Finance Committee on Sept. 29th, 2009

[John McCallum, Liberal, Markham—Unionville, ON]

Thank you.

My last question is for you, Mr. Ashbey, about your request for $10 billion per year more in federal infrastructure funding. What form do you think it should take?

At the last session, we had the mayor of Edmonton, who was a strong advocate of the gas tax mechanism, as was the Federation of Canadian Municipalities. Would that be your preference too, or would you prefer another process?

[Charles Ashbey]

If it could be accomplished with the gas tax, I think that's an equitable manner of doing it. I think it's just in recognition that, particularly in a time of inflation, the program was very well received. At the end of the line, in my mind, there's one tax dollar. So I think the gas tax is one way of doing it. I'd defer to your judgment. There's some politics involved there in how you get that amount.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. McCallum.

We're going to go to Monsieur Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Good morning to all witnesses.

I would like to put my first question to Mr. Scozzafava or Mr. Lewin; Mr. Scozzafava said that Mr. Lewin would be taking technical questions.

You expect to maintain and even increase power generation through the use of coal. As a way to reduce greenhouse gases, you suggest capturing and storing carbon, or at the very least, enhancing the capacity to do so.

Is this technology not still in its trial stages? Is there a sufficient number of safe sites where your group can move ahead with this recommendation and meet the proposed objectives?

[Dr. David Lewin, Senior Vice-President, IGCC Development, Capital Power Corporation]

Thank you for the question.

The technology really is in what we call its early commercial phase. We're trying to accelerate the commercialization of technology that is now currently available, but until the marketplace, in terms of electricity prices, is at a point where a project like this would be commercial from an industry point of view, we wouldn't go ahead and build that particular project unless we had additional help--public funding, changes to the accelerated capital cost allowance, things like that. So it's in what I would call its early commercial phase.

These kinds of projects are also going ahead in other countries--certainly in the U.S. Japan, I know, is looking at it because we had some Japanese visitors to our power plant on Thursday of last week. Also in Europe.... It's sort of a world-wide trend in terms of carbon capture and storage.

Our particular focus is on carbon capture, so our expertise is developing on the carbon capture side and not so much on the storage side. In this project we would first of all rely heavily on the transportation industry in terms of transporting the CO₂ captured in a liquid form, and then safely storing the CO₂, likely initially for enhanced ore recovery, in low or non-producing oil wells not too distant from our power plant around the Pembina Swan Hills area in the province. I know there are a number of companies that are, as we speak, running pilot schemes testing the disposal and safe storage of CO₂.

That's the limit of my knowledge in terms of actually storing the CO₂ underground, but I will add that the use of CO₂ for enhanced ore recovery has been done for the last 30-plus years in Texas. Naturally occurring CO₂ is recycled and used for enhanced ore recovery, and the CO₂ remains down there. Weyburn, Saskatchewan, has had a similar project whereby they take CO₂ from North Dakota and have stored CO₂ for the last few years. Also at Joffre in Alberta, this sort of process has been done for a number of years. So all indications are that this process will be safe disposal of CO₂, but I would recommend to the committee to talk to the Alberta Research Council, who have more expertise than I do.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

My second question is for Mr. Lutes, from the Wood Buffalo Housing & Development Corporation. You spoke of “net zero” energy consumption. “Net zero” accredited buildings would be new buildings connected to a public grid, that would generate an equal, if not greater amount of energy than they consume.

I have trouble understanding how a building would be able to produce energy.

[Bryan Lutes]

Thank you for the question.

Net zero energy homes would ultimately produce more energy than they use from the grid. They would need to be connected to the grid because of seasonal peaks and demands. In northern latitudes you have less solar. So through different methods, geothermal energy, solar energy, solar-electric, passive solar, and wind energy, we would be able to generate more energy than we would use from the grid and ultimately, potentially, push back into the grid and keep the net usage of that house at or near zero.

[The Chair, Conservative, James Rajotte]

You have one minute remaining, Mr. Laforest.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Is the case hypothetical, or do such buildings already exist in an environment where the elements are just as harsh as they are in the region of Fort McMurray? They may exist in Europe, but in the Far North, it will be more difficult to comply with standards and generate an amount of energy equal to what is consumed. You talked about seasonal peaks and temperature differences; I suppose these factors would make meeting the objective more complex.

[The Chair, Conservative, James Rajotte]

Just a brief response, Mr. Lutes.

[Bryan Lutes]

Yes.

The technology is there. There are a couple of houses in Edmonton that are currently up and running. Texas has some stuff. There's some stuff in the Middle East, where a whole community is running off the technology. The technology is increasing day by day.

Most of the advantage to the energy efficiency is in the building envelope, to get to an 80 to 90 on the EnerGuide rating of a building envelope and ready for the new technology when it comes. We're working with the University of Alberta in that regard to help further that.

[Jean-Yves Laforest, Bloc, Saint-Maurice—Champlain, QC]

Merci.

[The Chair, Conservative, James Rajotte]

We'll go to Mr. Dechert, please.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Thank you, Mr. Chair.

Gentlemen, thank you for your presentations today and for taking the time to share them with us.

I have a number of questions for several of the speakers. I'd like to start with Mr. Schmeiser with the North American Equipment Dealers Association.

I take your point about the harness and sleigh equipment being still included in the Income Tax Act. We certainly need to update that legislation.

I heard your proposal to increase the CCA rate on certain types of farm equipment from 30% to 40%.

What is the average life of a new piece of sophisticated machinery like a $300,000 combine?

[John Schmeiser]

We look at it this way: how quickly are our customers trading in their equipment? In the seventies and early eighties, it was very common for a smaller farm, with smaller-sized equipment, to hang on to a combine for anywhere from 8 to 12 years before the effective life of the machine was pretty done and major overhaul work would have to be done on it. Now we're seeing with the high-end stuff that they're doing more bushels, more acres, and they're doing it in a shorter period of time. We're seeing the five-year range now as the effective life cycle.

That came from data that came from our dealers. That was the basis for our organization going to Washington, D.C., and getting the change from seven to five years.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Okay. That's interesting.

In terms of your proposal regarding an incentive to replace, repair, or retrofit diesel engines, what would you estimate the cost of that proposal to be to the Government of Canada? What kind of investment would you expect equipment users to make if we were to bring in that kind of an incentive?

[John Schmeiser]

We have a great example in the state of California, which population-wise is very similar to Canada. They have a program called the Carl Moyer program. It sets aside, and this is just the state, $150 million a year. When a farmer brings in an older engine--tier 0, tier 1, or tier 2--and the engine needs a complete overhaul, California will pay for the brand new tier 3 engine to go in there, and soon the tier 4 engine that's coming very shortly. They will pay for the difference between the cost of the new engine and the cost of the overhaul. They've committed $150 million a year to do that, and there's been a lot of take-up.

What happens with the old engine, though, is that a hole is punched through the block and it becomes scrap metal. We have an issue with this green wave. Maybe our industry is a little bit behind the curve on that, but 95% of equipment transaction sales involve a trade-in. If all of a sudden one state deems that they no longer want tier 3 engines in California, what happens to the value of that farm equipment?

That state is becoming a model for the rest of the United States. Because of financial challenges at the state level, they're not going to create another California Air Resources Board; they're just going to adopt the California standards. The manufacturers are not going to make two engines for the North American market. We're going to get caught up in that. At the end of the day, it will mean increased costs to our farmer customers.

I'll give you one quick example. It's with regard to moving from tier 3 to tier 4 engines in tractors. We asked John Deere what that would mean in additional costs for the farmer. Similar to the housing concept, the air coming out of the tier 4 engines should be cleaner than the air going into the tier 4 engines. John Deere told us that on their largest horsepower four-wheel-drive tractor, that is going to cost an additional 20%. That's $50,000 to $60,000 extra that the farmer is going to have to pay to meet these environmental standards.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Okay. Thank you very much.

I have a question for Mr. Heyhurst of Grant MacEwan college.

You mentioned that one proposal would be to build a rural broadband network to assist in the development of distance learning, I believe.

Are you aware of the contribution, I think $250 million, that was made in Budget 2009 for the construction of a rural broadband network across Canada? Is that a program that you think is a good idea, and do you think it should be expanded?

[Alan Heyhurst]

I wasn't aware of it, and if that program is in existence, I'd certainly—

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

I believe some of those networks are under construction now.

[Alan Heyhurst]

The provincial government has also put a fair amount of money into connectivity in the province. Whether that will go as far as the student in their house may be the next level.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Okay, thanks very much.

I have a question for Mr. Scozzafava from Capital Power Corporation. Your proposal to increase the capital cost allowance for carbon capture and storage technologies is an interesting proposal. I think it's something we need to work on.

I just returned from China on the weekend, where they have a major environmental issue. They're looking significantly at carbon capture and storage; they use a lot of coal.

If we allow an accelerated capital cost allowance for companies in Canada, do you think that will benefit the Canadian companies who develop that technology and thereby enable us to access big markets like India and China in the future?

[Tony Scozzafava]

I think there is an incentive to develop the first commercial-sized power plant that uses CCS technology in Canada.

We have to keep in mind that power is transportable across the borders of Canada and the U.S., and there are other parties in the United States currently looking at similar projects. There is an abundance of coal in the United States as well, which could be used in a similar fashion. So I think there is an incentive, notwithstanding the gasification technology and a lot of the CCS technology that's developed in Europe or elsewhere.

I think putting together the CCS technology and gasification technology with a commercial-scale power plant would be of benefit to Canadian industry in terms of having that leading edge and being at the forefront of that market.

[The Chair, Conservative, James Rajotte]

You have 20 seconds for a really quick question.

[Bob Dechert, Conservative, Mississauga—Erindale, ON]

Okay. I just have a quick question for the County of Athabasca.

Regarding your proposal on the SR and ED tax credit, can you comment on what you think the estimated benefit of that proposal would be in terms of new investment in scientific research and development in Canada?