumber. We welcome the government's efforts on this file, and encourage it to continue to make the case that Canadian and, importantly, American interests are well served with Line 5 in operation. However, it does on occasion become necessary to use treaty-based mechanisms to protect our interests, as we have seen with other bilateral irritants in the North American context.

I will now turn it over to my colleague, Aaron Henry, to discuss in more detail our views on the situation.

[Aaron Henry, Senior Director, Natural Resources and Sustainability, Canadian Chamber of Commerce]

Thank you, Mark.

I'm going to jump right into it. Some of what I have to say is a reiteration of the last session.

In short, revoking the easement and shutting down Line 5 will create significant repercussions for the Canadian and U.S. economies. It will put a strain on Canada's transportation infrastructure and jeopardize North American energy security. There will be short-term implications and long-term implications.

Line 5 moves 540,000 barrels of fossil fuels a day through Canada and the U.S. It should come as no surprise that it generates significant economic benefits for both nations, to the tune of over $65 billion of direct revenue and $28 billion of indirect revenue in annual trade. It supplies central Canada with gasoline, jet fuel and heating fuel. The economic activity it generates in Sarnia alone supports 29,000 jobs directly and indirectly. It also delivers more than 50% of Michigan's propane demand and provides crude to key Midwestern refineries. Without it, both Canadians and Americans will face higher energy costs, temporary shortages and further economic pressure from the strain on our transportation systems.

There is no alternative to Line 5, as was said. Simply, the capacity to absorb the products moved through it does not exist. Looking at that range, up to 2,000 tanker trucks or 800 railcars a day would be needed to absorb the displaced product. Industry groups in the U.S. have warned that there is not capacity in the trucking industry in terms of drivers or trucks to absorb the propane that it ships, to say nothing of crude. It's a similar case in Canada.

What is absorbed through alternative measures will come with heavy costs. Canadians and U.S. commuters will face congestion, heavier traffic and greater safety risks. Companies that rely on rail to ship goods will face increased competition due to the shortages. In terms of economics, it will cost twice as much to transport fossil fuels by rail, and four times as much to do so using trucks.

I can't stress enough that Line 5 as interstate and international infrastructure is critical to North America's energy security. Our shared energy security is important, not only for the prosperity of our nations but also with regard to our shared climate ambitions. Losing Line 5 and relying on rail, tanker trucks and marine transport will greatly increase scope 3 emissions associated with Canadian energy products. By scope 3 emissions, I'm referring to the additional emissions that will occur if oil and gas products currently moved by Line 5 are instead moved by rail, tanker trucks and ships. This will undermine the efforts of both our nations to advance our ambitious climate targets. It will also force Enbridge to adjust its detailed plan to achieve net zero, which includes using hydrogen and renewable natural gas products. In the future, these fuels could potentially be blended with the natural gas products that move through Line 5 today.

Today Line 5 provides critical energy security for responsibly produced energy products. Tomorrow it could play a role in scaling decarbonization amongst the businesses and retail customers it serves.

The team Canada effort and support behind Line 5 are what we need to continue. We want to underscore that the future of Line 5 will shape North America's energy, economic and climate future. We encourage the federal government to continue its bilateral engagement with the Biden administration to seek a swift and amicable resolution. The scope of the issue and its impacted parties make this a matter of federal negotiation. Working together, we can make sure the shared interests of our nations come first.

Thank you.

[The Chair, Liberal, Raj Saini]

Thank you very much for your opening comments.

We will now proceed to the Canadian American Business Council for five minutes.

Go ahead, please.

[Maryscott Greenwood, Chief Executive Officer, Canadian American Business Council]

Thank you, Mr. Chair and members of the committee.

The members of this committee and I share a singular focus. In my case, it takes up almost my entire professional life.

We all know that while Canada-U.S. relations are pretty sound and we enjoy all sorts of historical advantages, our business is not conducted to a soothing background chorus of Kumbaya. No, the relationship has always been guided by self-interest, and you know there have been times when our leaders didn't even like each other very much.

We don't have to wait for history's judgment to know that the past four years were a nadir, so to speak. We experienced a trade war. One of our members at the Canadian American Business Council is the A. O. Smith Corporation. It manufactures water heating and treatment equipment and was the target of trade retaliation by Canada, presumably because of its significant corporate presence in the home state of the chairman of the Senate foreign relations committee.

Yet despite all the chaos—or perhaps because of it—Canada ended up with a very good result out of the last four years. Canada emerged with a modernized, updated version of NAFTA. The deal is now the gold standard for the world.

Now, how could that have happened in such a tense and challenging time? The simple answer is that Canada recognized the power of economic self-interest and did an excellent job of leveraging it. When the president threatened to tear up NAFTA, Canada responded to the existential economic threat by going on the diplomatic equivalent of war footing. It focused on U.S. interests and made it exceedingly clear to members of Congress what the economic cost would be in their districts and states. Let's not forget: Canada is the number one customer for U.S. exports.

During the most intense periods of the trade negotiations, you could find no daylight between government and opposition, between feds and provinces, between unions and companies and public opinion. In the end, Canada came out the other side not just intact, but with an improved and enforceable trade agreement, blessed on both sides of the aisle in Congress.

Now we have a return to diplomatic normalcy. President Biden shares a certain amount of political vision with the Prime Minister of Canada, and most Canadians are comfortable with his values. Some in Canada are no doubt relieved. Maybe they think they can relax, or that the world is realigned on its axis, or that natural comity can be relied upon to ensure that economic security and happiness occur. That would be a mistake.

As you know, various statesmen have asserted that nations have no permanent friends, only interests. I like to think that what Canada and the United States share is friendship, but there is something to that quote. One need look no further south than Lansing, Michigan, right now. Last November, Michigan governor Gretchen Whitmer announced that she was revoking the state's easement for Enbridge's continued safe operation of the Line 5 pipeline across the Straits of Mackinac, as you know, and of course, on his first day in office, President Biden killed KXL.

The difference is that KXL was under construction and still a work in progress. Line 5, on the other hand, has been safely delivering millions of gallons of Canadian crude oil and natural gas liquids to American and Canadian refineries for nearly 70 years.

I should pause here for a moment and make a disclosure. Enbridge is represented on the CABC board, and I do work for the Government of Alberta in Washington.

In any case, Line 5 supplies more than half the propane that Michiganders in both the upper and the lower peninsulas use to heat their homes and businesses each winter and to run their businesses throughout the year. The propane is also consumed throughout the region in Wisconsin and Ontario.

The jet fuel loaded onto planes at Pearson airport in Toronto, Trudeau airport in Montreal, Detroit Metropolitan airport and Pittsburgh International Airport comes from the crude that is transported through Line 5. So does a great deal of the gasoline sold at pumps in Ontario and Quebec.

Line 5 provides an essential service, period. Minister of Natural Resources Seamus O'Regan has called its operation “non-negotiable”, but the fact is that Minister O'Regan has no jurisdiction in Michigan. Governor Whitmer has demanded that Line 5 be shut down by mid-May. Her attempted revocation of the easement and her attempt to shut down this pipeline are currently being argued before a U.S. federal court.

To Governor Whitmer, this is about protecting the environment, and I think it's fair to say that is a priority for Canada, too, and for the CABC. We and our members support carbon transition policy and the goal of reaching net zero by 2050. Canada and the United States are co-operating on multiple environmental initiatives—vehicle emissions, carbon capture and utilization, and methane reduction, to name a few—and there will be an important leaders' climate summit hosted by the White House on April 22.

However, economic self-interest remains any nation's immovable object. We are still reliant on oil and natural gas. The plain fact is that if Line 5 is closed down, Michiganders, Ohioans, Pennsylvanians, Ontarians and Quebeckers will find some other way to import the hydrocarbons they need to fuel everyday life. More barges and tanks loaded with crude will appear on the Great Lakes. More trucks full of crude will enter our highways.

As this committee knows, Line 5 at the straits has never leaked, and Enbridge is in the process of making it even safer. Governor Whitmer's own administration recently approved permits for Enbridge to route Line 5 through a concrete-lined subterranean tunnel that it intends to bore under the lake bed. We should not let energy projects with regional and international economic importance become litmus tests for anyone's allegiance to protecting the environment. Actually, there is simply no safer way to transport crude than by pipeline.

Meanwhile, Canada needs to keep thinking in war footing mode—yes, even in the Biden era—and not just to protect Line 5. We need regulatory harmonization if we are going to have the most effective economic rebound. We need to reopen the border as soon as vaccines make it safe to do so. We need agreements to collaborate on PPE manufacturing and vaccine distribution. Rather than competing, we have to co-operate. That is what's in the economic interest of our citizens.

Canada and the U.S. are at our best when we are arm in arm. We cannot allow ourselves to be lulled into suddenly thinking everything will be fine. Governor Whitmer has provided a wake-up call.

Thank you very much.

[The Chair, Liberal, Raj Saini]

Thank you very much for your comments.

We'll go straight to questions.

Mr. Lewis, you have six minutes, please.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much, Mr. Chair.

Thank you very much to the witnesses. Those were fantastic remarks.

If I get to all three of my questions, great, but I have two specifically that I would like both witnesses to respond to, please.

The witness in the last panel spoke about how it's very much a one-way conversation. Michigan does all the talking, and apparently Ontario and Canada have to do all the listening. I find it very interesting that there's not more of a bilateral approach to this. As we all know, both economies rely so strongly on each other.

Take the auto assembly industry as an example. Chrysler is just outside my riding. I believe parts of a vehicle actually go back and forth on the busiest international bridge seven times before they're assembled to make one vehicle. That goes both ways: in Ontario—in Windsor-Essex—and in Michigan, downriver. That doesn't even include the supply chains and the manufacturers that go along with it.

To each of our witnesses, what economic impact do you see with regard to jobs and losing jobs, specifically with regard to Canada bleeding and hemorrhaging jobs out of our economy? What impact do you see?

[Aaron Henry]

I'm happy to jump in first, unless Ms. Greenwood would like to respond.

I think the way this would play out is that there would be both an immediate impact and a longer-term impact. The immediate impact comes down to the fact that at the moment, we have only 14 refineries in Canada that are capable of making gasoline. All together, five of those are impacted within either Line 5 or Line 9 in Quebec.

In that initial period where you've lost all that capacity from Line 5, where it's displaced, you're going to see costs increase for those refiners. You're going to see a lot of contingency plans and potential shortages and disruptions. All those things will disrupt the labour forces involved within that sphere of activity directly, and will probably have opportunity impacts as well.

Eventually, if we were in that sort of dire straits situation, a new supply chain would stabilize, but then you're going to see knock-on effects. You're going to find that the cost of fuel has gone up. The cost of jet fuel has gone up. The cost of heating homes in most of Quebec has gone up. All those things will have these knock-on impacts. It's sort of an initial disruption followed by what might be called a slow bleed.

The other thing I really want to put in context is that in some respects, as we are engaging in these policies to decarbonize and move forward, that has actually already put a lot of pressure on many of these different segments. For instance, our refiners right now are in the kind of world where they have to deal with massive disruption while they're also trying to plan to make significant upgrades to comply with the clean fuel standard. You're going to see a lot of capital required for all those steps.

If you take away that energy security at the critical moment, you're going to find that it carries impacts. You'll then find that those impacts also go throughout the entire value chain that Line 5 and Line 9 ultimately produce. That will be a long-term impact.

[Chris Lewis, Conservative, Essex, ON]

Thank you, Mr. Henry.

Madam Greenwood, go ahead, please.

[Maryscott Greenwood]

The important thing to think about is that for this project, the story isn't over yet. For me it's difficult to tell you the overall job impact. We don't quite know yet what will occur.

In the long run, a transition to a low-carbon economy is something that can create a lot of jobs. Whether you think about the transition to electric vehicles, to battery recycling, or to other sorts of things like that, there is an economic impact that is good for the environment and also positive from a jobs point of view. That's the needle that policy-makers in Canada, the United States and around the world are trying to thread.

The challenge with this is that if it were to just stop instantly, the impact would be pretty dramatic. People would make adjustments, but it would be pretty difficult if the governor, for example, were able to just turn off a pipeline.

That's not how our infrastructure works really. We have a system under which this is being challenged in the courts. The courts are going to say whether or not a single jurisdiction has the ability to thwart an interstate and international infrastructure project, so—

[Chris Lewis, Conservative, Essex, ON]

Thank you very much, Ms. Greenwood. I'm sorry to cut you off, but I have one more question.

As a very important point now, our last presenter spoke—and I believe you did, as well—about how 540,000 barrels would have to go by railcar, ship and/or truck. The last witness mentioned upwards of 15,000 trucks a day. I think Mr. Henry mentioned some 2,000.

One more truck on the busiest international bridge is not only going to interrupt production—

[Simon-Pierre Savard-Tremblay, Bloc, Saint-Hyacinthe—Bagot, QC]

Mr. Chair, we have not been hearing the interpretation for about two minutes.

[The Clerk of the Committee, Ms. Erica Pereira]

Mr. Chair, it appears to be working.

[The Chair, Liberal, Raj Saini]

Okay. Carry on.

[Chris Lewis, Conservative, Essex, ON]

Thank you very much. I will be brief.

It's not only going to affect production, manufacturing and the supply chain; it's also going to very much affect our nurses, our doctors, and our business folks who are trying to get across the border. It's going to completely congest transportation at the busiest international border crossing.

Mr. Henry, do you have any comments on that?

[Aaron Henry]

Yes, I absolutely do. It's 540,000 barrels per day. It's an incredible amount and volume, and the capacity's not there. That's something we would like to put emphasis on.

Canada is focused on its COVID recovery. We still have uncertainty at that border. If you were to put this in place, looking after Michigan's propane from the Superior terminal alone would create significant bottlenecks. You would find massive delays.

Even if we were even able to find that volume of truckers and trucks equipped to do this, it would add to the overall flow of goods unnecessarily. I think that would carry both economic and supply chain resiliency costs. That would have impacts for other essential things that we need to cross those borders and that we currently have a mechanism for.

The other impact, of course, is on overall transportation resiliency. Costs have yet to be calculated with regard to the risk of potential spills and also just in terms of the sheer amount and volume of traffic on the road. That's especially across the U.S.-Canada border, but also to move products to the Sarnia hub and then into Quebec. Those are all impacts that hit commuters. They hit other industries. It would be a significant cost.

[The Chair, Liberal, Raj Saini]

Thank you, Mr. Lewis.

Next we'll go to Madam Bendayan for six minutes.

Go ahead, please.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Mr. Chair.

Thank you to our witnesses. It's nice to see some familiar faces.

Just before this esteemed panel, we had the pleasure of hearing from Enbridge. During the testimony, we heard that there were very productive conversations between Enbridge and Premier Ford and between Enbridge and Premier Legault, and that both premiers were very supportive of the project and, of course, of Line 5. We heard similar things regarding the conversations between Enbridge and Minister Freeland, Minister Garneau, Minister O'Regan and other high-level officials from our government, and we certainly heard about the support of our government for keeping Line 5 in operation.

What we also heard from Enbridge—and I'm quoting here—is that they are looking and are very hopeful for “a mediated and negotiated diplomatic solution that takes us out of the hands of the court”.

I was wondering if I could have the comments of Ms. Greenwood in particular in terms of what the question really relates to, because in addition to all these government officials working hard on this case, of course, we know that the Detroit and Michigan chambers of commerce are also very much supportive of keeping Line 5 open.

My question is, how can you, as a chamber of commerce, work hand in glove with American chambers of commerce in order to achieve a successful “negotiated diplomatic solution” between our two countries?

[Maryscott Greenwood]

The way we can be the most helpful at the Canadian American Business Council is to broaden the conversation outside of Michigan. There is great awareness, as you point out, in Canada—in Ontario and Quebec in particular, and in Alberta of course. There is awareness in Michigan about the pipeline and the current challenges, but there isn't as much awareness in Ohio, Indiana, western Pennsylvania and other places in the United States that would feel an immediate impact if the pipeline were shut down overnight.

Having the conversation outside of Michigan or in addition to Michigan is important, as is having the conversation in the context of a very serious commitment to protecting the Great Lakes and to safeguarding the environment, so that people understand that this is an effort to actually further protect the Straits of Mackinac and not to roll it backwards. It's not an old “economy versus the environment” kind of dialogue anymore.

[Rachel Bendayan, Liberal, Outremont, QC]

Thank you very much, Ms. Greenwood.

I'm not sure, Mr. Agnew, if you had anything you wanted to add to that particular point. If not, I have several other questions.

[Mark Agnew]

To come in really briefly on that, there are two ways in which it's beneficial to work with chambers in the U.S. One is the information sharing and getting their insights, both to inform the work we're doing and to have the intelligence that we can pass down to our members.

Likewise, we can equip them and arm them with the facts of the matter and the Canadian perspective, to have them be our advocates on the ground, because certainly an American advocate has a lot more resonance with an American decision-maker.

[Rachel Bendayan, Liberal, Outremont, QC]

That's very interesting. Thank you for that, Mr. Agnew.

I believe it was Mr. Henry who mentioned these statistics: 800 railcars per day or 2,000 tanker trucks per day. This was cited by Mr. Henry as a possible alternative should Line 5 no longer be operational. There were also some references to statistics involving the increased costs.

I wonder if you could table with the committee that information and wherever you were able to get those statistics from. Would that be possible, Mr. Henry?

[Aaron Henry]

Yes, I'm happy to do that after the discussion.

[Rachel Bendayan, Liberal, Outremont, QC]

In your opinion, given this information, would that have an impact on passenger rail, for example? Can you expand a little on collateral damage?

[Aaron Henry]

I don't believe that there necessarily would be a direct impact, let's say, to the cost of passenger rail, but there would certainly be more traffic on the lines, and that can create delays and other impacts.

Really, what we would be doing, if this were to come to pass and you ceased using Line 5 and put in these alternative methods, is just moving from a very low-risk, very cost-effective and low-emission means of moving a product to one that carries a lot more consequences.

[Rachel Bendayan, Liberal, Outremont, QC]

Absolutely. We have heard that before, and of course I think you understand how I feel and how various members feel about the importance of meeting our emissions targets. It was something you mentioned in your opening statement.

If you have any emissions approximations under the alternative scenario that you describe, we would be very interested in hearing about that as well in the documentation you will file with the committee.

I have one last question, Mr. Chair, if I have time, for Ms. Greenwood.