Environment Committee on Oct. 27th, 2009

[Dr. Rick Hyndman]

No, I didn't.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Okay. Was there a particular reason why?

[Dr. Rick Hyndman]

Well, this is my own personal belief, and time is limited; I don't think offsets are the central part of the problem. The central part is pricing emissions broadly and going after them. The offsets are a small part of the total.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

But it's all part of the same process, is it not?

[Dr. Rick Hyndman]

It is. And I don't have any objection to a properly designed offset system; I just think it takes far more work to get a tonne of reductions there than if you go after the main sources, the emitters.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Okay.

Is it fair to say that you have a fairly good understanding of the direction that the federal government is going in with respect to our public policy direction to tackle climate change?

[Dr. Rick Hyndman]

I think so, yes. It remains to be seen what gets announced, but our perception is that the government is starting from the work we've been doing for seven years with the federal government. It's changed a little bit here and there, and we had “Turning the Corner”. As I said, it needed some important changes and we expect the government is going to address a number of those, but we hope the basic structure of putting in place pricing and investing in technology will survive whatever debates go on.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Notwithstanding the fact that the process still needs to be finalized and regulations announced, are you still preparing, as industry, for that eventuality at this point in time?

[Dr. Rick Hyndman]

Oh, indeed; yes.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

Clearly, once the process is finalized, moving forward to our goals of reducing greenhouse gas emissions by 20% by 2020, that will create some need for economic transformation.

[Dr. Rick Hyndman]

I think the target is an indicator of the nature of your ambition, but the policies and the pricing system you put in place as a core driver and in other parts of the overall policy are important for how industry and the rest of the country react and do things.

[Peter Braid, Conservative, Kitchener—Waterloo, ON]

With transformation comes opportunities as well, economic opportunities. In conclusion, could you just touch on what you think some of those may be?

[Dr. Rick Hyndman]

Someone's costs are another person's income. Any time you force companies to do something that's costly, somebody gets a job out of that. So that side of it is an economic opportunity. But how you lay those costs on society can be more destructive or less destructive than the jobs you create.

In terms of the things we need to do to address climate change, our basic orientation is let's get going on pricing. Let's ramp up with the rest of the major economies of the world. Let's invest in technology. If we're successful in advancing technology, then we'll be in a position to start deploying that as the world steps up its effort and raises the price of carbon over time.

For those new technologies and for the renewable technologies that equally should be supported, the opportunity is to develop and deploy the new technology in the energy system, which is the transformation of the energy system.

That's all opportunity on that side, but if you don't put the policy in place right and you disadvantage Canadian industry competitively, you will destroy more jobs in the rest of the economy than you're creating in this new opportunity in the energy system transformation. We need to look at both sides of the ledger on the job creation thing, on the new stuff versus what you're doing to the rest of the economy, depending on how you lay the costs on it.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Trudeau.

[Justin Trudeau, Liberal, Papineau, QC]

Thank you, Mr. Chair.

Mr. Hyndman, as an economist you probably are aware of the difficulties of predicting future technology, whether you look at the prediction, in the early 1960s, that the United States would go to the moon and how impossible that seemed from a technological standpoint; or whether you look at the potential consequences that we heard from industry around the Montreal Protocol on reducing CFCs for the ozone layer, which was going to cost industry tremendous amounts of money. Then they made the switch and it ended up being efficiencies and savings.

Predicting the future is very difficult in terms of what we're going to be able to innovate and solve because we're forced to think of new ways of doing things. That's one of the goals, I think, around your emphasis on pricing. If we know that things are going to get a lot more expensive, we're going to start aiming higher and force ourselves to innovate to find solutions.

Now, I appreciate your candour on the issue of pricing, on how pricing is going to be an essential element of how we're going to get to move forward to meet these climate change challenges.

Bob Page, when he came to us, talked about $100 a tonne as being the number we'd have to look for as a price on carbon with the current targets that the government has put forward.

In the different iterations of the plan we've heard over the past four years from the government, first of all, if everyone remembers, it was the “made in Canada” plan. Kyoto was made somewhere else, so we needed a made in Canada plan. Then last year we “turned the corner”, and now we've turned the corner apparently into the “made in Washington with support from Beijing” plan.

What numbers around pricing were in those previous plans? What numbers around pricing has the government indicated to you we're looking at in terms of per-tonne costs? And are you getting the predictability and stability that you're asking for out of the current government's plan--if there is one?

[Dr. Rick Hyndman]

Thank you for the questions, Mr. Trudeau.

Let me start with your point on technology. I think it's an important one and a good one.

We don't know what the breakthroughs are going to be. There may be some fortuitous breakthrough that allows us to have lots of energy and low emissions beyond the stuff we already know. But it's important to keep in mind that going to the moon had no price tag on it. The Cirque du Soleil man spent $30 million to go to the space station, so I don't think that's a broadly applicable technology for most of us.

With the Montreal Protocol, of course, the companies came up with the solution and they were able to charge their customers the higher cost for the substitutes for the ozone-depleting substances. Those are quite different from what's required in getting rid of carbon dioxide.

[Justin Trudeau, Liberal, Papineau, QC]

The principle holds, though.

[Dr. Rick Hyndman]

Yes. I take your point, and that's why we're for pricing. It will start unleashing creative and innovative actions by people around the economy, and the broader it applies the more we're going to get out of it.

With regard to pricing, “Turning the Corner” had a projection of $65 a tonne for 2018 or so. We haven't heard anybody else--certainly nobody south of the border--talking about those kinds of numbers.

I think Mr. Page's number of $100 a tonne is dependent on Canada meeting a lot of its target through purchasing foreign credits. That's not getting to 20% below 2006 emissions; it's getting halfway there or so, and buying credits for the rest.

I guess what we have been pushing is let's get going. We have to start in Alberta. Saskatchewan is talking about doing the same thing, and B.C. has surpassed it by applying it across the board. If we get way ahead.... If we had $100 a tonne and the U.S. had $20, we'd have a lot of problems in managing our electricity prices, our industry costs, and all of those things. We'd be in real economic trouble trying to do that.

Our argument is that it's okay to get going ahead of the U.S. in the way that we have when the costs are manageable, but any ramp-up has to be contingent on the U.S. and other major economies doing it. After all, if they're not doing it, we're not getting anywhere globally.

[The Chair, Conservative, James Bezan]

Your time has expired, Mr. Trudeau.

Mr. Watson.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you to our witnesses for appearing today. This is an important discussion on Bill C-311.

As a launch point, let me start where you finished when you said let's get going. You've described the targets already--creating disharmony with respect to our government's target relative to the United States. Looking at the remainder of the bill, is there a pathway in Bill C-311 that allows you to get going or that gives certainty to either of your industries?

[Dr. Rick Hyndman]

I confess that I haven't memorized all the other aspects of it. I consider the 2020 target to be a fundamental flaw, actually, in the whole approach.

If you talk about putting an emission pricing system in place as opposed to a particular form of it, we've been working on that, as I say, for seven years, and the government still has its work-in-progress on the details. I think we can get going along that path.

As I said, I think putting a target in place that would require a 50% reduction in the GHG intensity of GDP in this country by 2020 would be an enormous diversion of attention. We'd use all our time arguing about the target and who's going to pick up the costs and all of this, and we wouldn't even be able to get going. We'd still be here years from now arguing about it.

[Jeff Watson, Conservative, Essex, ON]

Your thoughts, Mr. Turk?

[Eli Turk]

As I said in my opening comments, I think we need to have targets with a reasonable idea of how we're going to get there. I think we need to have a little more view in terms of how we can realistically get to those targets.

As you pointed out earlier, if we have a big disconnect in terms of what's happening here and in the U.S., you know, from the simple physics of our industry, there's not a lot of places we export to. We export to the U.S. and back and forth. There would be a real disconnect if we didn't have a continental approach. We think that's an important component of anything going forward.

[Jeff Watson, Conservative, Essex, ON]

The government agrees that Bill C-311 is fundamentally flawed and that the approach is wrong. I think that's why we're talking an awful lot with respect to things like the clean energy dialogue, and talking about harmonization that recognizes the integrated nature, not just of your particular industries, but of an entire range of industries and their supply chains. They're North American now.

I come from the auto industry; we recognize that there isn't really a Canadian car or an American car, but a North American car and a North American consumer for that car, and there has to be a North American business case for building that car. The key with harmonization is avoiding a patchwork of standards, a balkanizing of the market.

For example, we've chosen to regulate tailpipe emissions through CEPA; that allows us to avoid a province-by-province disharmony in terms of a standard. We're harmonizing with the reformed U.S. CAFE standards, which creates an investment advantage for the industry while tackling the need for greater fuel efficiency in our vehicles. I think that's the right approach.

With regard to the disharmony in terms of target and pathway that Bill C-311 is proposing, can you give us a sense of the cost? You've talked about some of the areas that are probably most exposed for the industry. Can you give us a sense or a quantification of what the loss would look like? How much investment would potentially be lost? How many jobs are we talking about? Can you give us some sense of what the cost of such a move would be if we adopted this bill in isolation from the United States?

[Dr. Rick Hyndman]

Thank you, Mr. Watson. I think we can give some examples.

If Canada were to commit to that target with the implication that somehow it's going to be mapped down onto the various sectors of the economy, I can't imagine anybody building another upgrade or refinery in this country. The uncertainty would stop anybody from putting that kind of capital in. Depending on the interpretation of what might apply to the production side of oil and gas, you might get a real slowdown in investment in major long-lived capital projects like the oil sands.