Environment Committee on Nov. 23rd, 2006

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

Mr. Myers, would you have any problem with the prescription as laid out by John?

[Dr. Jayson Myers]

I am pretty skeptical with respect to the extent that we can realize real emission reduction here in Canada within the Kyoto timeframe when it comes anywhere close to even beginning to reduce emissions from the current levels.

As I said, the rate at which we would have to invest in new technology and replace technology, which is what we have to be focusing on, goes well beyond the Kyoto timeframe right now. And I agree with John that the longer we wait, the more important buying emissions credits will be.

Certainly, put in place a regulatory framework that encourages improvements in emission intensity. But that's a long-term target, and I don't think we're going to be able to achieve that by 2012. If we are going to be within the Kyoto framework, if it is to meet that target, we really wouldn't have very many options to do that other than to purchase emission credits, and I would think the best way to do that is to make sure we have the most effective investments in international projects that actually lead to emission reduction. I would imagine a very large part of our international aid budget should be then targeted on climate change and emission reduction.

I think those are important.

Frankly, every country can't be buying emission credits from around the world, because that's just saying it's not our responsibility. At some point you have to focus on domestic emission reduction, and we need the type of framework that provides that incentive for making technological progress. It's a long-term issue.

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

I'll go back to John Drexhage. I have two questions.

If we got on the case as quickly as we could in terms of the regulatory environment, do you think by the end of 2012 we would begin to see a perceptible, measurable reduction of greenhouse gas emissions and a direction that we would project to the future, that would take us to the right place? In other words, the issue of turnaround time with capital investment is at stake here.

The other question is, what is your reaction to the whole language that Jayson uses quite fulsomely in his document about energy intensity? Do you have a problem with that? Does it need to be modified in some way to make sure we're not postponing something that we could be doing earlier?

[John Drexhage]

On the first question, in terms of anything that would be perceptible, let me be as concrete as possible. I think the two most important initiatives that you could do from a capital investment perspective are carbon capture and storage and sending up the signals on that as quickly as possible, particularly Alberta and Saskatchewan; and a clean energy east-west line, getting Churchill Falls, getting Manitoba, getting clean coal out of Saskatchewan and Alberta, and starting an east-west clean energy transmission.

I think if there were some sort of commitment to begin doing that, whether through tax credits or through some program funding, leveraged through industry, provinces, and feds, that would be a significant signal that the international community would respect and we could begin tracking real changes and reductions after 2012.

The intensity question I'm extremely sympathetic to. Canada is not like other OECD countries; in fact, that was the theme of the side event that we sponsored at Nairobi. We share a uniqueness with Norway and Australia in the sense that we are energy exporters, unlike the rest of the membership of the OECD. But too often, energy intensity, as happened so often in this debate, becomes a code word, a code word for really not taking on larger reductions.

I would just note that in the notice of intent from the government, it makes it very clear that for the medium target for 2020 to 2025, the intensity targets that are set now provide a sufficiently clear signal so that a transition to an absolute target is feasible and realistic by 2020. So it needs to send a signal, in any case.

[The Vice-Chair, Liberal, Mario Silva]

Thank you.

I know Mr. Myers wanted to have a few words, but there actually will be a second round.

Mr. Godfrey wants to speak a second time in the second round, so there will be questions.

Mr. Lussier.

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

Mr. Chairman, I will split my time with my colleague, Mr. Ouellet.

Gentlemen, I thank you for your presentation; it was very interesting. It is not easy to concentrate in the middle of all this noise.

I will first direct my question to Mr. Bertrand.

I would like to know if, in your opinion, the Montreal Exchange has a good chance of being named the official exchange of Canada with respect to climate change.

Could you tell us how this would be an advantage for the Exchange and what factors are in its favour?

[Luc Bertrand]

Thank you, Mr. Lussier. I will give you two answers. First, I can tell you that the Montreal Exchange is ready. As soon as a regulatory framework, a registry, quotas, and specific reduction targets are in place and the infrastructure is clearly determined, we will be ready for action. If the government decided to entrust the private sector with the management of the registry, the Montreal Exchange could handle it. We have the necessary mechanism to do so, in co-operation with our partners in Chicago. In strictly practical terms, I might add that, within three to six months, we could provide the Canadian market with the necessary structure to trade greenhouse gases.

We are talking about launching a new exchange, but it should be understood that this is basically an exchange that will be incorporated into the Montreal Exchange’s existing infrastructure. This is our area of expertise. We understand the futures market and the options market. We have been working in this area for a very long time and we have the necessary expertise to set up such a system quickly and then manage it. I say this very candidly: we are the only ones in Canada who have the ability to do so.

With regard to knowing whether the Montreal Exchange should be named the official climate exchange, allow me to explain a few subtleties. I do not believe that it is the role of government to designate the exchange in question. I believe that the exchange that is designated should be the one that is the best equipped and has the necessary capacity and infrastructure to provide this exchange space as quickly as possible with the best self-regulating framework possible. Other Canadian exchanges could very well decide to position themselves in this market. It would then be up to the market to decide which one provides the best service offer.

We have signed an agreement with the Toronto Stock Exchange to the effect that we would not compete with each other until 2009, but the fact remains that there is no monopoly in Canada. Every day we compete with giants such as the Chicago Mercantile Exchange, the Chicago Board of Trade, the Chicago Board of Options Exchange and the International Securities Exchange. In terms of competition, we are constantly being bombarded. Competition is at an all-time high.

Nevertheless, I believe it is very important to understand that if the Canadian market is not set up...

[Mark Warawa, Conservative, Langley, BC]

On a point of order, Mr. Chair, the chair was Mr. Silva, and it's been filled by somebody who--

[Pablo Rodriguez, Liberal, Honoré-Mercier, QC]

Yes, he went to the washroom. That happens.

[Mark Warawa, Conservative, Langley, BC]

Thank you.

[Luc Bertrand]

I want to clearly emphasize the fact that if the government does not provide us with the required framework to launch this market, the market will go elsewhere. Actually, it has already begun to do so. Canada’s largest emitters are already active on other exchanges. It is understandable: they want an economic value to be tied to the efforts they have made to reduce their emissions. In my opinion, it would be disappointing if Canada failed to take the lead in this area, as the United Kingdom has done. It should position itself in this market and keep it in Canada.

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

We have been told that investors would actually like to have the choice of going elsewhere, to other countries.

The implementation of such regulations has an impact on investors. Does it also have an impact on the price of a tonne of carbon?

[Luc Bertrand]

Obviously, the regulatory structure can have a serious impact on the ultimate determination of market prices. If Canada wants to be competitive, it will really have to catch up with what is happening in countries that have implemented effective mechanisms, particularly in Europe.

We hope that the regulatory framework will be as close as possible to the modalities that exist in Europe and will eventually be implemented in the United States. The objective here is that there be fungibility between the situation in Canada and that which prevails in other countries. I think we would be doing a disservice to our large corporations and to our Canadian multinationals if we failed to adopt a regulatory structure comparable to what can be found in Europe.

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

I will now give the floor to Mr. Ouellet.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Mr. Bertrand, you know that the development of the oil sands is generating large quantities of greenhouse gases. This is perhaps what we should begin to address.

If, with regard to the oil sands in the West, the government were to set a reduction standard, do you think that the Montreal Exchange could respond quickly enough to fill this market, this need? In other words, could the price help the oil sands industry innovate, as Mr. Myers mentioned earlier?

[Luc Bertrand]

Perhaps I can answer your question by saying that there are participants who are very close to the Montreal Exchange. I mention as an example UBS Warburg, a major Swiss corporation, which, as a matter of fact, is the Montreal Exchange’s largest shareholder. This corporation has just announced a $3 billion fund in order to contribute to climate exchanges like the one we are trying to launch. We maintain very close ties with these people, as well as with Morgan Stanley. The latter has also just announced a major investment fund. Goldman Sachs, Citigroup, Barclays, all these major investment banks are in the process of implementing services that will make liquidity accessible.

Let me get back to the question of a regulatory framework. The system must be structured according to the standards that are beginning to be applied at the international level. However, if the ceiling is set at $15, it is obvious that this will destroy the market. Actually, I believe that the Montreal Exchange would then have to revisit its strategy.

I am convinced that a truly free market and international standards would attract major foreign capital. Centres such as London, New York and Chicago are already major partners of the Montreal Exchange.

Substantial liquidity will enable the large corporations involved in the development of the oil sands to position themselves and use this product as a risk management tool in the case of capital expenditures they will have to make to reduce their greenhouse gas emissions.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

The way things are evolving, can you give us an idea of the price category we are talking about?

[Luc Bertrand]

It is very difficult to determine. We saw what happened in Europe. It is not the role of the head of an exchange to say which direction stock market prices are taking. Actually, we are advised not to comment, for obvious reasons.

However, the market we are suggesting is transparent and effective. In addition, its cost is low. The Montreal Exchange can definitely meet all such criteria. Then, it is up to the market, not to the head of the Exchange, to decide what it wants.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

My second question is for Mr. Myers.

Do you believe that with an exchange like the one we have just discussed the development of the oil sands would fit into the plan that you have presented and which addressed the innovations that would enable the industry to become effective? We know that, as we speak, certain technologies could be used in this area, but that this is not happening because they are too expensive.

[Dr. Jayson Myers]

I think it's very important. This is one of the ways to send appropriate market signals to investors. Of course, if there are investment opportunities here where there's a return and that can be traded on the market, then yes, I think it's extremely important.

But to reiterate the point that Monsieur Bertrand has made, we need a well-defined market first of all. You don't have a market unless it's defined and regulated. Number two, the extent to which it can be international and efficient is extremely important.

But if you were going to have a perfectly competitive market with zero administrative costs involved--and I would hope we would all try to reduce the administrative cost to participating--the price over a period of time would equal the marginal cost of new technology around the world required to reduce emissions.

So what you would see, first of all, are investments in those opportunities worldwide where investors could see the biggest return for the lowest-cost investment. That would probably be in emission reduction technologies, perhaps in developing countries. But the oil sands industry, any industry in Canada, would have to be competing internationally for that investment.

Much of the technology that would be required in the oil sands or in other industries is considerably higher than $15 a tonne for making those investments. So the oil sands industry or any other industry in Canada would have to compete for that international investment.

But it's a useful mechanism, and clearly, one of the weaknesses of our approach to climate change is that we have not had a very clearly defined registry or a very clearly defined market. Our organization has been involved with Chile, with Brazil, with China in identifying projects where we can transfer manufacturing technology to reduce emissions, and one of the biggest problems is that we don't have a Canadian registry in order to book those initiatives and there's no way of monetizing that here, so the progress that is being made is simply not recognized.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you.

[The Vice-Chair, Liberal, Mario Silva]

Mr. Cullen, you have the next round.

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

Thank you, Mr. Chair.

Mr. Bertrand, the government has said the companies in Canada are free to participate in the market, that there's no need for any action on behalf of the Canadian government to encourage or establish that market. Is there anything wrong with that statement?

[Luc Bertrand]

Allow me to understand your question correctly. You're saying that the Canadian companies are saying they don't need a regulatory framework?

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

No.

When asked about Canada's participation in the Montreal market, the minister and others on behalf of the government have replied that there's no role or need for the Canadian government to get involved. It's a market that is free to be participated in by companies that Mr. Myers and others represent.