Industry Committee on Oct. 31st, 2006

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

So a big initiative is the feedstock in the Middle East.

[Richard Paton]

Yes.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

The hope in North America, then, is high productivity in the feedstock we have. In Alberta, there are some concerns with our environmental plan. How will our regulatory guidelines, which we need to control pollution, affect the feedstock issue?

[Richard Paton]

Our chairman, Larry MacDonald, from NOVA, has a phrase that he likes to use, and that is that Canada should aim to be the best resource upgraders in the world, environmentally and economically. If we are the best and you're going to set regulatory frameworks, I think you have to do it within that kind of context. You can't expect a company to be better than it's possible to be.

Many of our plants are in fact--especially the Alberta plants, because they're all new--the best in the world. Most of them are new, or the investments for a lot of them were in the 2000 period, and are the best in the world.

I would say it's a choice that a country has to make: we want Canada to develop these resources and upgrade them for employment reasons and any other reasons, or we want that growth and upgrading to go somewhere else, buy the products from China or the Middle East and bring them into Canada. Those are the choices we're going to face as an economy.

I come down on the side of saying I'm Canadian, I believe in Canada, and I don't see why we should not be growing our economy and why we should not be leaders in both economic performance and environmental performance. Certainly Alberta has incredible potential. The Alberta government recently announced a policy to help us extract ethane off the Alliance Pipeline. We can build that industry and be the best upgraders and environmental performers in the world. I have no doubt about that under our current performance.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

Hopefully that speaks volumes to what we can accomplish in terms of the negotiations, not only with provinces and territories but also with industries, to meet certain guidelines to get us to the end result over the short, medium, and long term.

[Richard Paton]

If that's taken into account. I have not seen that it has ever taken into account that well yet.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I think those are objectives and goals that we all need to work toward to make sure they are.

[Richard Paton]

Yes, right.

[The Chair, Conservative, James Rajotte]

You have about 40 seconds.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

A quick one then.

You talked about drawing off ethane from natural gas, getting the benefits that you can from the value added. Is that ongoing technology now? Are you at the maximum in terms of being able to do the best you can to extract as much of the product from natural gas? I forget the numbers you used, but it has a very high value-added dollar to it. Is that ongoing also?

[David Podruzny]

Research is going on to improve the ability to take a higher percentage. I think I mentioned before, we're probably taking in the order of something under 60% of the ethane that's in the natural gas right now, and we're improving the technology to make deeper cuts, also to extract ethane from other areas, such as the off-gases from the tar sands.

There is an area there where we can improve the technology and change that into value-added products, instead of what's happening today, which is recycling it and burning it and using it as an energy source to run more tar sands.

Yes, there is an improvement going on in the ability to get more. That ethane extraction policy that was developed was designed to reflect the fact that there is a much higher cost associated with doing that.

[The Chair, Conservative, James Rajotte]

That's it, Mr. Shipley.

Mr. Martin, do you have some questions? Five minutes.

[Tony Martin, NDP, Sault Ste. Marie, ON]

The industry I'm most concerned about at the moment is the forest industry in northern Ontario and the very difficult circumstance it finds itself in, which impacts communities, people, and all kinds of things.

Two of the things that you mentioned as challenges in terms of your competitiveness were the high dollar and energy. Do you have any suggestions or recommendations in terms of what government could do where those two things are concerned?

[Richard Paton]

I do, absolutely. I think this is an area in which the federal government could play a much more active role but has not done so; however, the main issue for us is provincial governments. If you take a look at the Ontario energy policy for the last five or six years or at what's happening to electricity costs and the availability of electricity, it's been pretty close to a disaster. Maybe we don't like nuclear; now we do like nuclear. Two of the plants we closed were closed entirely because of electricity costs and the unpredictability of electricity costs in Ontario. In addition, by the way, most of their product was going to the forest industry; given the problems of the forest industry, that cost, plus not being able to see that they were going to be doing business with forest companies, caused them to close their plants, so you can see how the one affects the other here.

Those are provincial areas, and they probably are not areas you can do much about at the federal level, but at the federal level a strong nuclear program would help considerably to deal with a lot of issues, including both emissions and costs.

Having some sort of energy framework that looked at the issue we were talking about earlier, for example, from a national point of view would help. We should be maximizing the use of our resource base. At one point three or four years ago, the federal government was actively encouraging governments to use natural gas to produce electricity, while we're starving for a feedstock. There's an example of why you have to think as a nation about your energy resources. Obviously hydroelectric is fantastic--Quebec has done a great job on that--but nuclear's another one. We shouldn't be burning natural gas for electricity, except in a kind of a peak situation.

We were almost excluding coal as a possibility. One can argue that it creates environmental damage, but we should be looking at clean coal, because we have a 300-year supply of coal in Canada, and walking away from that resource is not very sensible. Coal could also help us a lot. Far back in our history, coal was used as a source of feedstock, but it can't easily be used right now.

I think you have to look at those assets and think as a country about how you can maximize the resource base to produce cost-effective energy as well as environmental performance.

[Tony Martin, NDP, Sault Ste. Marie, ON]

What about the dollar?

[Richard Paton]

I don't think we can do much about the dollar, other than adapt to it. We meet with the Bank of Canada every year and have this debate. Even the Bank says that when we raise the interest rate, we're not even sure what happens to the dollar, so it's a very unpredictable world. Maybe our dollar is actually more affected by the U.S. dollar than by our own situation.

That's why we propose an accelerated CCA--because we have to adjust to the dollar and to the reality that it probably will be high for a while. It is certainly not going back to 62¢. We just have to start realizing that part of the suite of policies we have in the very few areas in which you have levers is to help us to adjust to a higher dollar.

[The Chair, Conservative, James Rajotte]

Mr. Martin, thank you. I know we're out of time.

Mr. Paton, I just wanted to clarify something. I think it's been clarified, but with regard to the CCA, my understanding is that the actual amount is the same; it's just written off over a shorter period of time.

[Richard Paton]

Exactly.

[The Chair, Conservative, James Rajotte]

This is in fact a tax deferral. In a sense the argument for having a more aggressive CCA is that you get more investment, more companies up and running, and then the government in the long term can actually recoup more revenue from the greater economic activity, but the amount you're recommending--the $35 million, $71 million, $71 million--is the exact same amount; it's just written off by 2010 instead of 2016.

[Richard Paton]

That's exactly right.

[The Chair, Conservative, James Rajotte]

Okay. I just wanted to clarify that.

Thank you very much. I think you touched upon some areas of interest to all members of the committee. I appreciate your being here.

The same offer goes to you: if there's anything further you'd like to pass on to the committee--for instance, some of your comments about energy policy to a couple of members--please pass it to me or to the clerk. We will ensure that all members get it.

Thank you as well, members, for being very brief in your questions and comments this afternoon. I thought it was a very good session.

[Richard Paton]

Thank you very much.

[The Chair, Conservative, James Rajotte]

I declare the meeting adjourned.