Finance Committee on Sept. 29th, 2009

[Charles Ashbey]

Very briefly, our CAO is actually more versed in that than I am, and he is not here.

Brian, I don't know if you have any comment on that.

[Brian Pysyk, Director of Corporate Services, County of Athabasca]

Not a lot, but just to say that for every dollar a company puts in, if they can see something at the end of the tunnel, they may invest more in the long run. So having any kind of a tax break would promote this development.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Duncan, please, for seven minutes.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you, Mr. Chair.

My first question or comment would be for Mr. Schmeiser.

I appreciate your pointing out the issue where we're trying to get all sectors to reduce greenhouse gases. Of course, you're looking to the farm sector, both in energy use but also in your equipment.

Two things occur to me here. I'm not sure how much of this equipment is actually manufactured in Canada, but given that there's going to be a North American market, it may be advantageous if we stepped up to the plate and helped the manufacturing industry get in early and devise these energy efficient mechanisms.

But it also occurs to me that we need to start being far more innovative in the greenhouse gas offsets. Why couldn't there be an offset where somebody simply buys the extra cost to upgrade the tractors?

I would encourage you to look into that. We need to be go outside the box and look at different ways of doing this, because agriculture is an important part of our economy. It's already stretched because of the drought and its impact.

I'm just wondering if you have pursued those kinds of ideas.

[John Schmeiser]

Yes, first of all, on the issue of the offsets, I think there's a great opportunity for our farmer customers with carbon offsets, or having carbon injected into fields. It's something that has been looked at and been tried by a number of organizations, but it really has not got off the ground. I think there's just huge potential and a huge revenue potential for our farmer customers with carbon offsets.

With regard to the equipment manufacturers, there is only one tractor manufacturer left in Canada and that's Buhler Manufacturing out of Winnipeg. Buhler maybe speaks to a bigger issue; it's not only a North American market for them, but a worldwide market. They're manufacturing tractors that are going to Russia and Eastern Europe right out of Winnipeg, and they are a great Canadian success story. Even though they are owned by Russians right now, they are still creating jobs here in Canada, which is something that our dealers have a lot of pride in when they sell that product.

All of the tractors of the other major manufacturers of tractors, John Deere and Case IH, are manufactured in the United States.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I have the same comment for Wood Buffalo Housing.

I'm delighted to hear about the proposal for the energy efficient, affordable housing. That's been an ongoing serious problem, and it's providing infrastructure for the massively overcharged economy up there. It's slowed down now, simply because of a lot of regulatory uncertainty.

I'm wondering, though, again, why should the taxpayer pay for affordable housing when in many cases the people who work up there make far more than a lot of other people in Canada? How about the idea of a potential offset, where some of the energy producers up there subsidize the development of the energy efficient housing?

[Bryan Lutes]

Thank you for the question.

We have looked at off-site construction methods and our initial research says that we have a method of constructing off-site that would reduce the carbon footprint by 43%, but we still have high needs and high demands, with the required income to rent a three-bedroom apartment being $99,900 a year on a 30% rent geared to income. It's $75,000 for a one-bedroom, so it's really--

[Linda Duncan, NDP, Edmonton Strathcona, AB]

It's okay, I'm all for more federal money into affordable housing. Don't worry about that. I'm just trying to look at dealing with that additional issue.

Do I have time for a few more questions? I have some questions for Capital Power.

I found your presentation very interesting, and I would appreciate your explaining to the committee why taxpayers should subsidize coal when for less money we could be deploying more gas, renewable, and retrofit at the same value? Why should the taxpayer be subsidizing coal-fired, which is in all cases the dirtiest source of power? It's cheap, because currently our federal regulatory standards are low.

Minister Baird promised higher air emission standards. We're waiting for those to be delivered.

I attended the World Business Summit on Climate Change, and there was a resounding, 100% recommendation from worldwide business--I don't think any Canadian business was there, but it was Europe, China, the United States, all over the world--that we need to put the high price on carbon now to incent the shift to a greener economy, as the International Energy Agency has said.

My question is, why should the taxpayer be subsidizing dirty coal?

[Dr. David Lewin]

I will do my best to answer that.

When looking at power supply, simply in the province of Alberta, for example, from a Capital Power point of view, we recognize that there are huge coal reserves, something like 32 billion tonnes of coal in the ground that are economically mineable. So our view is that it's not necessarily the only source of fuel for future power generation, but it's not an energy source that you can simply ignore and walk away from.

We do have considerable experience to date in using coal in the province for power generation, but we do recognize that environmental emission standards are changing as we speak, and that really brought on the need for Genesee 3, which was at its time and still is the cleanest coal-fired power generation in Canada. It's a supercritical unit, but we do recognize now that there's another step that has to be made.

In our portfolio of supply we do have coal, natural gas, wind, small hydro, and so forth, and one thing I would always advise when you're designing a power system is never to rely on any one particular source of fuel. We recognize that in that portfolio the coal has a significant role to play. Our responsibility is to try to make that coal-fired generation as clean as possible, and that is the purpose of the last three years that we spent in designing the IGCC project and bringing it to the point where it is now ready for commercialization.

It will not be commercialized, it will not be built, unless we get some additional help from public funds and from things like changes to the Income Tax Act. But we're not saying that coal is necessarily the panacea. We're saying it is one of the energy sources for a portfolio of supply options that we have available to us, particularly in this province.

[The Chair, Conservative, James Rajotte]

You have about 20 seconds, if you want to ask a follow-up question.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I have a quick comment for Athabasca University. I'm absolutely delighted that you want to get more into the development and deployment of alternative renewable technologies. That has been the downside of the federal support. There has not been support for deployment. So I'm absolutely delighted that Athabasca University is interested in getting into that.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Pacetti, please.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing. It's always a challenge for us to try to ask questions to all the groups. We don't manage to ask questions to everybody, so you have to bear with us.

I want to start with the Small Explorers and Producers Association. How do you normally finance your operations? Is it only through the CEE and CDE? Are there any public companies in your group?

[Gerry Gilewicz]

It's virtually all public companies.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Would any of them have been income trusts?

[Gerry Gilewicz]

No. When I talk about the “junior” world and the three recommendations I had, it would be unique to the smaller companies. The income trusts are completely beyond the scope of these three proposals, as well as the major oil and gas companies, with the exception of that first recommendation, which already is a cap recommendation. We're just piggybacking on that one.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So the majority of your funding would come through these programs, the CDE or the CEE.

[Gerry Gilewicz]

The funding of current operations comes from two sources. One is bank debt, which has been severely constrained in the last 12 months with the credit crisis. The second is raising money in the equity markets. The flow-through share program allows the small companies to be able to go into the equity markets and raise money on a favourable basis, because you're giving the investor the ability to get a tax deduction with the purchase of the shares.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So whether it's good times or bad times, do you still have a problem with the flow-through or is the pricing changed?

[Gerry Gilewicz]

If it's good or bad times, flow-through shares are going to be very relevant. In the bad times, for the junior oil and gas companies, sometimes it's the only vehicle they have to raise money. In the good times, there's no problem selling flow-through shares, but when, really, are the good times for the juniors?

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

Thank you.

Mr. Scozzafava, I have a quick question for you, since you're the tax expert. If your company is going to spend money for carbon capture and storage, most of it is technology. Isn't most of that deductible right away? Why does it have to be capitalized?

[Tony Scozzafava]

Most of the technology related to gasification of coal and capture is already out there, so in my view, most of it would not be eligible for the scientific research and experimental development program. What we're trying to do is combine those technologies with a commercial-scale power plant, which to this date is not proven. So that's the element of risk that's being taken here, building something to that scale--

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

But wouldn't it be an operating expense, even if it were not eligible for scientific research?

[Tony Scozzafava]

It would not be an operating expense, because it would have a useful life beyond one year.

[Massimo Pacetti, Liberal, Saint-Léonard—Saint-Michel, QC]

So you would have to capitalize all those costs.

Is there any hard equipment involved?