Environment Committee on May 15th, 2007

[David McGuinty, Liberal, Ottawa South, ON]

Can I ask you, Professor Keith, would you apply the same logic then to the construction of the expansion of oil sands plants, and if you would not, why not?

[Dr. David Keith]

I wouldn't, because it's not so black and white and binary. With a coal-fired power plant, you tend, in practice, to build them only above a certain size. You build them only of several hundred megawatts, in practice, and capture or not capture is very much a black or white, yes or no, thing.

The oil sands have a spectrum of different kinds of plants, so there the arguments that say pure command and control wouldn't be effective probably make sense. In the oil sands there's a very big difference in the cost of capture in different facilities because of technical differences in the facilities. So a new plant that was going to do gasification of asphaltenes would have a relatively low cost of capture, whereas some other plants have higher costs because of different design choices they've made.

I think a one-size-fits-all law is less plausible for oil sands. I'm not saying oil sands should be off the hook; I just think it's less plausible to have an absolute rule like that.

[David McGuinty, Liberal, Ottawa South, ON]

Professor Keith, can you help us understand? You're an economist, if I recall—

[Dr. David Keith]

No. I'm partially appointed to the economics department, but I'm really a physicist by training. I publish in Econ Journal Watch sometimes, but I'm not an economist, in all honesty.

[David McGuinty, Liberal, Ottawa South, ON]

I want to go back to one of the first points you made—I alluded to it moments ago—which is that the underlying technologies to proceed with CCS already exist. I think you said we should be using these tools; they're in the tool box, and they are one tool. As an adjunct member of the economics department and as a physicist, have you come across any analysis that compares, from an economic perspective, all the other shrink-wrapped technologies on the shelf right now, for example, that deal with conservation?

The Minister of Natural Resources is fond of saying that the best kilowatt hour, I think he talks about...I forget how he puts it; it's a slogan of some kind. I think what he alludes to is that the best we can do is move toward conserving consumption, as opposed to moving to generating more energy. Have you seen any analysis along those lines?

Canadians who are watching, listening, or reading these transcripts, would like to get a better sense of the best way to proceed. If the technologies are on the shelf for massive conservation, for example, and we're going to be using public dollars in one form or another through either tax credits or other incentives or direct contributions, are we in a position to draw a conclusion right now as to which way to go?

[Dr. David Keith]

That's a great question, and I wish I could do it justice. First, I'm going to make a minor comment in response to something I heard earlier. One of the speakers mentioned that they would double the cost of the plant and therefore double the cost for consumers. Of course, that's not true because there are costs due at distribution and transmission, so if I double the cost of the power plant, it only increases the cost to consumers by more like one-third.

On your big question, first to dodge it a bit, I work mostly on the electricity generation end of the system, so I'm more confident comparing future capture and storage of, say, wind or nuclear power. Those are the three big ones in the electricity world, and I think they're roughly comparable, with big uncertainties.

It's natural to assume that conservation would be cheaper, but the evidence for that is weak. There are plenty of analyses that do the kinds of comparisons you're asking for, but the quality of them is mixed, and the answers are all over the map, depending on who did it. It's important to be a little cautious about new energy-conserving technologies. Over the last 150 years, the introduction of new energy-conserving technologies has often increased energy demand, not decreased it.

When Watt invented the new steam engine that replaced the older Newcomen steam engine, it was three times more efficient. That increased coal demand; it didn't decrease it. The same has been true almost every step of the way. This is what the economists call feedbacks or rebound effects. The problem is if I introduce some technology that in principle might reduce energy use, such as a lighter weight car body, consumers may use it to make cars safer with the same energy consumption, or faster, or whatever.

An advantage to pushing on the production end of the energy system, whether it's through CO₂ capture and storage or nuclear or wind power, or what have you, is that you actually get both, because of these costs. Let's say we passed a law that made all new coal-fired power plants have CO₂ capture. There would be real costs, as we've been discussing, and those costs would inevitably be passed on to consumers. That would help to encourage conservation.

If it's really true that conservation is cheap, we'd find it out, because consumers would conserve in response to those costs. The advantage of pushing on the big end of the system, the production end, is that for certain you reduce the emissions, where you actually reduce them, and you also increase the cost, producing more efficiency improvements downstream.

[The Chair, Conservative, Bob Mills]

Good. Thank you very much.

We'll go on to Mr. Bigras, please.

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

Thank you, Mr. Chairman.

My first question is for Mr. Keith, from the University of Calgary. I hope that the interpretation is coming through.

[Dr. David Keith]

I can hear you.

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

I read the June 2006 report of the National Roundtable on the Environment and the Economy that said that, in order to ensure the proper establishment of CO2 capture and storage, three elements were essential: incentives, clear prices for CO2 emissions and a cap and trade system for CO2 emissions.

This afternoon, Mr. Keith, you have told us that in order to have the best chance of success, we need a clear regulatory system. You also emphasized the fact that it might be worthwhile to impose a carbon tax. Are you in favour of a carbon tax or of a cap and trade system for emissions?

[Dr. David Keith]

I think they can both work, so this is an issue. Both of them are a lot better than nothing, and to be fair, the current government has introduced something that is a lot better than nothing. The current government's new rules really would restrict emissions, although in fact they are not quite either of those two things. There are many mechanisms that you could use.

I favour a tax because of the extreme simplicity with which you can implement it. Cap and trade generally requires you to keep track of every facility's emissions, and there are a bunch of complexities that come with that, especially regarding new facilities, so this often gets kind of sloughed off.

If you look at the current rules—and it's no fault of the current government, since every government that tries to implement this sort of system has a problem—you have to deal with what happens to new facilities. The current rules do this common thing of demanding the best available technology. The fact is that's an excuse for lawyering—with no offence to lawyers in the room—because it's not objectively possible in the real world to know exactly what the best available technology is, especially for something complicated like oil sands. So basically it's an excuse for backroom negotiation.

The advantage of something like a tax is that because carbon is a conserved quantity in the economy, it's actually pretty easy to put a ring-fenced tax on the economy with very little extra overhead in terms of accounting systems. You're sure of one answer that you're going to get, so I favour a tax.

I'll say one more thing. In backroom conversations I've had with people in government, NGOs, and the oil companies, I routinely hear people agree with me that a tax is the best thing, but it's politically unsellable. I put it to you folks in the room who are politicians that if a lot of people in the backroom are agreeing that something makes sense, and they say that it's politically unsellable, we have to think about how to sell it.

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

Thank you.

Mr. Chairman, we have two departments represented here before us: that of Natural Resources and that of the Environment. Your department, Ms. Preston, seems to favour capture and storage technology.

As for you, Mr. Tushingham, who are here representing the Department of the Environment, you are telling us to be careful because there is no international consensus in this area. You alluded to the London Conference under which certain things remain to be clarified with regard to two elements: namely monitoring and export for purposes of disposal.

Ms. Preston, would it not be too bold and risky to adopt fiscal incentives for businesses too quickly, without there yet being any clear international consensus nor clear international rules?

Are we not putting the cart before the horse?

[Dr. Carolyn Preston]

No, I don't believe we're putting the cart before the horse, because we have a lot of experience in managing this type of CO₂ storage in enhanced oil-recovery operations. There's been over 30 years of operating history in the United States and no serious accidents. So the risk is fairly minimal. What we are missing is regulations to govern the long-term aspect of the storage.

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

What do you say to Mr. Tushingham when he states that, internationally, there are still rules to be clarified with regard to monitoring? For you, the absence of monitoring rules does not pose a grave risk?

[Dr. Carolyn Preston]

We're doing monitoring at the Weyburn and Midale fields—rather extensive monitoring—and we aren't detecting any leaks. That is, granted, over a relatively short period of time. But we are developing cost-effective, feasible monitoring technologies that I expect would be built into a risk management strategy.

[Bill Reynen, Director, Science and Technology, Clean Electric Power Generation, Department of Natural Resources]

One of the big issues around CO₂ capture and storage, about which there is a lot of discussion, is long-term storage as one of the factors in liability. But the other thing is the monitoring and measurement and verification that you're referring to. In a lot of the international discussions around this area, there's almost violent agreement between both the petroleum producers and the NGO community about the need for monitoring, measurement, and verification. The only difference between those two groups is how much monitoring and measurement is appropriate over the long term.

So it's widely recognized that for any regulatory regime for safe storage and appropriate site selection for CO₂ storage, you have to have effective monitoring, measurement, and verification measures in place. I think that's what Environment Canada is saying, that if we're going to proceed with this technology, we have to have appropriate monitoring technologies in place, but also the appropriate mitigation measures if there is such leakage. That's the big factor here.

With respect to the London Protocol, there's been an agreement now that storage in geological media in the sub-sea can be permitted. Right now, there's a series of meetings in the scientific community to develop guidelines for any company or any organization that wishes to store CO₂ in the geological media under the seabed.

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

I have another question concerning the financial aspects. I believe it is Mr. Hassan, from NOVA Chemicals, who told us this morning that in the absence of financial incentives, there is at present not a good enough cash position to be able to invest in plant upgrades or the improvement of plants' environmental performance, and that the implementation of accelerated capital cost allowance measures, long term, for CO2 capture capital costs, would have a considerable impact on economic viability.

Have you done an evaluation of what the implementation of such a measure would involve in terms of public effort and in terms of government expenditures? Has an evaluation of what this type of measure would represent in terms of public effort been carried out by Natural Resources Canada or the private sector?

Secondly, I am somewhat surprised today to see that you have not come forward on the part of 30 small energy sector companies demanding, for the energy sector, an exemption from the new tax on income trusts.

Do you think that an exemption for the energy sector from this new tax announced in the latest Flaherty budget would give you the oxygen you need to put in place this new technology?

[Grant Thomson]

I can give a couple of comments around that.

In terms of what is required going forward, we at NOVA Chemicals would be very pleased to work with the government to figure out what would be required. As we go forward, there is still a lot of uncertainty as to what these projects are going to cost. You heard a lot of people talk here today about the amount of capital that is going to be required, but there's also a great deal of uncertainty.

So without understanding to a great degree what it's going to require to technically separate the combustion sources...and I don't disagree with David; there are technologies out there today that do work. But whether they're going to work on combustion sources, whether they're going to work at a cost that is economic--those are the types of questions we need to look at. As well, what does it cost to transport it and so on?

The point is that there's a lot of uncertainty, so it's hard to come here at this point and say here's exactly what we need. What we do say is that it's so capital intensive, certainly a first step would be to look at the capital cost allowance and accelerate that.

You also raised a question around the proposed regulations that are on the books right now. I have just a couple of comments around that.

One, I think the government has set very tough-to-achieve targets. They're probably tougher than what we were hoping to see three or four months ago. I think they've also set an aggressive timeline in terms of this policy. At the same time, they're trying to walk a tightrope, perhaps, balancing between improving the environment and at the same time trying to make sure the economic growth in this country continues.

My last comment is that I like the fact that there is within that bill a focus on technology, because I still believe that is going to be one of the keys to moving forward.

[The Chair, Conservative, Bob Mills]

Thank you.

We'll go on to Mr. Cullen, please.

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

Thank you, Mr. Chair.

To Ms. Preston, what is the cost of storage at Weyburn for every tonne we put in the ground right now?

[Dr. Carolyn Preston]

I can't answer that question. Dave Hassan would have to answer that.

[Dave Hassan]

I can't really give you direct costs. The investments in the project total about $1.3 billion to store 30 million tonnes of CO₂. You could divide that and do the math.

The Weyburn project did receive some incentives to proceed. It had a reduced royalty rate from the Province of Saskatchewan, 1% of gross royalties until the project paid out and then 20% of net revenue after.

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

Just as a general comparison to what CO₂ costs on the emissions trading market right now in Europe, does it compare favourably in Weyburn?

[Dave Hassan]

The price at Weyburn is quite favourable in terms of industrial sources. It's comparable to the prices that enhanced oil recovery operators in the U.S. pay for CO₂.

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

That wasn't my question. My question was with regard to the traded tonne per unit of carbon in the European trading system right now, which is somewhere in the $30 range, depending on the day. How does Weyburn compare to that?