Natural Resources Committee on Oct. 31st, 2006

[Roy Cullen, Liberal, Etobicoke North, ON]

--after the particulates have settled and all that. If it goes into a tailings pond, is there 100% recycling potential of that water, or is there some loss in those ponds as well?

[Gordon Peeling]

I suppose there is loss back into the atmosphere during the summer, but that would be minimal. There isn't a loss during the winter. So there is not much of a loss in the system. But there is a timing challenge. It does take time for the fine particles, and silt particularly, to settle out.

I attached an information sheet to your document. I'm not sure if it answers all those questions on the region and water use.

It's unfortunate. I was just recently at the Alberta inquiry, and I know the government has put out very specific documents on water usage with the oil sands development. It's in a lot more detail, and I could certainly forward that material. Maybe representatives from Alberta are going to be here shortly to bring that material to you, but I can certainly forward that to you, if that's helpful.

[Roy Cullen, Liberal, Etobicoke North, ON]

Yes, thank you. That would be helpful.

Thank you, Chair.

[The Chair, Conservative, Lee Richardson]

Thank you.

We'll move on to Madam DeBellefeuille.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you for your presentations.

Mr. Mead, I am honoured to have heard your presentation, which was clear and sincere. I appreciated it very much.

The Minister of the Environment often quotes the National Round Table on the Environment and the Economy to justify the government's decisions on all sorts of initiatives to reduce greenhouse gas emissions and improve air quality. You were the chair of the round table until 2005, so you have not had the opportunity to work with the new government. The theoretical sources you quoted seem to me to be so obvious that I have a hard time understanding why your work—you were the chair from 2000 to 2005—did not prompt the government to adopt the approach you suggested, which was supported by the Pembina Institute study.

I am a newly elected member of Parliament; five or six weeks ago, I did not know a thing about natural resources. Since then, we have heard a number of witnesses. I am a little stunned by your report. It gives me the shivers because it makes me feel that we are hitting a wall. I get the feeling that the government, whether Liberal or Conservative, does not want to open its eyes and face its responsibilities, given the urgency of the situation.

You strike me as being a free thinker, a philosopher by training, so can you explain to me why, given all of the evidence you have already put forward, we are still coming up against governments' refusal to take concrete action, such as transferring fiscal incentives? Can you speak your mind on this? Why do we keep coming up against a wall, and why do we have to fight to make the government understand the evidence you have presented?

[Dr. Harvey Mead]

Honestly, I think the answer is very simple: $100 billion dollars, most of which is invested in a single province. I do not think there is a politician out there who could dismiss $100 billion.

I took notes and I consulted with people, and I am not alone in saying that we have to let the oil sands hit their own wall, if that is what has to happen.

The National Energy Board said that the major limiting factor is water. Forecasts are for 5 million barrels a day within 15 years and 3 million barrels within 10 years. Like many other people, I have reason to believe that the water issue will sort itself out. The problem is not water; it is emissions.

Marylène will talk to you about water, and you can ask her questions. We have to recognize the right to develop and the interest in developing an existing resource, but we have to impose normal market conditions, even with a Conservative government in power. That could slow down the process. The economy is so hot that even Alberta is starting to have problems. It is not like we are suggesting the idea of a catastrophe. The catastrophe could hit $100 billion in 10 years.

Deep down, here is what I think. The round table's mandate was to verify the 50-year forecast. I left when Mr. Martin came to power, not Mr. Harper. Fifteen members of the round table were replaced. The Privy Council had forgotten to renew the members' mandates, so a lot of them were replaced at the same time. Given that the previous chair was not left in place for a certain period of time, the document was put together by an all-new round table.

The fascinating thing about this document is that there is no recognition of the risks associated with the continued supply of oil, for example, which is required for exploitation. They talk about peak oil happening in 30 years.

The round table document says that there are three elements to electricity production. The first is increasing energy efficiency, which is the right way to do things. The second, which is producing energy through sequestration, presents a number of problems—as detailed in the Pembina Institute report—and entails both energy and economic costs, although the energy costs would be higher. The third is fascinating: clean coal technology.

The coal industry representative kept his seat at the round table during the changeover. Every member of the round table represented a certain group. I was the only one there who did not, and they respected that. But I think the round table made some mistakes in its analysis of clean coal technology. The energy cost of producing clean coal would likely cancel out any benefit, but I do not have any numbers to support that.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Do I still have a little time, Mr. Chair?

[The Chair, Conservative, Lee Richardson]

You have one minute.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you very much.

Mr. Peeling, if the Conservative government were to say tomorrow that everything suggested by Mr. Mead made sense and that it had decided to transfer the tax incentives to renewable energies, would that reduce the amount of investments made by members of your association in the Alberta oil sands?

[Gordon Peeling]

I'm not sure I'm on the same page with respect to subvention, and there is a difference between “incentive” and “subsidies” at the end of the day. And I'm not sure exactly just what you think the subsidies are to the oil industry, or to the mining industry in general, because I don't see them. The issue people like to talk about is the accelerated capital cost allowance. The accelerated capital cost allowance simply changes the timing at which tax is payable. It doesn't change the overall level of tax that's payable. So it's a timing issue.

Right now I can tell you that the mining industry--and I believe the oil and gas is in exactly the same boat with the removal of the resource allowance. The economy generally is at a 21% federal corporate tax rate. We're at 22%. We're actually paying more tax. We will be at 21% next year. We're part of a collective that says we should be at 19%. And you know that different people have different views on subsidies at the end of the day. But the reality is that what is going to slow down investment is the availability of machinery, equipment, people--the government's ability to support with social infrastructure the Fort McMurray region and invest in that human and social capital that is required.

I've gone through so many business cycles in the commodities business, both on the oil and gas, and I have more experience in minerals and metals. Although I'm an optimist and I believe in the longer-term cycle that we're presently facing because of Chinese growth, the reality is that for these commodities, they go up and they go down. We should not lose sight of the fact that although we may look at $70 oil now, we could be looking at $40 oil three months from now or two years from now. So industry has to take its investment decisions on the long-term basis, and probably quite a conservative estimate. One of the challenges we will indeed have is to address these issues of....as the government has put us on notice of intent to regulate. Clearly, we have had a long history of improving energy efficiencies. But we need to move to that next stage of capturing greenhouse gases, CO₂. Sequestration issues are important.

Although Harvey says it's not an issue where he would like to see the government invest significant dollars, the reality is in some of these issues they are beyond the capacity of the individual company and it's not justified. It's basic research. No individual company can get sufficient return on its dollar of investment in R and D to justify the investment in the first place. So it needs the partner, which is why I emphasize public-private partnerships in research and development.

[The Chair, Conservative, Lee Richardson]

Mr. Peeling, I think we've gone way over time. Maybe you could just be more specific with responses to the individual questions. I'm sure you'll get all the bases covered with the number of questions around the table.

Thank you for those questions.

Madam Bell.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you.

I thank the witnesses for the presentations. They were very informative. Thank you for coming.

I think you mentioned that it's our job to make public policy. I think you're trying to have input into that policy, and I think that's important. I'm very concerned about a lot of things around oil and gas exploration, which you talked about. I have a question around the sustainability aspect of it.

Mr. Peeling, when you were going through the beginning of your document, my very first question was, how can the development of the oil sands be considered sustainable because it's a finite resource? I didn't really feel that, even though you were explaining it, I had an answer. I think the definition of it is that it's something left for the future, and if we use it all up then there's nothing left. So I'm curious about that aspect of it.

But I also have a number of questions with regard to how the oil sands are in the Mining Association of Canada. I think Mr. Cullen started that question, but I have some more questions on it. I'll let you just answer the first one.

[Gordon Peeling]

On the sustainability issue with the oil sands, a lot of it depends on the timeframe, because you can say yes, each individual deposit is not sustainable--you're going to run out of it at some point--but mining's been with us for 10,000 years and it's going to be with us for another 10,000 years. It's the timeframe you put things in, and it's the transformation of that capital. When that capital, and it's a natural capital, is sitting in the ground, it is valueless. It doesn't have any value until you invest in it to take it out of the ground and get a return on it. That return allows you to transform it into financial capital--that's the wealth generation component. Those rent revenues that return to government through royalties and corporate income tax rates allow governments to invest in the human resource capital.

The human ingenuity we create at the end of the day allows us to develop the substitutes and develop the different approaches that ultimately will see us use renewable energy resources at some point in the future. It will allow us to--and we're going to continue to have to--use coal. Canada doesn't need to sink one more drill hole in coal. We've got 400 years of supply. It's a cheap energy resource, but given the other dimensions to it, it will only have continued use if we solve the greenhouse gas dimension associated with it, so that we protect the other elements of natural capital, like clean air, etc.

The question is, do we have the wit to manage this in a manner that contributes to those other forms of capital in an optimum way, without damaging other systems irreparably? That's where public policy and the issue of focus have to be, and where you should want to invest in terms of what we're doing as an industry and what government should look at in solving some of these problems.

[Catherine Bell, NDP, Vancouver Island North, BC]

Okay. Onto my other questions.

You mentioned where the shovel hits the dirt, and I wondered if the whole operation is considered mining.

[Gordon Peeling]

No. Once you separate the bitumen from the sand and it goes into the oil separation process and the hydrocarbon-cracking process to create some form of oil--and it may be heating oil, it may be the sweet crude that ultimately gets further treated for gasoline production and home heating oil, etc. All those products are considered to be part of the traditional oil and gas industry, right from what they call the cracking process. These companies would be members of the Canadian Association of Petroleum Producers, as well as the Mining Association of Canada, and they work with us because they have similar challenges that the rest of the mining industry has in terms of managing energy efficient processes and the extraction of materials, managing the reclamation process, and recovery of land at the end of the day, etc. They get benefit and we get benefit from their expertise in this process, but they straddle both.

[Catherine Bell, NDP, Vancouver Island North, BC]

I'll go back to the sustainability issue. Mr. Mead, I wonder if you have anything to add to my question.

[Dr. Harvey Mead]

Yes. To comment on what Gordon was saying, granted that mining has been around for thousands of years, and granted that the tendency of the industry in all its sectors, I would think, but in any event an awful lot of the sectors, is to continue to look for new deposits when they run out of the past ones, that's not going to go on forever. That's quite clear. The resources on the planet are limited. Whether it's going to go on for thousands of years, as it has in the past, or not is the question. With the population of the planet having tripled in the last sixty years, with the consumption of resources having probably increased--and I don't know what the factor is over the last sixty years--something has changed rather radically. We just disagree. I don't think you want to approach the question of copper or oil or zinc as something that's there forever.

He mentioned substitutes too, and given lots of indications, sustainability and the need for substitutes suggests you should start looking for substitutes rapidly. The general tendency is to look for renewables, rather than for more of the same non-renewables.

[The Chair, Conservative, Lee Richardson]

Thank you.

Mr. Allen.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Mr. Chair.

Thank you very much for the presentations.

I'd like to ask three questions, actually, on major topics. One is on the management systems and reporting on energy use and greenhouse gases. Also, Madam Dussault, I'd like to ask you a little bit about the report you did. And the last is on renewables.

But the first one is on your management systems and reporting, which you talk about on slide 11 in your deck, and then you go on to talk about it on page 13 of your deck, specifically around emissions reporting systems, energy intensity, and greenhouse gas intensity performance. You seem to be covering quite a number of those. Then you talk about external verification for 2006. What does that mean? Who are you going to for external verification for your members to be reporting?

[Gordon Peeling]

We are in the process right now of actually holding workshops with potential companies, and they run from small environmental companies to the KPMGs of the world, to be familiar with our reporting protocols and systems so that they will be in a position, first of all, to have a certificate from us that they are a potential and accepted verifier and that they've got training in the processes that we undertake. So it's going to be a range of commercial companies. We have followed advice from our community of interest advisory panel on how to manage this process, to develop credibility with that reporting system. So it could run to quite a gamut of companies that will be approved for that third-party verification at the end of the day.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

I have a follow-up on that. In your “Towards Sustainable Mining Progress Report” for 2005, Syncrude talks about reducing their sulphur dioxide emissions and particulates by 50%. Using this reporting system--I'm trying to get this straight in my mind--if you're reporting on progress, and you're able to report on progress, what is a realistic time that the industry would be able to set targets for specific greenhouse gas and pollutant emissions?

[Gordon Peeling]

Historically, we've had a target on energy efficiency of a 1% per annum improvement, in terms of energy efficiency per unit of output, and that comes through our work, historically, with the Canadian Industry Program for Energy Conservation, a government-based program that has been around for quite some time. But we have developed a reporting protocol so that we understand how those energy efficiency improvements result in reductions in both direct and indirect greenhouse gas emissions.

This is work we developed with the Pembina Institute and with the voluntary initiative the government had in place in the nineties and the early part of this decade, and we've continued on with that. We feel it will put us in a good position to meet whatever regulatory requirement the government has, at the end of the day, for both reporting and target setting, whether they be caps or other types of tools with respect to greenhouse gas emissions.

By reporting, you also create the dynamic of why is company X doing better than I am, and you want to go see how they're becoming more energy efficient than you are, thereby reducing releases. So target setting will be part of this, ultimately.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

That's good. I like peer competition.

Madam Dussault, we talked about the report, and just referred to the report, and you haven't had much of a chance to talk about that. Can you give us just a brief summary of the report you did on the oil sands, just to gloss over it? And is that report available for our committee?

[Marylène Dussault]

Actually, the report is not available because it was the first phase of a life cycle analysis. I've been working on the goal and scope and the literature review, so I had the chance to get familiar with different aspects of tar sands exploitation, from technical aspects of the extraction to the different kinds of environmental impacts. The life cycle analysis will be made. I expect it to be done around May. I'm not sure if it's going to be available for the public because it's done for a company. So I don't have really anything to....

I cannot reach a conclusion at this time.

One thing that is important to remember is we need to have a moralistic view of the different environmental aspects, and we only focus on one or two, but they are different. They are, of course, the GHGs, but there's also the problem of water and also the boreal forest. And sometimes we forget there are global, regional, and local aspects we have to consider, not only economics.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Dr. Mead, one last quick question. We talked about renewables and possibly putting incentives on renewables, away from the oil sands and their companies. What types do you see in renewables as playing the greatest role, both immediately and in the long term?