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.