Environment Committee on Dec. 1st, 2009

[The Chair, Conservative, James Bezan]

We'll call this meeting to order.

We will continue with our study on Bill C-311. This is the last panel we will have on Bill C-311.

Joining us today is an industry panel. I want to welcome to the table, from the Canadian Chemical Producers' Association, Gordon Lloyd, the vice-president of technical affairs. From the Canadian Petroleum Products Institute, we have Peter Boag, who is the president, and Tony Macerollo, the vice-president of public policy and communications. From the Canadian Steel Producers Association, we have Ron Watkins, who is president, and Katie Chan, manager of environment and energy. From the Cement Association of Canada, we have Pierre Boucher, the president and chief executive officer, and Bob Masterson, the director of policy.

I welcome all of you to the table. We are looking forward to your opening comments.

We are going to kick it off with Mr. Lloyd.

[Gordon Lloyd, Vice-President, Technical Affairs, Canadian Chemical Producers' Association]

I'd like to thank the chair and the committee for the opportunity to appear before you and participate in the review of this bill and of climate change generally.

Before I get into my remarks, I'll first note the four points I would like to leave with you.

First of all, CCPA and our members take climate change very seriously. Our members have gone well beyond Kyoto in their reductions. To keep improving and keep that track record, we need to stay globally competitive. Here government policies are critically important for us.

Most important in terms of government policy, we need the Canadian government to proceed in pace with the U.S. in managing greenhouse gases. Canada's system must be comparable to that of the U.S. for competitiveness reasons, to avoid U.S. border measures, and to recognize the overall integration between our two economies. This doesn't mean being identical to the Americans. There are differences in the Canadian situation that need to be recognized. Where we can, we should try to do things smarter than the Americans are doing, but moving with the U.S. is a far better approach than is developing a plan on our own.

In terms of this specific bill, we don't think Canada should lock into the targets that the bill requires. We don't know if Canada can meet those targets. Buying credits and not reducing emissions would be the result. That approach could cost billions of dollars. The recent Suzuki-Pembina study estimated it could be $6 billion by 2020, and we think those costs could be even higher.

We don't believe this bill is the right framework to manage climate change. I will outline a framework that we think could work, one in which the government is doing the right thing in moving in pace with the Americans, and one in which the government is on the right track but needs to move further along the road in improving the capital cost allowance and in using a technology fund.

First, I'd like to talk about the performance of CCPA members. What CCPA has achieved in climate change is shown in the first attachment. It's the one you got in the brief previously. Kyoto called for a 6% reduction. Our members have achieved a 65% reduction. We achieved these results under Responsible Care. I think many of you are familiar with Responsible Care. It's something we've recently improved. We've been trying to integrate it more with sustainability and to maintain Canada's leadership internationally among the chemical associations in Responsible Care.

Under Responsible Care, our members took climate change seriously right from the start. Back in 1992, after the UN framework convention started, we started to track and publicly report on our emissions. We've been improving our performance ever since.

Now that's what we've done. What would we like from the government?

Since we started tracking our emissions, we've been looking for a supportive government policy framework for climate change. The closest we've had so far is the understanding by the current government that domestically Canada needs to keep in pace with the Americans, and internationally Canada needs to insist that there be binding obligations on some of the developing countries that are major emitters and some of our major competitors. The government policy is sound in that area, but the government policy needs to go further in supporting technology development and new capital investment.

Much of what influences investment in Canada is, frankly, outside of government control, like international trade flows and developments in markets like China, Brazil, India, and the Middle East. Other important factors like the value of the dollar are things the government can try to do something about, but they really can't do much.

There are three broad policy tools that we think would be very powerful and that the government should be using. First--and here the government has it right--is proceeding in pace with the Americans on alignment. Second is improving the accelerated capital cost allowance. Third is using a technology fund as part of the compliance measures for climate change. On these last two points, we believe the government is moving in the right direction but needs to go further.

Before I talk about where we'd like the government to go further on those two points, I'd like to say a few more words about alignment with the U.S.

Alignment of Canadian climate change policy with the U.S. should be based on taking generally consistent approaches but not on being identical. This is critical for sectors like chemicals that are energy intensive and trade exposed, what have become known as the so-called EITE sectors. That's not a very good acronym; you can't even pronounce it.

The Canadian products sold into the U.S. represent about 57% of Canadian chemical production, so the U.S. is overwhelmingly important for us.

Earlier this year, CCPA saw that the U.S. was moving towards a cap-and-trade approach. We recommended that the Canadian government do likewise. We also recommend that Canada not propose a specific cap for the EITE sector at this time. Instead, we believe we should be informed by the cap the U.S. legislates for its EITE sector. Our cap should then be comparable to or possibly slightly lower than the one the Americans set for sectors like chemicals.

A lower Canadian cap is in fact justified. Canada's trade exposure is far greater than that of the U.S. Canada exports and imports roughly four times as much as the U.S. does. Also, as attachment 2 to our brief shows, it costs a lot more to reduce emissions in Canada than the U.S.

These factors would justify a less onerous cap in Canada, but that is not the only consideration. If the cap is less in Canada, there is a threat, which is very real for us, of border adjustments being added to our products at the border. If the Canadian cap is higher, our manufacturing costs will increase and imported products will be more attractive in Canada. This is a very difficult balancing act. It's a question of striking the right balance, and once we know where the US will land, that is the balance Canada will need to strike.

For alignment with the U.S., Canada seems to have the right climate change policy. For accelerated capital cost allowance and the technology fund, we think the government plan is in the right direction, but needs to move further and be improved.

Turning to capital cost allowance, Canada's environmental performance in chemicals has been driven by responsible care and new investment. Investment also drives improving climate change performance in the manufacturing sector generally. The chart in our submission as attachment 3 is a bit outdated. It is something we took from the Canadian Manufacturers & Exporters, but it is the most recent illustration we have of this point. I believe this committee has seen this chart before in presentations by others. It shows capital investment is the key to reducing emissions intensity in manufacturing. This fact is a critical foundation to build on for climate change policy.

A very important contribution this committee could make to climate change policy would be to recognize the link between new capital investment and improved environmental performance. Improving the capital cost allowance would have a significant impact in attracting new investment and returning to the levels of environmental performance that the chemical sector and others in the manufacturing sector had during the booming 1990s. CCPA has discussed our recommendations to improve the accelerated capital cost allowance with the finance and industry committees. They've understood the competitiveness and productivity arguments, but the environmental dimension of this issue is an important additional aspect that this committee can and should contribute to.

A solution the government could implement now, which all parties supported in an industry committee report in 2009, is extending the accelerated capital cost allowance for new machinery and equipment. While the measure has appeared as a line item in the past few budgets for a two-year timeframe, the timeframe we really need is a five-year period. This is an important policy from both a competitiveness and an environmental perspective. It is a climate change plan that can work, and we hope it would have this committee's support.

Finally, turning to the technology fund, designing a sound technology fund would be a very powerful tool to support greenhouse gas reductions. The fund should encourage investment both in transformative technologies and also in improved current technologies. It also should provide a compliance mechanism and some price stability.

Clearly, investment in technology will be the key to getting the climate change dilemma solved. There is broad agreement by just about everybody on that. We were encouraged that a technology fund was one of the compliance options in the government’s Turning the Corner proposals, but we saw that proposal as having some fairly serious flaws. What we are promoting is a technology fund that is more in line with what Alberta is using, but with several important distinctions.

First, we think the price associated with contributions to the fund should not be fixed but should be adjusted over time with the price of carbon in the market. Second, we think there should be a limit on how much of your climate change compliance you can meet by contributions to the fund.

Certainly, a technology fund should be a permanent part of a climate change plan. We will have to be reducing greenhouse gases for the long term, 2050 and beyond.

In conclusion, CCPA members will have reduced their greenhouse gases by 65%; that is, actual reductions. This was mainly from technology investment and major plant investments. These came on stream in the 1990s when the manufacturing economy was booming.

As we move out of the current recession, investment should return. We need that in Canada. The better we have our policies aligned, the more it will return. Aligning our climate change policies with our major trading partner, the U.S., improving capital cost allowance, providing a sound technology fund—all of these will help.

We don't think spending $6 billion and sending it abroad, as we see this bill requiring, will help at all. The $6 billion estimate comes from the recent report that the Suzuki and Pembina groups produced. Their report assumes that international credits can be bought at $75, when they're actually selling in Canada, according to their assumptions, for $200. If the international price was closer to the Canadian price, the $6 billion cost would be much higher.

In the international effort to reduce greenhouse gas emissions, the cost differences between various countries is something that deserves more attention. It is important and needs to be kept in mind. Attachment 2 to our brief shows various cost curves for Canada and different countries. The Canadian carbon costs will be very high, much higher than the U.S. estimates. The national round table report that came out in the spring says the same thing, and so does the Suzuki-Pembina report.

The public shouldn't be misled into thinking it will be cheap and easy to deal with climate change in Canada. The costs will be high. The best way to minimize those costs, in our view, is through the policies we've suggested, not through meeting mandatory targets, as the bill requires.

To sum up, we're serious within CCPA and our membership about reducing greenhouse gas emissions. Our track record shows that. We don't think the bill is serious about it. It's a recipe for sending money out of the country. We recommend an alternative framework for a government policy that could work, one in which the government is doing the right thing—keeping pace with the Americans, moving further in improving accelerated capital cost allowance, and using a technology fund.

Thank you, and I look forward to participating in the discussion.

[The Chair, Conservative, James Bezan]

Thank you, Mr. Lloyd.

Mr. Boag.

[Peter Boag, President, Canadian Petroleum Products Institute]

Good morning, Mr. Chair and members of the committee. It's our pleasure to be here this morning to provide a petroleum refining perspective on GHG emissions reduction policy.

Let me first say a few words about our organization. CPPI is an association of 11 companies that refine and market petroleum products used in transportation and for residential, commercial, and industrial purposes. Collectively they account for over 80% of Canada's crude oil refining capacity and petroleum marketing operations. They are major contributors to local economies and the national economy, and they are a component of Canada's critical domestic energy production infrastructure, ensuring a reliable supply of high-quality fuels essential to the national well-being.

As a group, CPPI members have a strong track record of energy efficiency gains and GHG emissions reductions. In the 10-year period from 1995 to 2005, CPPI member refineries achieved an overall 12% reduction in energy consumption. Energy efficiency at these refineries improved by over 1% each year, resulting in a comparable GHG emissions reduction—absolute reductions, while increasing production.

I'll focus my remarks today on three points: the need for consistency and alignment with neighbouring programs, in particular the critical importance of alignment with the United States, our major trading partner, but with others with whom we trade as well; the importance of aligning targets and mechanisms with technically and economically feasible compliance pathways; and the requirement for flexibility and transparency in carbon pricing systems, be it cap-and-trade or any other approach to pricing carbon. The end goal must be emissions reductions at the lowest possible cost to the economy and our society.

Canada is a trading nation. Much of our economy is energy intensive and trade exposed, including the petroleum refining sector. The concept of jurisdictional consistency and alignment of reduction targets and burden is critical, but that is not to say identical, for it's essential to recognize that Canada's economy is unique in the world, in particular its significant resource and energy component, much of it export focused—so alignment, yes, but with the recognition that a one-size-fits-all approach will have negative unintended consequences for our unique economy. We believe the government understands this and has adopted the right approach in pacing and informing its approach on U.S. developments, especially as it relates to trade-exposed sectors.

Turning to the specifics of the petroleum refining sector, where petroleum products are imported into and out of Canada on a regular basis from jurisdictions as far away as Europe and Africa, we need to make sure that Canadian refineries are not up against competitors that are not constrained by the same environmental requirements and costs.

There has been much discussion recently about alignment between Canadian and American plans for climate change. In principle, this is a matter of importance for the Canadian economy given that the U.S. is our largest trading partner, and we are pleased that the government has made this a priority. However, the challenge will be to find an alignment approach that recognizes the fact that the U.S. is a net energy importer and Canada is a net energy exporter.

As a case in point, current U.S. climate change legislative proposals do not recognize the U.S. refining industry as a trade-exposed sector. They impose what we would see as a clearly discriminatory GHG emissions reduction burden on refiners that CPPI members would oppose. Studies clearly indicate that this approach, if implemented, would result in a substantial increase in petroleum product imports, at the expense of the domestic industry and lost jobs, yet the impact on global refinery emissions would be negligible. It's a recipe for emissions shuffling, not for global emissions reductions.

That said, the Canadian petroleum product producers, suppliers, and users all share a responsibility to minimize the environmental impact of energy production and consumption, including its global carbon footprint.

That brings me to my second point: ensuring that compliance with any emissions reduction target and regime is technically and economically feasible within the chosen timeline. Compliance pathways that will enable obligated parties to reasonably meet the GHG emissions reduction target requirement must exist.

A key component of this is recognition that many industrial sectors—refining for one, and we certainly heard the experience of the chemical sector--have already made significant progress in recent years.

I've already mentioned our track record of energy efficiency gains and emissions reductions since 1995.

Overall, Canada's industrial emissions are well down from 1990. The technical and economic challenges for significant further reductions are enormous. And in a business planning context, 2020 is a blink away. I want to emphasize, as my colleague did, the importance of new, transformative technology as a driver in improving Canada's GHG emission performance. Any climate change solution will require considerable effort to stimulate and support investment in new technology development and deployment.

Here are some of the going forward challenges specific to our sector. First are fixed process emissions. For a typical refinery it's roughly a split of two-thirds combustion emissions and one-third what we call fixed process emissions. Fixed process emissions result from the chemical processes that are core to the production of high-quality, clean fuels. There are no known technological means to reduce them, other than turning down the dial on production.

Second, the Canadian refining sector is subject to a variety of regulations regarding the composition of transportation fuels that bring with them trade-offs in terms of environmental priorities.

Perhaps the best example of this is the desulphurization of fuels, which has been an ongoing process in Canada over the past decade, and one that continues today as the focus moves to marine and off-road diesel fuels. Without question, these cleaner fuels make a significant contribution to cleaner air. The removal of sulphur is a key driver behind the more than 90% reduction in noxious vehicle tailpipe emissions achieved over the past 20 years. Desulphurization of gas and diesel fuel has benefits, absolutely, but at the expense of higher GHG emissions because of the more intensive processing required.

Third, let's face it, the refining sector's greatest impact on GHG emissions comes from the consumption by Canadians of the refined petroleum products we produce. Transportation accounts for a significant proportion of Canada's GHG emissions--up to 40% in some provinces. This means that success in Canada will depend on major emissions improvements in the transportation sector. But clearly, refiners have no control over the demand for our products. This is driven by vehicle efficiency and the vehicle-buying preferences and driving habits of Canadians. Up to now, I know of no jurisdiction in the world that has succeeded in curbing the growth of the transportation sector in any sustainable way.

The last point I would like to raise today is the issue of flexibility and transparency in whatever carbon pricing systems are implemented. Flexibility drives the competitiveness issue for energy-intensive, trade-exposed sectors like refining. Cap and trade now has momentum as the tool of choice around the world, and while CPPI members still have mixed views on the relative merits of cap and trade versus a carbon tax, I'll focus my comments here on cap and trade, given the current momentum, with emphasis on the trade component, which is as important, perhaps even more important, as the cap itself.

Credit trading will be an essential part of the framework, and the flexibility of trading will be crucial to success in achieving the goal of emissions reductions at the lowest possible costs. And let's not be naive about those costs. The 2009 National Round Table on the Environment and the Economy, NRTEE, report, “Achieving 2050”, estimates the cost of carbon at $100 a tonne in 2020, rising to $300 a tonne in 2050. The recent Pembina-Suzuki report estimates a 2020 carbon price of between $100 and $200 a tonne, depending on reduction target. So on flexibility we have a number of questions and concerns.

Will the framework allow access to emission rights in other jurisdictions? Will it allow an emitter to accumulate or bank credits so that they can be used at a later time? Will it allow credits to be lent from one time period to another, providing the end result meets the reduction objectives? Will it allow free emission credits for the industrial sectors that are trade exposed and subject to trade distortions or unbalanced imports until the cap-and-trade systems of competing jurisdictions achieve equity with Canada?

On the issue of transparency, I'll focus specifically on the transportation sector. Will the refining sector be burdened with the ownership and management of emissions from vehicles as well as those from our industrial processes, even though we have no control over vehicle efficiency and the vehicle buying habits and driving preferences of Canadians? We expect full transparency from the government on the impact on consumers of GHG emission reduction requirements in transportation.

Related to the issue of flexibility and transparency is just the pure administrative burden as well. Here, single-window reporting is a key requirement and a key expectation to minimize unnecessary costs to industry.

In closing, I urge you to consider all of the complexities and linkages between energy, the economy, and the environment as you consider climate change legislation, some of which I have described here today from the perspective of the petroleum refining sector.

Finally, I want to dispel the myth that some utopian, carbon-free economy fuelled by magical green energy sources is just around the corner and that the journey there will be painless. The technical and economic challenges are enormous. In truth, all energy sources will need to play a role in fulfilling Canada's future energy needs--wind, solar, hydro, biofuels--absolutely, but conventional petroleum fuels will continue to be a part of Canada's energy mix well into the future. Canadians' requirement for clean, reliable, economical petroleum fuels is not going to disappear in the next few years. As legislators, you need to reflect this as you consider legislation to address the challenges of GHG emission reductions.

Thank you. I look forward to the discussion and your questions.

[The Chair, Conservative, James Bezan]

Thank you.

Mr. Watkins, would you bring your comments for the steel industry.

[Ron Watkins, President, Canadian Steel Producers Association]

Good morning, Mr. Chair and members of the committee.

The Canadian Steel Producers Association is pleased with this opportunity to contribute to your deliberations.

The Canadian Steel Producers Association represents 10 members who produce steel in five provinces, from Quebec to Alberta.

In 2008, our industry produced approximately 15 million tonnes of steel. It had shipments of $13.5 billion and employed some 30,000 people. While production is down significantly this year, a competitive domestic steel industry is essential to our economic and environmental future. This includes steel products for a greener economy, ranging from wind power to lighter and stronger steels that improve vehicle mileage.

Our climate change policy position reflects a number of principles that are important to our industry.

First, we see climate change as a global challenge that requires significant and concurrent action by all major emitting nations.

Second, targets, regulations, and compliance mechanisms must recognize the competitive and technological realities facing our industry and minimize trade and investment distortions.

Third, climate change plans must integrate environmental and economic objectives, including provisions to accommodate sustainable industry growth.

Fourth, the requirements to reduce emissions must be equitably shared among all sources, including industry, transportation, and consumers.

And fifth, Canadian governments must work to avoid overlap and duplication in establishing climate change regulations. Both the regulators and the regulated will benefit from a single set of regulatory requirements.

Unfortunately, Bill C-311 provides no indication of how these principles and several crucial features would be addressed in practice.

I would like to comment on certain of these key issues from a steel industry perspective. In doing so, I won't comment on some of the additional points we also support that have been raised by our colleagues, including issues related to trading systems, for example.

First, as an industry, we account for fewer than 2% of Canada's total GHGs, and we have made significant improvement over many years. Since 1990, emissions are down over 20% in absolute terms and 25% in intensity. In other words, we grew throughout the period but still reduced below the Kyoto numbers. This betters the Kyoto target, and we are committed to continuous improvement with near-term technological and economic constraints.

Second, steel-making is inherently energy intense. It requires a lot of heat to create virgin steel from iron ore, coal, and other materials, through the integrated or blast furnace method. The other popular method, the electric arc furnace method, applies high-voltage electricity to remelt scrap steel for essential products such as rebar and pipes. This method is less intense from a CO₂ emissions perspective, with the added environmental value of recycling large volumes of steel scrap—a true life cycle benefit for our product. Last year our industry recycled almost 8 million tonnes of scrap steel. As noted, both of these production methods are energy intensive, thus the GHG regulations on our energy inputs will also directly affect the cost of producing steel.

Third, our sector is highly trade exposed. We compete principally in the NAFTA market, but we compete against many others. We must also compete globally for new investment capital. Globally the dominant player in steel trade is China, which today produces close to one-half of the world's steel, more than the next 10 countries combined. A decade ago it was only 15% of this total, less than NAFTA.

China has become a major factor in global steel markets, backed by a national steel policy and, frankly, a web of market-distorting subsidies and other support. Environmentally it has an even more disproportionate impact, both directly and indirectly. Thus comparable action on GHGs by China and other major steel producers is essential, both to achieving significant and balanced reductions globally and to avoiding further economic distortions.

Within North America our market dynamics call for a high degree of Canada-U.S. regulatory compatibility due to the impacts on trade and investment. I will return to this point.

The fourth factor is technology. As mentioned above, our members have already invested in capital equipment and processes to make substantial improvements in energy efficiency and therefore in greenhouse gas emissions. We will continue to make incremental improvements, but the scope for large-scale gains in the near term is limited by commercially viable technologies. We also have a relatively high proportion of fixed process emissions that are irreducible with current technologies.

For the longer term, we are part of a global steel industry effort that is actively working on a range of CO₂ breakthrough technologies to reduce steel emissions by over 50%.

Putting these factors into a policy and regulatory perspective, I would emphasize the following.

First, steel is a primary example of an energy-intense, trade-exposed sector. New CO₂ regulations will impact us directly, and also indirectly, since our major inputs, iron ore, coal, energy, and transportation, will also bear new CO₂-related costs. These will flow through to us as consumers of those particular products and services. If our GHG regulatory costs significantly exceed those facing our competitors, there will be both economic and environmental impacts. Carbon leakage is also economic leakage. That is why Canada's cap-and-trade policies must include provisions and allowances that adequately address the challenges facing the EITE sectors. This factor has been recognized in recent major studies, and it is also reflected directly in the draft plans of the EU, Australia, and the U.S., the latter also including border adjustment measures as a further potential mechanism.

Second, CSPA agrees with the need for a high degree of regulatory alignment between Canada and the U.S. to minimize trade and investment distortions. If our obligations are significantly more demanding, we will be less competitive in the market and in attracting investment to Canada versus the U.S., for example. Conversely, if Canada's regime is judged by the U.S. government as less demanding, we stand to be subject to U.S. border measures. The need for compatibility includes not only caps and timelines, but also important implementation conditions at the sectoral level.

Third, turning to technology, we seek policies to facilitate investments in near-term process improvements and other measures directed at longer-term global efforts to develop new low-carbon breakthrough technologies for steel-making. This has implications for fiscal measures, such as capital cost allowances, conditions for the earlier proposed technology fund, and, in some cases, direct spending on government R and D programs.

Finally, the bill includes provisions that allow subnational jurisdictions to set different climate change policies. This creates potential overlap, duplication, and inconsistency, which will make compliance more costly and investment planning more complex. We encourage the federal and provincial governments to agree, in effect, on one set of rules and compliance procedures.

In summary, Mr. Chair, while our steel industry is a relatively small part of Canada's GHG emissions, we have a significant record of progress to date. We are committed to doing more within a regulatory plan that integrates environmental, economic, and technological factors in our sector.

I trust the steel industry perspectives assist you in your deliberations.

Thank you, Mr. Chairman, members of the committee.

[The Chair, Conservative, James Bezan]

Thank you.

Monsieur Boucher.

[Pierre Boucher, President and Chief Executive Officer, Cement Association of Canada]

Mr. Chairman, members of the committee, good morning.

My name is Pierre Boucher and I am the president of the Cement Association of Canada. I am accompanied today by Bob Masterson, who is our policy director.

I thank the members of the committee for giving us this opportunity to present the viewpoint of the cement industry on Bill C-311.

The Canadian cement industry has been very engaged in productive consultations with the Canadian government on its environmental agenda. We fully support the efforts of the government to address global climate change.

As you may know, cement is a fine grey powder that is mixed with water, crushed stone, and sand to make concrete. Cement is the glue that holds the concrete together. Cement is a strategic commodity and vital to Canada's infrastructure. Cement is the key ingredient in concrete. Little is built without concrete.

Globally, 2.5 billion tonnes of cement are produced annually. Global cement production is expected to double to five billion tonnes by 2050. In Canada, 14 million tonnes of cement are produced annually, 10 million tonnes are consumed in Canada, and four million tonnes are exported to the U.S.

Every year Canadians on the average use 30 million cubic metres of cement, that is, one cubic metre for each Canadian man and woman.

Cement is an energy-intensive industry. When considering cement emissions reductions, it is important to take into account that 60% of the total emissions associated with cement production are fixed process emissions. These fixed process emissions are a direct consequence of the chemical reaction resulting from heating limestone, the raw material required to make cement. These process emissions cannot be reduced.

The remaining 40% are combustion emissions associated with the use of coal or petroleum coke, our primary energy sources. This 60-40 split is important to fully understand where emission reductions can take place. The good news is that the cement industry can reduce its combustion emissions.

The Canadian and global cement industry is moving forward to implement its plan to reduce combustion emissions. These are: continual improvements in energy efficiency; increasing the use of blended cement and cement substitutes; substituting coal and petroleum coke with low- and zero-carbon energy sources; and research on manufacturing processes and materials.

Regrettably, a number of policy and regulatory barriers at all levels of government impede or squarely prevent the implementation of the cement industry's plan on climate change. Key barriers include: fractured and non-integrated approaches to policy making and the uncertainty in the adoption of harmonized environmental and energy policies to address the specific challenges facing the cement industry; lack of government policy support for fossil fuel substitution with low- or zero-carbon energy sources; a costly, lengthy, and incoherent permitting process; and a slow building code and standards developing process.

Paradoxically, European governments recognize and facilitate the implementation of the cement climate change plan. As an example, in Europe the fossil fuel substitution rate is as high as 80%, but averaging approximately 40%, while the Canadian average is a mere 7%. Quebec, however, is a real leader in this field, and this year we will replace fossil fuels at a level of over 25%.

In order to mitigate investment and emissions leakages, the cement industry calls on the government to address the following issues while developing its climate change regulations.

The Government of Canada must take a coordinated and harmonized national and continental approach to climate change. Cement is an energy-intensive, trade-exposed industry and a price taker. Therefore, we cannot sustain multiple price signals and multiple regulatory regimes within Canada or the U.S., our largest trading partner. The Canadian cement industry must remain globally competitive.

As we speak, British Columbia and Quebec apply a carbon tax on cement production. As a consequence, cement imports, mainly from Asia to Canada, are increasing because cement imports do not have to pay these carbon taxes. The end result is the following: (1) a net increase in global emissions from cement production in countries that oftentimes have less stringent environmental regulations; (2) a net increase in global emissions resulting from the transportation of cement from Asia to Canada; and (3) the creation of an uneven competitive playing field.

The Canadian cement industry cannot be subjected to both a cap-and-trade regime and carbon taxes. All this simply leads to investment and emissions leakages.

In addition, a one-size-fits-all recipe for climate change does not work. The cement industry has been calling for a sector-based approach, since it is essential to take into account the specific characteristics of the cement sector when designing a climate change regulatory regime. The cement industry has developed its globally applied greenhouse gas reporting protocol that will facilitate benchmarking of the North American cement industry.

In the study of Bill C-311, we encourage the committee to take into consideration the following.

First, the Canadian cement industry operates in a global market and faces competition from around the world. These forces are magnified in the Canada-U.S. context. The U.S. is the Canadian cement industry's single export market and of course Canada's most important trade partner. In designing greenhouse gas regulations, the government must align Canada's trade and climate change efforts to those of the U.S. on such issues as price signals and on mid- and long-term climate objectives to avoid disruption of cross-border trade due to differences in the approaches to greenhouse gas mitigation.

Thirdly, the Canadian cement industry cannot have divergent environmental policies imposing unnecessary regulatory frictions or allowing uncertainty when it comes to decisions of where to invest and create jobs.

To conclude, we firmly believe that the cement sector approach based on harmonization and alignment with the U.S. will result in real emissions reduction and sustain the domestic and continental competitive position of the cement industry. Again, this is dependent on getting climate change regulations right.

In addition, all levels of government must also introduce and/or modernize complementary regulatory regimes, fiscal policies, and programs that support the implementation of our climate change plan. The government must now decide on emissions reduction targets for the cement sector and continue to develop a plan with Canadian stakeholders and the U.S. government.

Close cooperation between the cement industry and the government is necessary if we are to implement our common plans and strategies to reduce greenhouse gases.

I thank you for your interest and your attention.

[The Chair, Conservative, James Bezan]

Merci.

I want to thank all of you for your opening comments. I really appreciate it.

We're going to go with our seven-minute round, and to kick us off, Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

Thanks, Mr. Chair.

Thank you, ladies and gentlemen, for being here today. I would like to begin by asking the same question I ask all the witnesses who have appeared here on Bill C-311. So I put the question directly to Mr. Lloyd, Mr. Boag, Mr. Watkins, and Mr. Boucher: do any of you have in your possession a domestic climate change plan for Canada? If you have a copy of that plan, can you share it with us?

Mr. Lloyd.

[Gordon Lloyd]

I think what we have is an understanding of elements of a plan. As I said in my remarks, I think the approach the government is taking, of moving on pace with the Americans, is the right way to go, the way we need to go. We can't have the details of the plan until we know how the Americans are in terms of being able to match that with them, where we can be different, where we are the same. It's a delicate balancing act.

[David McGuinty, Liberal, Ottawa South, ON]

So we don't have a plan. You don't have a copy of a plan in your hands?

[Gordon Lloyd]

We have elements of the plan that the government has, but no, we don't have a one-pager that is a plan.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you.

Mr. Boag.

[Peter Boag]

My comments would be essentially the same as Mr. Lloyd's. Certainly we've been in discussion with government over the last number of years. We've seen elements of plans. Some parts of it are out with respect to vehicle emissions requirements, but as Mr. Lloyd has said, and as I said in my remarks, I think we're taking a prudent approach to ensure that we pace and inform the ultimate plan in Canada with what's happening in a continental context.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you.

Mr. Watkins.

[Ron Watkins]

That is essentially the situation. I think you—

[David McGuinty, Liberal, Ottawa South, ON]

Thank you.

Mr. Boucher.

[Pierre Boucher]

We have the Turning the Corner framework, which we studied and certainly discussed at length with the federal government on all the issues. We're also working with provinces, certainly with British Columbia, Ontario, and Quebec, on their plans, which are intimately linked with the western climate initiative plans.

[David McGuinty, Liberal, Ottawa South, ON]

I will turn to the first theme of my questions, to all four of you this morning. All of you, directly or obliquely, referred to the need for national coherence and then you talked about continental coherence. I presume you're implying international coherence. Can you tell us how your sectors are reacting to this reality?

Someone mentioned that Quebec and B.C. have carbon taxes. Ontario is about to bring in emissions trading legislation; it will be joining the western climate initiative with other provinces. We have a 20% target from 1990 levels in Quebec, a 15% target in Ontario, a 13% target in British Columbia, and targets in virtually every province. Targets for eight of the provinces, when you average out their actual emission reduction targets, are 14% below 1990 levels from 2020.

When you call for coherence in Canada, the reality is—and I think you've all said this—that your own sectors have already met the Kyoto targets and beyond. Can you tell us how you expect the government to move forward now that we have, virtually, your sectors going it alone, provinces going it alone, and emissions trading systems being designed and finalized through the WCI and through the northeastern governors organization, for example? Can you tell us how you're going to deal with this incoherence that, by the way, has all happened in the last 46 months—all of it—since the arrival of the Conservative government? All of these measures have been brought in since their arrival. As a result of what we, in the official opposition, now describe as absolutely no leadership, your sectors are now going to be penalized, according to your own testimony, because we have provinces and sectors going it alone.

What would you recommend happen now, especially as we're about 10 days away from final texts being presented to 192 governments in Copenhagen who hope to ink—ink—at least the legal framework for a binding treaty? What's your advice to the government on how to move forward?

[Pierre Boucher]

There's surely a distinction to be made between economy-wide targets. I think Quebec has expressed theirs, and so has the United States. Canada is at least deliberating upon choosing an economy-wide sector target. The cement industry is much more interested in knowing the cement sector target, and we're working diligently with the provinces, Quebec and Ontario, on all these issues. We will want to determine our sector target for cement. That is fundamental for us. We'll have to get down to discussing the specificities in order to take into account the characteristics of the cement industry itself.

As far as carbon taxes go, it was clearly mentioned by the Quebec government, just a few days ago, that its carbon tax would be dropped when the cap-and-trade system comes into place for the industrial sectors. It has decided, certainly, that it will be adopting a sectoral approach to determining each industry sector's reductions. It has also clearly expressed that industry has done quite a bit. It will be focusing not only on the industrial sectors in Canada, but also on the housing industry and the transportation sectors.

[David McGuinty, Liberal, Ottawa South, ON]

I'll take it that Mr. Boucher was the only person who wanted to answer that.

Let me table a second theme for your consideration. I have one minute left, so maybe you can weave this into your answer.

We've heard expert testimony telling us that Canada's approach through intensity targets will not be fungible with the United States Senate bill, which is calling for absolute reductions, in a trading system. So the two won't connect. That's number one.

Number two, I want to ask how it's going to be possible. And this is our position in Copenhagen: we're going to meet the government's weak targets, apparently, exclusively using domestic reductions—no international credits, only Canadian offsets. The United States is contemplating massive use of international credits, and we all know that every country that has achieved its Kyoto reductions has done so by buying at least 20% of its credits offshore, its reductions.

Can you explain, on both of those fronts, how your sectors see us as congruous with the United States?

[Gordon Lloyd]

I'll go first on this one. I had some answers to the other one, too, but we all have to take turns.

As I said in my testimony, when we saw that the Americans were going to a cap-and-trade approach, we recommended that the Canadian government do the same. It looks like that's what the Canadian government is doing. The government has increasingly emphasized the fact that its 2020 target is an absolute target. The intensity target was, as we understood it, an interim measure along the way to getting there. And it looks like that interim measure's time has really passed. That's our understanding of where the government seems to be going. That, to me, was reinforced by the article by Minister Prentice that was in the paper yesterday.

We agree that it is important that we be able to trade with the Americans. That was one of the main reasons the Canadian Chemical Producers' Association recommended that we adopt a cap-and-trade approach in Canada, because trading with the U.S. is essential.

Your other point about the difficulty industry is facing with all these measures happening in the provinces is a valid point. We are worried about that too. Again, our hope is that once we end up moving forward at pace with the Americans and have a national approach in Canada, that will be folded into how Canada approaches things, just as the U.S. states are probably going to give way to the overall American approach.

[The Chair, Conservative, James Bezan]

Thank you.

I'll just remind witnesses that we have a set amount of time for each committee member. I ask that we stay within that timeline. If there is extra information you wish to give on any of the questions, we encourage you to submit it in writing. Just keep a notepad going, write down the questions you want to follow up on with the committee, and we'll look at the answers in written form. I have to be judicious in making sure that we maintain our rounds.

With that, we'll go to Monsieur Bigras, s'il vous plaît.

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

Thank you, Mr. Chairman. I'm going to try to be brief and get straight to the point.

I would like to draw your attention to section 7 of the bill we are reviewing today which aims to set greenhouse gas emission limits by province. In Canada we have a good range of varied industrial sectors. However in reality Canada's economic base is not the same from one ocean to the other and this is true even as regards the reduction of greenhouse gases.

I'll give you an example. The Quebec manufacturing sector, which forms our economic base, has reduced its greenhouse gas emissions by at least 24% since 1990. However, going by the federal approach, Quebec's manufacturing sector businesses will probably be placed on the same footing as the oil sector businesses. It seems to me thus that there is an inherent inequity in the system.

Would Quebec businesses not benefit from a common but differentiated approach domestically, just as the federal government is proposing on the international scene? Would that not be in their economic interest, in light of the fact that Quebec has made the commitment to reduce its greenhouse gas emissions by 20%? We know very well that the marginal effort will be more difficult in the manufacturing sector, which will force the government to set higher targets in the transportation sector. As Mr. Boag said, 40% of greenhouse gas emissions come from the transport sector.

Basically, would you not agree that Quebec's good record and ambitions mean that consequently there is much less pressure on its industry than that exerted in the rest of Canada, on one condition, which is that there be targets set by province and not sectoral targets from sea to sea?