Foreign Affairs Committee on Feb. 25th, 2009
Evidence of meeting #5 for Foreign Affairs and International Development in the 40th Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was energy.
A recording is available from Parliament.
On the agenda
- André Plourde Professor, Department of Economics, University of Alberta
- Thomas d'Aquino Chief Executive and President, Canadian Council of Chief Executives
- Sam Boutziouvis Vice-President, Economics and International Trade, Canadian Council of Chief Executives
- David Stewart-Patterson Executive Vice-President, Canadian Council of Chief Executives
- Clerk of the Committee Ms. Angela Crandall
Chief Executive and President, Canadian Council of Chief Executives
Mr. Chairman, I know exactly what you're getting at. I have to tell you, as my colleagues will confirm, you have no idea the number of hours we spent, going way back into the early 1990s, debating the issue of the science. At issue there was this idea that we don't know. There are scientists on both sides. In fact, we kept a ledger of who said what, who was for, who was against, who could prove, who could not. While we know that a lot of people played fast and loose with the numbers and the credibility of those numbers, the conclusion we finally came to was that, while I personally find it intellectually stimulating, to continue to debate the science would really hold us up from doing a lot of things we should be doing anyway.
We've adopted, collectively as an organization, 150 CEOs who collectively administer $3.5 trillion in assets and are responsible for the vast majority of GDP.... The conclusion we came to is that we should be prudential on the science. In other words, we don't know for sure, but we do see evidence that increasingly is disturbing. So what did we conclude? We said, “Look, instead of dissipating energy in these huge debates about whether it is real or not, why don't we do things we should be doing anyway?” Why don't we invest in smart technologies? Why don't we invest in environmental innovations? Even though you're right that we're a big cold country with huge spaces—God, we've lived through these winters when we would pray for global warming sometimes—and also demographics that are working in our favour to increase C02 emissions, we came to this conclusion. Why not adopt the new technologies and new sciences, which is in the direction we should be moving in anyway, in order to make us less reliant on petroleum-based resources?
Once we got out of the corral of that debate, then whether it was coal, or ethanol, or nuclear, or oil and gas, or oil sands, or hydroelectric power, or biomass, we all said, All of these sources of energy are relevant. I don't want anybody in this room, one CEO arguing with another one....” You would not believe the degree of saying, “Listen, I'm in oil sands, so I'm okay; you're in coal, so you're not.” And we said, “None of that, because we all have to contribute to the energy needs of the planet in one way or another, but let's try to do it in the smartest way we possibly can.”
That way we left the science debate behind. It's not that we don't read it still. It's not that whenever there's a new study we don't pay attention to it. That's what we've chosen to do. It's what I call the prudential approach, which in the final analysis will make us all more responsible, more effective citizens applying and using the best of technologies.
Here is the last point. We recognized this in a major study we did in 1990 with Professor Michael Porter. The quicker we adopt environmental sustainable technologies, the quicker we do that, the more competitive we're going to be into the 21st century, we argued, and that's the way we feel now. I don't think we've done nearly enough, but we can and should be doing more.
The Chair Kevin Sorenson
Thank you, Mr. d'Aquino.
We'll move to Mr. Dewar, please.
Paul Dewar Ottawa Centre, ON
Thank you, Chair, and thank you to our guests for taking the time to be here today.
I actually wanted to start on the issue of energy, the environment, and the economy. It's a different triple-e than the one we're used to hearing around here. I think it's one that is welcome. Certainly if you look at the approach that we put forward—not in this past election, but in the election before, and the election before that—it was one that looked at the environment and embraced the idea of a cap and trade system.
I'll be posing my question to you, Mr. Plourde, to start.
The reasons we put forward the cap and trade model for the environment were threefold. One, it was being used in Europe, though we're still working out some of the kinks. Secondly, it acknowledges the nature of the problem of climate change, which doesn't have passports, as you are dealing with a continent. The third one was that when you're looking at greenhouse gas emissions and at how you deal with climate change, it seemed to us that there was a similar phenomenon before between Canada and the U.S., and that was the one dealing with acid rain. When you put hard caps on acid rain and you say, “This is it; if you don't meet this threshold, then we'll fine you....” Of course, we know what happened in due course.
I must say, it was through a lot of political pressure. I remember standing outside as a university student protesting against Bill Davis at the time, saying he should do something about acid rain. It wasn't something they embraced. At first they said, “Go away and leave us alone.” Businesses didn't really embrace it initially either. They said, “You're going to bankrupt us.” That's why we looked at cap and trade, because it makes sense.
We're now facing a bit of a dilemma. With all due respect to the success of the trip—and I agree with the comments made about Mr. Obama being here, and the fact that it was his first visit and was good news—the problem I'm finding is that we're a little bit behind in embracing this.
I wanted your take on this, because I read your comments here. You think it is right to have a continental approach, but when it comes to a cap and trade system, if you think that's the way to go—and certainly that's the direction we're going—what are the component parts that we need to catch up on, number one?
Number two, who should be leading this within government? Maybe you don't have an opinion on this, and I appreciate it if you don't. What department should lead? Or is there a model you can put forward that indicates it's maybe not a departmental approach?
The Chair Kevin Sorenson
Thank you, Mr. Dewar.
Whether we use a cap and trade system or any other type of economic instrument—either putting in a charge, a levy, a tax, or a cap and trade, or whatever you want to do—basically what it does is distribute the risk differently. So with a cap and trade system, if you design it one way, you know exactly how many emissions you're going to get. You're not too sure how much it's going to cost you to get there. If you put in a tax, you know roughly how much you're going to pay per emission and therefore what kind of technological and behavioural response you're going to get, but you don't know the exact level of emissions you're going to get.
You can, of course, marry the two systems by having a cap and trade system, where the cap is something that you can buy your way out of at a relative price, with somebody becoming the issuer of permits.
So I think in some sense that there are big advantages, whatever approach you use, in having as broad a mandate as possible for this; hence, the continental approach—in part because it allows you to find what the cheapest ways of reducing greenhouse gas emissions are by the people who actually know a lot more about this than people sitting in offices like me, or public servants. I have no qualms about that. So I think it puts the onus of action where there's the most information to deal with it.
So whether you go with a cap and trade system or something else, the key thing is to design it in a way that will allow the individuals who participate in it to find the cheapest way of addressing the problem.
The second thing is to try to have this as coordinated as possible, in the sense that what you don't want to have is what we tend to observe now, this plethora of little states, and little cities in some cases, taking initiatives on problems that are, as we've put it, planetary or continent-wide, at least. So I think it's important to find a way where you can act in an integrated fashion at the level of the continent, but also within individual countries, so that we're not redoing different things.
In some sense, the question of who should be leading this is a bit of a moot issue, because it really depends on which instrument you pick and what kinds of constraints you put on the instrument. If you basically have a permit system, where you don't freely allocate anything but where everybody has to bid within an auction system, it doesn't really matter who administers it. In a big-picture sense, you can probably create an agency and let them do it, even if it's a private sector agency under some government oversight.
More importantly, the issue, I think, is that you shouldn't try to do too much with a single instrument. That's the kind of problem we've run into for the last 15 years, at the very least, with this policy. We've tried to design a large final emitter system that was so complicated in how it was supposed to work, in terms of the allocation of permits and permissions and all kinds of things, that they essentially cratered in on themselves. It was too complicated to administer. If you think there are distributional problems and you don't like how the burden is shared, and you feel there are poverty issues, for example, or competitiveness issues, use other tools to deal with those. Don't try to lump too much onto the one tool that you want to use to deal with the problem at hand.
The Chair Kevin Sorenson
Mr. Dewar, you have lots of time.
Paul Dewar Ottawa Centre, ON
Thank you for that.
I wanted to establish the approach, certainly, and I would agree with you that you don't want to put too much on this: it is to design to reduce greenhouse gas emissions, not to provide you with all of your social policy instruments, etc. I agree with that.
In fact, I think of a provincial experience, and it is from Manitoba—I happen to have a brother who lives there and knows a bit about it. They used conservation as the way to go and provided very low-interest loans for retrofits. They then allowed people to pay those off through savings in their energy bills, and of course that reduced the amount of energy that consumers and businesses were using. For Manitoba that was good news because it meant they had more excess energy to sell.
I want to go to this point, because what they've done is successfully reduce up to 40% of their consumption in energy, which they then are able to sell. The sad part is—not sad for Manitoba but for Canada in some respects—that they seem to have only buyers as of late, though it's changed a bit, from the northern States. Quebec has the same phenomenon.
The direction I want to go in with this is that we heard that the President and the Prime Minister were discussing investment in a smart grid. We applaud that. One of the things we'd been pushing for in the last two elections was to have an east-west grid built.
How do you—and anyone else can please chime in on this—see the conversations that have taken place to date on energy policy and infrastructure? In other words, where should we be putting our investment dollars when it comes to the grid? The east-west grid seems to need some work, if we're going to go that route. But some might say, just do it north-south; that makes more sense. It seems the Americans are going to be going there. They've certainly announced a lot of money for this, and it's been front and centre in their energy policy.
Where should Canada be when it comes to that particular file? Should we be doing just east-west? Should we do a bit of both? How should it work?
It's clear that a problem Canadian utilities or Canadian owners of transmission facilities have shared with U.S. owners of transmission facilities has been an under-investment in transmission for quite some time in both countries. Some of this is for regulatory reasons; the shift in models of regulation has in some sense left very unclear what the incentives for transmission investments are. I think this is an issue that needs to be addressed.
In terms of the structure of the grid, what we need to let emerge is what makes the most sense from a commercial perspective. Set up the regulations or the framework you want in place and then allow people to make decisions as to where reasonable investments make sense. In some sense, if the customers are relatively close, it makes more sense to have transmission investments working that way than to decide, for example, to use hydro power from Manitoba to replace coal generation in Alberta. So we need to think.
If we think of this as a security system argument, we need to recognize again that Canada and the U.S. are integrated in various bits within the electricity system. The best investment for consumers as a whole is where it makes most commercial sense, to strengthen reliability and to make power available at relatively low prices once the policy framework is in place.
The Chair Kevin Sorenson
Thank you, Mr. Plourde.
February 25th, 2009 / 4:35 p.m.
Sam Boutziouvis Vice-President, Economics and International Trade, Canadian Council of Chief Executives
Just as a brief additional comment to Mr. Plourde's excellent response, it seems to me that regionally—in the Pacific northwest between the provinces and states, in the U.S. midwest, in the east between Quebec and New York State and Quebec and other states—there already is tremendous collaboration. Pragmatically speaking, we should build on that collaboration. In fact, the leaders both agreed that it might be a good idea to build a grid stakeholders group to get together to discuss how to in fact improve reliability, as was suggested earlier by Mr. Plourde, but also to plug in...because we haven't done this yet. How do you plug wind power into the main grid? How do you plug clean, renewable sources of energy into the grid? It seems to me that, being practical and pragmatic, you use the existing collaboration, which is excellent.
We've had people from PNWER come in to see us, and they're doing fantastic work in the Pacific northwest, trying to build some of these transition grids from the northern tip of British Columbia right into Washington and into Oregon. The same is true in the U.S. northeast. The eastern provinces, with the five eastern states, are doing fantastic work together in this particular area.
Paul Dewar Ottawa Centre, ON
The Chair Kevin Sorenson
Lois Brown Newmarket—Aurora, ON
Thank you, Mr. Chair.
I would really like a comment from both Mr. Plourde and Mr. d'Aquino on this, because both of them commented on this in their remarks. And just to preface this, last June I had a rather nasty hand accident, and it became a bit of a metaphor for me of what is going on in our market. I see the invisible hand of the market having been seriously injured with some of the policy decisions that we have made and government intervention into it, and Mr. d'Aquino, I sort of build on your comment about the need to get the blood flowing again. I certainly had to do that with my hand injury.
Mr. Plourde, you talked about having common policy decisions; and Mr. d'Aquino, you talked about the intertwining of our economies. What I would like you to comment on is, as our economies become more and more integrated, how do we ensure that these policy decisions that we make are not going to intrude into our economy in terms of the way the economy needs to work?
Mr. Plourde, you talked a little bit about that in your discussion of cap and trade and letting the market work. How do you see that happening with the policy decisions we need to make as two federations in North America, but seeing the intertwining of our economies?
In terms of simply energy, I'm going to talk about Canada-U.S. energy relations, not about environment aspects, which I'll come to later on.
In terms of Canada-U.S. energy relations, we've done a lot of market liberation over the last 25 years, and in some sense, it has resulted in exactly the kinds of things we should have expected: huge increases in Canadian energy production, huge increases in exports of energy from Canada to the United States. What has emerged over the last while, however, is that there are clearly regulatory issues both within Canada across jurisdictions and between Canada and the U.S. Building transmission capacity, building pipelines, building energy-related infrastructure of those kinds becomes much more difficult, in part because of the regulatory approaches that have been taken in Canada, within the provinces, and in the U.S. as well.
That, I think, would be a really important part of a policy agenda, to ensure better regulatory cooperation within Canada and across the international border to address those kinds of issues in the future. It is complicated, because it includes first nations issues and all those kinds of things, but the federal government has a duty, a responsibility, to take a leadership role in this area.
On the environmental side, I think it is not possible to solve or address this problem in an effective and meaningful way without government intervention. The government is the agent in the economy that can set the rules to make the behaviour. Whether it's technological development and adoption, or whether it is how energy producers behave or consume energy, or how energy consumers behave, government is the agent in the economy that must set the context. The responsibility, I would argue, of a government is to set the context in a way that allows us to deal with the problem in the cheapest way possible, and in that sense, that has been the struggle of Canadian environmental and energy policy for the last many, many decades. We've not been able to find the right coalition to bring together an effective and credible policy approach that will deliver real progress on the agenda, but also in a way that delivers results at the cheapest cost.
The Chair Kevin Sorenson
Thank you, Ms. Brown.
Did anyone else want to venture quickly into part of that question?
We're going to Mr. Pearson, then, please.