Industry Committee on Oct. 24th, 2016

[The Chair, Liberal, Dan Ruimy]

I call the meeting to order.

Welcome back, everybody. This is meeting number 29. How time flies. This is the Standing Committee on Industry, Science and Technology. Today we have a new clerk for the day.

We have two panels today. We have the Chemistry Industry Association of Canada for the first hour. In the second hour, we have BDC coming back.

Right now, from the Chemistry Industry Association of Canada, we have Bob Masterson, president and chief executive officer, and Pierre Gauthier, vice-president for public affairs.

Gentlemen, the floor is yours. You've got eight minutes, and I'm holding you to eight minutes. After you do that, we'll get into our questioning.

[Bob Masterson, President and Chief Executive Officer, Chemistry Industry Association of Canada]

Thank you, Mr. Chair.

It's an honour to appear before this committee today on behalf of Canada's chemistry industry.

Our industry is vitally important to Canada's manufacturing landscape. Chemistry is a $53-billion a year industry in Canada. That makes us the fourth largest manufacturer and the second largest manufacturing exporter. We directly employ more than 87,000 Canadians. These are well-paid and highly skilled jobs. We also support half a million jobs in other sectors. In fact, chemistry is an essential industry—you see a package of information with some examples in front of you—that provides the building blocks for more than 95% of all the consumer products in the economy today.

I want to use my brief time with you to respond directly to the objectives of your study. I'll demonstrate that chemistry is a strategic sector for Canada's economic development. I'll provide some recommendations on how to strengthen the sector through increased foreign direct investment to help grow the economy and create highly skilled manufacturing jobs for Canadians.

Let me just start by saying chemistry is a growth industry, period. As Canada is looking to expand beyond a slow, sluggish 2% annual growth rate, it need look no further than chemistry. Year after year, chemicals production has outpaced GDP growth in both North America and globally and that growth shows no signs of slowing down. In fact, analysts predict rapid growth with a near tripling of the 20 largest volume, platform chemicals over the next 30 years. This really shouldn't come as any surprise. We know that chemical demand is closely linked with population growth, societal demand, the needs and aspirations of a modern, growing middle class. As well, our industry is a key enabler for solutions to the world's most pressing problems of clean air; clean water; clean energy; and safe, nutritious, and abundant food.

Chemistry is also a highly innovative sector. Often it is forgotten; people think of it as yesterday's industry. It's a highly innovative sector. In fact, in the United States, there are more than a quarter of a million patents issued annually. About half of those do go into the computer and IT sector, but the next quarter of them go into innovative chemistry technologies. The balance, the remaining quarter, go to all other sectors combined. Chemistry is a highly innovative sector.

I'll finish just by saying chemistry is also a highly responsible industry. More than 30 years ago, this industry in Canada did face a crisis of public confidence. Our industry, with the assistance of our toughest critics, responded by developing Responsible Care, our commitment to sustainability. That initiative is a global success story, now practised in 62 countries worldwide.

The best example I can give you of the Responsible Care commitment to innovate for a safe and sustainable future is the pride we take in being at the forefront of breakthrough chemistries that will deliver new refrigerants that will help achieve the objectives of the Kigali accord. These new chemistries will have the single largest impact on global warming to date, with the environment minister estimating about a 0.5°Celsius decrease in global warming, all through the powers of innovative chemistries.

I can't say it enough and I can't say it more clearly: our chemistry industry is modern, highly innovative, solutions-oriented, responsible, and it's poised for growth.

Let's just talk about the growth potential for a moment.

The North American chemistry industry has changed dramatically in the past five years. The availability of low-cost, low-carbon feedstocks, specifically, natural gas, liquids, and shale gas, has put North American producers amongst the lowest cost chemical producers in the world. That, combined with the anticipated growth and demand, has led to significant capital investment. Today, we are tracking more than 275 chemistry projects with an impressive book value exceeding $225 billion under development in the United States alone. Sixty percent of that represents foreign direct investment into the U.S. In turn, those anchor investments have spurred an additional 600 investments in the downstream plastic sector alone.

Those investments make chemistry the fastest-growing manufacturing sector in the United States, and according to the National Association of Manufacturers, chemistry accounted for over 50% of all manufacturing investment in the United States during the past year. In short, chemistry has become the poster child for manufacturing reshoring in the United States.

Let's look at Canada for a minute. Canada has seen some investments from that recent wave, but we're lagging far behind our historical 10% comparative share.

Our industry should have seen $25 billion in new investments in Canada in the last five years. The reality is that we're seeing less than $3 billion, or just over 1% of the North American total, when we should be seeing 10%.

There's no doubt that the Canadian competitive landscape has improved significantly in recent years. We have very favourable corporate tax rates and enhanced depreciation treatments for new investment. We also know that Canada is making it to the short list when the global chemistry companies are considering where to make their next multi-billion-dollar foreign direct investment, but unfortunately, investment is not the Olympics; there's no silver medal. The competition is fierce. It's a winner-takes-all game, and we're not winning nearly enough.

It's our view that this pattern can and must change. We think our sector and the national economy face a bleak future unless the lifeblood of capital investment is restored.

I'll conclude my brief remarks by identifying what we believe are the three highest priority actions needed to land the next wave of investments for the chemistry sector in Canada.

First, the Government of Canada must work very closely—more closely—with the provinces.

In 2015 Ontario identified chemistry as an advanced manufacturing sector. This was important, because it made the chemistry sector eligible for investment assistance under the province's $2.7-billion jobs and prosperity fund. The province has also identified chemistry as a target sector for a regulatory modernization project under its Open for Business initiative, and that will be taking place in 2017.

If we turn to Alberta, the province this year launched a $500-million petrochemical diversification program to attract global investment to add value to Alberta's resources. With funding at that level, the province will likely be in a position to support just two, or perhaps three, large projects. That program, however, has attracted significant interest. They've received more than 16 proposals with a book value of more than $20 billion.

British Columbia is also exploring how to add value to the portion of the significant natural gas volumes it anticipates will leave the province through the proposed LNG terminals.

In Quebec, the government is well aware of the benefits that will accrue in new chemistry operations to support mining and other developments in the province's Plan Nord.

Canada's chemistry sector could easily get back to the 10% historical investment share if the federal government were to partner directly with those provinces that have already identified chemistry as a priority strategic sector for their own economies.

Second, Canada introduced a long-term, 10-year accelerated capital cost allowance in Budget 2015. That measure merely matches existing and permanent treatments in the U.S. It closes an important gap, but it doesn't offer Canada any overall advantage.

To level the playing field, we believe the ACCA needs to be made more permanent, and even more is needed to provide a strategic advantage and draw the attention of foreign investors. Here we're recommending specifically a 100% depreciation for value-added resource developments, over a five- to ten-year investment cycle. We believe this will send a very strong signal that our economy is serious about attracting foreign direct investment and moving beyond our lacklustre 2% growth.

Third and finally, we believe it's vital that Canada approve the development of supporting infrastructure so that the country's natural resources can reach markets. If we can't develop our natural resources, there's nothing to add value to, and the future of the chemistry industry will be bleak indeed.

I'd like to conclude by saying that the work of this committee, along with that of the Barton advisory panel, will provide the Government of Canada with very relevant and important advice. If that advice is followed, we believe that investment in the chemistry sector can advance from being poised to deployed.

I thank you again for the opportunity to share the chemistry industry's investment and growth message with this committee today.

Thank you.

[The Chair, Liberal, Dan Ruimy]

Thank you, Mr. Masterson. I am certainly looking forward to hearing some of the questions and answers today.

We're going to jump right into it with Mr. Longfield.

You have seven minutes.

[Lloyd Longfield, Liberal, Guelph, ON]

Thanks, Mr. Chair.

Thanks, Mr. Masterson, for a great presentation. It was really good to boil it down to three priority areas.

I want to focus on one, and that is looking at partnering with the provinces. Could it tie in with your investments in the Sarnia-Lambton biohybrid chemistry cluster, which I believe has a fair amount of provincial involvement? Could you tell us more about that cluster, what it's doing, and how we could help?

[Bob Masterson]

Excellent. That's a very good point. All these large investments in the chemistry sector become, as I call them, “anchor investments”. I talked about 20 platform chemicals, whereas there are thousands in the economy. Being closely located to where those platform chemicals are produced is often a strategic advantage.

I see the government, especially the innovation committee, talking a lot about clusters. Well, it's there. You don't have to go any farther than Sarnia or Fort Saskatchewan in Alberta.

What do we mean by a cluster? We mean that the co-products or by-products of one industry become the feedstock of another industry to help it have economies of scale and be productive.

Yes, talking to your question about the bioindustrial hybrid approach, there is no question that there is an evolution taking place—not a revolution, but an evolution——in the business of chemistry. There is a drive towards bio-based chemistry. These projects secure commercial advantage and do best when they're located in situations such as Sarnia's, wherein you already have a well-functioning industrial culture. You have access to transportation infrastructure—ports, roads, buildings. It combines steam, heat, and power. All these things that make it competitive for an existing operation can help with the bioindustrial side as well.

Yes, Ontario has looked at that sector, not just the bio side but the whole concept of the bioindustrial hybrid cluster as a focus in which they think Ontario has a strategic advantage.

[Lloyd Longfield, Liberal, Guelph, ON]

My riding of Guelph is quite interested in bioreplacement.

[Bob Masterson]

The feedstock is there.

[Lloyd Longfield, Liberal, Guelph, ON]

Yes.

How old is that cluster, and what kind of a growth trajectory is it on?

[Bob Masterson]

It's a hybrid, and Sarnia has been in business for nearly a hundred years, but it's really since pre-World War II that it has been a very strong and globally important cluster of chemical operations. The industrial scale of bioinvestments has been realized in the last five years.

[Lloyd Longfield, Liberal, Guelph, ON]

Okay.

Along with that, and looking at the research that's going on there around cogeneration and our government's focus on putting a price on pollution, how can this contribute to our agenda around climate change and putting a price on pollution?

[Bob Masterson]

There already is strong cogeneration activity taking place in Sarnia, and one of our messages to the Ontario government, as they develop their cap and trade, is to remember that it was incentivized as one means—and I don't mean financially, but through policy—as a key means to back the province out of coal-fired power.

One of the things we certainly say is that if you have combined heat and power already, then you'd better be careful that you don't disincentivize that, because you'll be sending the wrong signals.

The chemistry sector can live with carbon pricing—there is no question about that—but we are strong believers in the concept of ecological fiscal reform. If you want to price the things that you don't want—in this case, carbon emissions—then you need to decrease the cost somewhere else to allow companies to remain whole and be productive.

[Lloyd Longfield, Liberal, Guelph, ON]

Right, to incentivize.

[Bob Masterson]

I think that's the biggest challenge for policy-makers to grasp. We're hearing a lot about additional costs, but we're not hearing about the things that can improve the competitive position.

I've just laid out in front of you a situation where rather than attracting 10% of North American investment, we're only attracting 1%, so I think there is a very clear message of what would happen if we add additional costs onto the industry without removing them somewhere else.

[Lloyd Longfield, Liberal, Guelph, ON]

Right.

[Bob Masterson]

That position would become more untenable.

[Lloyd Longfield, Liberal, Guelph, ON]

We have that on the record already around the accelerated capital cost allowance and the supporting infrastructure.

When it comes to jobs, a big area for us is trying to help youth unemployment and trying to direct youth toward careers where there are jobs. Could you speak to whether there are job shortages, and whether there are particular areas that we should be encouraging colleges and universities to focus on to achieve your agenda?

[Bob Masterson]

These are highly skilled jobs, and as a comparison, in the Canadian manufacturing sector the average wage is $54,000 a year and in chemicals writ large, it's $72,000. That's a 32% advantage. In industrial chemicals, and that's what we represent, the average salary is nearly $100,000, and that's a 77% markup on the Canadian manufacturing average. These are very high-skilled, high-paying jobs.

Certainly, engineers in all sciences—tech, engineering, and mathematics—are very important. We work with a number of the colleges, especially in the Sarnia area, and also at the University of Alberta and elsewhere. The skilled trades are important.

I would say that if you had asked that question three years ago, it would have been issue number one. In the current state of the economy, it's not as pressing, but it's recognized that when the economy gets back to a healthy level, above 2%, the skills shortage will be very real again.

All of the key trades that one could expect, especially plant operators.... I think it's important to remember, though, that these are not second-rate jobs.

[Lloyd Longfield, Liberal, Guelph, ON]

You're totally right.

[Bob Masterson]

We don't take students who don't excel at university, parcel them into a skilled trade, and think they're going to succeed. In today's world these are very technical, demanding jobs that demand an incredibly high level of intelligence, and it takes a lot to train an operator to safely run a chemical plant or most other manufacturing institutions.

[Lloyd Longfield, Liberal, Guelph, ON]

I have less than a minute to go.

I'm chairing the innovation and post-secondary education caucus, and you've talked a lot about innovation and the responsiveness of your industry. Does that also reach into developing programs at colleges and universities? Do you do any codevelopment? Do you do any kind of co-op placements—

[Bob Masterson]

Yes, absolutely, throughout the industry. I can think of some universities we're especially involved with, such as the University of Alberta, Sarnia's Lambton College, the University of Guelph, Western University, and the University of Toronto. These are all universities that are affiliated with our manufacturing operations.

It's a key point that the industry, which is a global industry, is involved in R and D, and involved in the colleges, because they have a manufacturing footprint here. If that manufacturing footprint disappears—

[Lloyd Longfield, Liberal, Guelph, ON]

It goes with it.

[Bob Masterson]

It goes with it, absolutely.

[Lloyd Longfield, Liberal, Guelph, ON]

Thank you very much.

[The Chair, Liberal, Dan Ruimy]

Thank you very much.

Mr. Dreeshen, you have seven minutes.