Thank you very much, Mr. Chairman.
I tabled a statement, which I hope got to you in time to distribute to the members. That being the case, I'll give you the Cole's Notes version of the presentation.
I guess the starting point for what I want to say, Mr. Chairman, is the observation that in a very real sense, Canadian industry, and Canadian manufacturing in particular, has been built on a foundation of reliable and relatively affordable energy. It's certainly true if you look around the Ottawa Valley, even going back to the 19th century, given the number of mill towns that relied on affordable, reliable energy. It was true in the industrialization of Ontario through the middle parts of this century, and in other provinces as well. And, I guess, of most relevance to this discussion, it was true in the 1980s and 1990s in Canada, when Canadian industry enjoyed a real advantage in the prices of many energy commodities, including natural gas and fuel oil. That advantage was due, in some measure, to regulation of energy products like ethane.
It's always difficult to be definitive about causation in economics, but one would expect that given this cost advantage in energy commodities, Canadian industry and Canadian manufacturing would tend to specialize in energy-intensive industries. And that, indeed, is what the evidence seems to suggest.
If you look at the G-7 in the year 2002—and I apologize for the lack of timely data, but it's often the case with international comparisons that you have to work with data that aren't completely up to date—Canada certainly had a manufacturing structure that tended to concentrate on energy-intensive industries just slightly below that of the U.S. and the United Kingdom. Moreover, within sectors like pulp and paper, the evidence suggests that Canada specialized in the really energy intensive kinds of production, like pulp, and had less production in the more energy-efficient kinds of activities, like paper. And there's similar evidence for the metals and petroleum refining industries as well.
I think we all understand that the reality today is that Canadian companies, and indeed their competitors in other industrialized countries, face very strong competition from countries that are producers of low-cost fossil fuels, which plays out in a number of dimensions. Natural gas is a particular case, because we do not yet have an integrated world market for natural gas. In that situation, new petrochemical plants are likely to invest in places like the Far East, Trinidad, and North Africa, where they have access to that low-cost feedstock, rather than in North America. But more generally, the increased costs in energy are going to be a challenge for us and other industrialized countries.
Electricity is a little bit different. Provincial utilities continue to provide Canadian industrial users with some of the cheapest electricity in the world, but there are questions about how long that can be sustained, and there are prospects of price increases in some provinces.
Throughout the advanced economies—the G-7, G-10, Europe, North America, Japan—all of our manufacturing industries are going to face these competitive pressures, but these will of course be most difficult for those countries, like Canada, that tend to specialize in energy-intensive activity. There has been a movement in Canadian industry to adapt to this trend towards higher prices. Pulp and paper, for example, is starting to use waste from its own production processes to meet over half of its energy needs, and there are other opportunities. Cement, for example, can use waste like tires to meet its energy needs, rather than buying expensive oil.
A key measure of our ability to adapt to higher energy prices is the rate at which our energy efficiency improves. So the question arises, how have we done on this measure? In the 12-year period ending in 2002, the energy efficiency of Canadian manufacturing improved faster than in any other G-7 country except France. And in this regard, it may be instructive to compare our performance with that of the United States. Between 1990 and 2002, energy use in manufacturing increased at almost exactly the same rate in the two countries—14% in Canada versus 12% in the United States. However, energy intensity in Canada—that is, energy per unit of output—improved by almost 30% in Canada versus only 8% in the United States.
So how do you reconcile this rate of improvement in energy efficiency—almost four times better in Canada than in the United States—with an increase in energy use that was almost exactly the same?
The fact is that our output in manufacturing grew much more rapidly than did that of the United States. There was also some shift here toward more energy-intensive output. This comparison suggests that Canadian industry can adapt and compete, but the reality is that very real competitive pressures are going to remain.
The manufacturing industry is keenly aware of this. My colleague from HRSDC has already referred to Manufacturing 20/20, which identified rising energy costs and a reliable supply of cost-competitive energy as among the top challenges facing Canadian manufacturers.
Since the national energy program was dismantled in 1984 by the government of Mr. Mulroney, it has been a fundamental and enduring principle of Canadian energy policy, but the federal government does not intervene in energy markets to control prices. I'll go out on a limb and suggest it's very unlikely that this government would choose to do that. So directly controlling energy prices and subsidizing energy prices are probably not tools in the toolkit for government to help industry.
We can, however--and do--work with industry to improve the energy efficiency of Canadian manufacturers. We think it's critical to engage industry in taking ownership and responsibility for the management of their energy use. To this end, Natural Resources Canada's industry program for energy conservation, or CIPEC, focuses on voluntary energy intensity improvement targets. My colleague Margaret McCuaig-Johnston, the assistant deputy minister of energy technology programs, is responsible for that and not me, so I'm stealing her thunder a little bit. But I did want to give a plug to this program.
The rate of improvement in energy efficiency in Canadian mining and manufacturing has been almost 2% over the last decade. Energy use per unit of output has fallen by almost 2% a year over the last decade, which is pretty remarkable progress by anybody's standards, and double the target that industry set for itself in 2000. Margaret and CIPEC can't take all the credit for that, but it is certainly the case that CIPEC and other Natural Resources Canada programs contributed to that rate of improvement.
I've been told by people in industry that CIPEC is the only useful thing that the Government of Canada does. I'm not sure I'd agree with that, but I would say it's certainly among the useful things that the Government of Canada does.
I think I'll stop at that point, Mr. Chair.