Environment Committee on Dec. 1st, 2009

[Justin Trudeau, Liberal, Papineau, QC]

Thank you.

Go ahead, Mr. Boag.

[Peter Boag]

It will be very challenging, if not impossible, for the refining sector, in part because of the split between combustion and process emissions, which I mentioned earlier. For one-third of those emissions you can't eliminate and reduce those emissions other than by turning down the production dial at a refinery.

[Justin Trudeau, Liberal, Papineau, QC]

Thank you very much.

Mr. Watkins.

[Ron Watkins]

It is indeed difficult. To the point on fixed emissions, in our sector it's over 60%, so it would be very challenging indeed.

[Justin Trudeau, Liberal, Papineau, QC]

Mr. Boucher, clearly, this is going to be difficult.

[Pierre Boucher]

It would be more than challenging. It would be quite impossible.

[Justin Trudeau, Liberal, Papineau, QC]

With the various plans and the Turning the Corner framework attempt to do various things, what kind of support, directly, has your industry received from this government in terms of helping you and encouraging you to reach these targets they are putting forward?

[Gordon Lloyd]

The most positive thing has been the accelerated capital cost allowance. The fact that it hasn't gone to the five-year term and is stuck at two-year terms has limited the effectiveness of that. But certainly the two-year terms have been better than nothing. We were very pleased that there was all-party agreement at the industry committee and it was implemented.

[Justin Trudeau, Liberal, Papineau, QC]

But as you said, it's still not going to be enough to help you reach that.

[Gordon Lloyd]

No.

[Justin Trudeau, Liberal, Papineau, QC]

Is that sort of a similar...?

[Peter Boag]

I would echo Mr. Lloyd's comments in terms of the kinds of things that are out there within the tax system that facilitate investment. But to go back to some of my earlier remarks, Mr. Trudeau, we're not looking necessarily for that kind of support. We're looking for some flexibility in how we can move this, recognizing that there are trade-offs. We're probably moving in the next few years to another round of further desulphurization of fuels, which is great. It brings tremendous benefits to clean air. But the cost of that in terms of environmental trade-offs is that it also, then, requires more processing, more effort, and higher emissions on the GHG side.

[Justin Trudeau, Liberal, Papineau, QC]

Thank you.

I think what we've seen is that the targets, whether we're talking about the Bill C-311 targets or these targets proposed by the government, are nothing unless there are concrete measures and proper help for achieving the kinds of things we're trying to do.

[The Chair, Conservative, James Bezan]

I have to cut you off.

Mr. Watson, the floor is yours.

[Jeff Watson, Conservative, Essex, ON]

Thank you, Mr. Chair.

Thank you, of course, to our witnesses for appearing today.

Canadians who are tuning in and listening to the hearings today might get the impression that what this committee is discussing is the government's climate change policy. We're in fact talking about Bill C-311, which is the NDP's bill with respect to climate change. While we appreciate the general discussion on climate change policy, we could have been talking, for example, about the Liberals' failure to meet their minus 20% target over 1988 emissions by 2005 that was in their first red book, for example. But we're not here to talk about that. We are talking about Bill C-311.

Mr. Lloyd, I appreciate your comments with respect to the accelerated capital cost allowance, not only to inform the work this committee does but because of course we are in pre-budget discussions with respect to the upcoming budget in the new year. I assume that you've already made a presentation to that committee, but we can certainly make that a discussion as well. I will point out that it was originally a unanimous resolution by the industry committee that was supported by all parties. Unfortunately, the three opposition parties at one time or another have voted against those measures in budgets.

Going on to Bill C-311, one of the things we've heard in testimony already before this committee, which I think is very important.... It's not the government's opinion; it was an industry opinion. We had the Pew Center on Global Climate Change and Environment Northeast before this committee talking about the negative consequences of widely dissimilar targets between Canada and the United States.

Just to get us onto a page where we are comparing apples to apples, the Government of Canada's target, translated to a 1990 baseline, is roughly minus 3%. The U.S. target, depending on which one you take.... Neither target reaches minus 10%. It's a single digit over 1990. The NDP's targets are about minus 25% over 1990 levels by 2020.

Both organizations talked about serious trade problems that could arise and said that this could create political problems as well. I think one of them they mentioned was the flow of investment out of Canada and into the United States if we had a significantly more rigorous target within a cap-and-trade system than the United States.

Can you comment on what widely dissimilar targets within that kind of system would mean to your industries? Can you confirm whether that would mean a capital outflow for the purchase of credits, for example, on the U.S. side, where it might be cheaper? Can you walk us through what that will mean for your sectors?

Mr. Boag, I don't know if you want to start. Or maybe Mr. Lloyd does.

[Gordon Lloyd]

I think it's important that we have targets that are very similar in our sector to the Americans, for the reasons you've outlined and that I talked about in our submission. If we're much less onerous than the Americans, we're going to face border measures, and we're very concerned about that. They're a hugely important market for us. If we're much higher than the Americans, it's going to be competitively difficult in Canada. So we have a very narrow window to play with. And it's also a sectoral window.

One of the reasons it's important to move in pace with the Americans is their system is so much in flux. There was speculation in The Economist magazine a couple of weeks ago that some of the manufacturing sectors may not be covered in the States. That's not their current legislation, but we need to wait and see how that fleshes out.

[Jeff Watson, Conservative, Essex, ON]

Before I go to Mr. Boag, just so we're not being euphemistic about it, competitive disadvantage means job loss, does it not?

[Gordon Lloyd]

Yes.

[Jeff Watson, Conservative, Essex, ON]

Okay, thank you.

Mr. Boag.

[Peter Boag]

For our sector, the situation would be the same. This is a sector that's already under tremendous stress in a North American context. I would emphasize that in terms of refined petroleum products, there is no unique Canadian market. It is a continental market, with a free flow of fuel products across our border and for products into and out of North America. So this is an industry that's already under tremendous stress. We see a considerable amount of refinery rationalization in the United States. Utilization levels have dropped below a level that a number of refineries are no longer economically viable.

And we see all the kinds of stresses already in Canada, with respect to the investment environment for refineries. A couple of years ago a potential new refinery in Sarnia was on the table. That decision has now been made to not do that. We've seen a significant retraction in Atlantic Canada, where a new refinery was proposed for Newfoundland. That's gone. A new refinery for New Brunswick--that's shelved for the foreseeable future. So those are the kinds of things that ultimately influence the investment plan for our industry.

[Ron Watkins]

To elaborate on the points by my colleagues, clearly there's that issue of Canada versus U.S., and if we were put in a position where we had to, in essence, either face a carbon tax in the U.S. or buy carbon credits to somehow match up, that has a direct economic consequence for producers here.

Even if Canada and the U.S. more or less move in lockstep, the other factor, frankly, is this growing dominance of China in terms of world steel trade, and that's really a core factor in our industry. If China is not facing obligations such as we are, that trade and investment impact is important to us as well.

[The Chair, Conservative, James Bezan]

Sorry, Mr. Watson, your time has expired.

Before we move to our last questioner, I just want to remind committee members that this is our last panel of witnesses. We are going to be moving to clause-by-clause next. Please submit your amendments to the bill, if you have any, by five o'clock today.

With that, last but not least, Mr. Braid.

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

Thank you very much, Mr. Chair.

Thank you very much to all of our witnesses for being here and for all of your presentations this afternoon.

I'll start with two questions. The first one is for you, Mr. Boag, and the second one is to Mr. Lloyd, and if we have additional time after that I'll proceed from there.

Mr. Boag, in your presentation, you indicated that one of the things we also need to look at in terms of the importance of reducing greenhouse gas emissions is to consider changes and improvements to the sector of the economy that uses your product, or much of your product, and that's the transportation sector.

Is it fair to say that you applaud the federal government's recently announced changes to improve tailpipe emission standards?

[Peter Boag]

Certainly, as I mentioned in my remarks, as refiners we ultimately have no control over the demand for our product, but one of the ways you can alter that demand and ultimately alter the emissions is to improve vehicle efficiency. Certainly, that's one of the steps we see as part of an overall approach to the transportation sector, steps to improve vehicle efficiency, again, though, in line with what's being done in the broader context of what is a highly integrated North American market.

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

Which is exactly what we're doing.

Do you have any other thoughts or recommendations with respect to enhancements or improvements we can make to the transportation sector? I know it's somewhat outside your area of expertise, but any other...?