Evidence of meeting #21 for Natural Resources in the 39th Parliament, 1st session. (The original version is on Parliament’s site, as are the minutes.) The winning word was going.
A recording is available from Parliament.
NDP
Dennis Bevington NDP Western Arctic, NT
When you consider this is the single largest environmental issue facing the industry, why aren't all these things well known by now? That's my question. We're investing billions and billions of dollars and we don't have the answers.
Senior Policy Analyst, Pembina Institute
If I could just comment, the focus on an ancillary recovery is obviously one the industry has viewed favourably, given the fact that there is some economic return to offset some of the costs of the infrastructure associated with carbon capture and storage, but there are a wealth of other opportunities that have been alluded to in terms of salt caverns, depleted geological formations, or, what is most preferable from a risk and safety perspective, deep saline aquifers. The intergovernmental panel on climate change undertook a very thorough analysis of carbon capture and storage technologies and sequestration options throughout the world from a risk and safety perspective. It found the deep saline aquifers were preferable because the carbon dioxide chemically changes with that saline water becoming denser, sinking to the bottom. So the risks of having any of that come back to the surface and presenting a hazard or contributing to global warming would be very low.
Conservative
Christian Paradis Conservative Mégantic—L'Érable, QC
Thank you, Mr. Chair.
Mr. Stringham, I do not want to get again into the debate of whether the accelerated capital cost allowance is a subsidy or not. However, in your presentation, you said that the allowance was something quite technical. There is something that needs to be cleared up.
In your presentation, under the heading “Available-for-use rule”, it states that:
No capital cost allowances until protection begins (even though it is spent earlier) or three years after investment.
What is meant exactly by that three-year period?
Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers
Associated with the capital cost allowances in general, but specifically with the accelerated capital cost allowance, is a rule called the “available for use” rule, which says if you spend a dollar in capital, normally you can start writing that off for tax purposes immediately, but if you haven't yet achieved any production out of the plant you're building, then you have to wait until that production starts before you can deduct the capital.
It has to wait six years in the oil sands plants, so if they're spending a billion dollars in year one, they wouldn't be able to write that off for another six years because it doesn't start producing; it's limited to the mine. But with the “available for use” rule, what they said was you have to wait until the first production comes off that, whether it be oil or bitumen, but at the most you have to wait three years. So in some cases, if your plant starts in two years, you can start writing it off then. If it's four years, you have to wait three years and then you can take the tax deduction, but there's a period where you can't claim any tax deduction. Even though people call it accelerated capital cost allowance, there are three years of zero deduction and then you can write if off only to the extent of revenue that comes from that project. You can't spread it out to the rest of your company. It's limited to that project, but during that first three years, if you're not producing anything, there is no capital cost allowance.
Conservative
Christian Paradis Conservative Mégantic—L'Érable, QC
Very well.
I thank you for your clarification. As for the rest, it is relatively clear.
I also wanted to come back to something that was raised previously. In your comparison of the 324 oil regimes, the UK is ranked 12th, and Alberta, with its oil sands, is ranked 79th.
Could you speak more about this comparative classification?
Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers
Certainly. As I mentioned, this is from a report that was done by an external consultancy. They looked at 324 oil royalty regimes and different parts of the royalty regime. In Alberta they looked at four or five, because there's old oil, new oil, third-tier oil. In the U.K. there's offshore, onshore. In the gulf coast, there are the same kinds of things. These rankings are an assessment by this consultant of the nature of the royalty regimes. If you are at the top of the list, that's the royalty regime that is taking the least amount for governments. If you're at the bottom, you're taking the greatest amount.
I've presented his view of different countries' takes of how much the government is taking in comparison to other countries. To be clear, this includes royalties and taxes, because this is really the only international comparison we have. It's not just the royalty regime.
Did you want me to comment specifically on the countries?
Conservative
Christian Paradis Conservative Mégantic—L'Érable, QC
I only want to know a little more about the issue.
Another interesting point that caught my attention is the lack of economic balance between Alberta, Ontario and Quebec.
How do western producers perceive the development of the oil sands? What is really happening on the ground? Could you enlighten us on this count?
Vice-President, Markets and Fiscal Policy, Canadian Association of Petroleum Producers
Yes, you can kick in. The development of the oil sands draws extensively on manufactured goods and services from across the country. The construction occurs at the oil sands site in Alberta, so a lot of the construction materials are put in place there, but they buy pumps, valves, textiles, trucks, and everything else from other parts of Canada, including Ontario and Quebec.
As the consumption of goods and materials has increased for the oil sands, the oil and gas industry, the forestry industry, and everything else that's going on, the draw on the economies of other parts of the country has increased significantly as well. The statistics show the impact on employment and GDP associated with the draw on goods and services coming from the oil sands.
They've looked at this over a 20-year period. Even the latest Statistics Canada report said that Alberta is running a surplus with other parts of the country. But in Quebec and Ontario, manufacturing-based areas, they're running a deficit. This means the development has provided great opportunities for those manufacturers.
The quotes I skipped over were from the manufacturing association. They say the oil sands companies are looking around the world for these manufactured goods. Yet we're struggling to deal with the slowdown in our manufacturing. We're now marrying the two and saying, “Why can't we do that here in Canada?”
To give you an example, I got a call from the Chamber of Commerce of Thunder Bay. They said they had welders, heavy steel workers, the old shipyards, and they wanted to know why they couldn't make modules for the oil sands, put them on a truck, send them out to Alberta, and then assemble them when they arrive. There's nothing wrong with that idea.
Liberal
Alan Tonks Liberal York South—Weston, ON
Thank you very much, Mr. Chairman.
Mr. Woynillowicz, Mr. Stringham, and Mr. Alvarez, thank you for being here.
It's always a challenge to see if we can get a handle on your name, Mr. Woynillowicz. I tried that twice.
Liberal
Alan Tonks Liberal York South—Weston, ON
On this committee, we're challenged to get Madame DeBellefeuille's name correct.
Liberal
Alan Tonks Liberal York South—Weston, ON
Just to put it in a layperson's terms, in this committee we are asked if the pace in the acceleration of development in the oil sands is sustainable from a social, an economic, and an environmental perspective, or if it's not. In terms of the variables, part of the answer to that question is that we have economic multipliers, which you laid out very well. We have a taxation regime that, as you have indicated, puts us in a fair area in terms of the equity that comes out of the investment and is redistributed through taxes and royalties, through governments, for social and environmental costs. Also, one of the variables is technology, and you've given answers with respect to that.
So my question is this, and perhaps from your varying perspectives you can answer it. It's similar to a question that was put to the National Energy Board.
What are the levers that exist, such as environmental assessment, that are used to determine the sustainability of the development of the oil sands? If there are no levers—be they fiscal, or incentives with respect to the acceleration of technology, or whatever they are—from your varying perspectives, what would be your recommendations as to how the levers could be changed? From a responsible development position, from both viewpoints, what would you recommend to government? What would you recommend to this committee? In terms of making sure our mandate is followed, that being to attempt to ensure on behalf of the citizens of Canada both now and in the future that they are not being put at risk, what should we be involved with given that there are tremendous multipliers that you've brought to the committee?
That's the question, Mr. Chairman. I know it's a convoluted one, but I'm trying to posit that because I think it's the bottom line that this committee is struggling with.
Senior Policy Analyst, Pembina Institute
Sure.
I guess I'll begin by commenting on your question about whether or not the pace is sustainable from an economic perspective, a social perspective, and environmentally. Certainly, the conclusion we've drawn is no, it is not, because in each of those three dimensions there are significant consequences and significant impacts to Albertans and also more broadly to Canadians.
To provide an example from the social side of things, we've now had the regional municipality of Wood Buffalo pass a unanimous council decision to oppose any new oil sands projects in that region, not on the grounds that they don't want more development to happen, but because there's such a deficit on the infrastructure and the social services side that these projects simply aren't in the interest of their community, which is really the hub of oil sands development.
The regional health authority is running at about half capacity in terms of the number of total medical staff it would require to service the population of Fort McMurray, not including the shadow population that exists in the work camps constructing these facilities. Economically, the province is subject to very significant inflationary pressures right now that are impacting Albertans throughout the province, not only those residing in the oil sands region.
Recently, the provincial government announced that one out of three provincial construction projects would have to be cancelled or deferred because of an increase in construction costs of $3 billion over five years, and they simply didn't have the resources allocated for that. That's compounding this deficit that the province is already facing.
Certainly on the environmental side, not only are there unresolved questions about the environmental impacts, the cumulative impacts, and how much impact that region can withstand, but there is also the simple fact that the technology is not keeping pace with the rate of development. So we're seeing a very rapid increase in the overall net environmental footprint.
This has led a wide variety of organizations and individuals to call for some kind of slowdown or pause, to kind of get the province in order to be able to more sustainably manage this development, and they range from the provincial New Democrats to former Premier Peter Lougheed, environmental groups, and some first nations groups. So the question of pace is not a partisan issue. It's not a question of whether to develop oil sands. Rather, it's a question of how and what is the best way to do so in the public interest.
In terms of the levers that exist, particularly for the federal government, on the topic of environmental assessments, we've seen inconsistent federal engagement in terms of the scope of engagement in environmental assessment. The main trigger for the federal government to be involved has been under the Fisheries Act, subsection 35(2), but under the Canadian Environmental Assessment Act there's a fair degree of latitude that allows the Department of Fisheries and Oceans to determine how broadly or narrowly to scope the environmental assessment.
In the past, they have very narrowly scoped it so that the federal government is not actually involved in an environmental assessment process looking at all of the impacts associated with it, including transboundary air pollution, greenhouse gases, etc.
Liberal
Senior Policy Analyst, Pembina Institute
At a minimum, I think there needs to be consistency in having a federal role in the environmental assessment process. There's a harmonization agreement with Alberta that allows the two to go hand in hand through a regulatory review process in an efficient way, and that needs to happen. And it can't be limited only to the Department of Fisheries and Oceans; it has to also bring in Natural Resources Canada, Environment Canada, to look at the full scope.
Liberal
Alan Tonks Liberal York South—Weston, ON
In the interests of time and fairness, Mr. Chair, maybe Mr. Stringham could get on....
President, Canadian Association of Petroleum Producers
Mr. Tonks, it's a great question, but I don't think it's a question you can restrict to oil sands.
Western Canada as a whole is on fire economically. Saskatchewan is short on labour and is seeing capital projects coming at very high rates. In B.C. it is the same thing. We have a period right now in western Canada where, yes, it's oil and gas, but it's also potash, it's uranium, it's the mountain pine beetle and the injection that's required from the cuts there, it's the municipal infrastructure, and it's Olympic infrastructure. All of western Canada is seeing this.
Remember the opening comment. Oil sands is $12 billion and conventional business is $35 billion. There's a lot going on when you look at western Canada, so I really think it is dangerous to say it's because of the oil sands.
There is an issue. There is no question about the torrid pace in western Canada. On the other hand, it is coming off. Our expectation is that drilling in the conventional business will be off 10% this year. We're already seeing it slowing down. We've seen a number of oil sands projects that are being deferred or are now described as being stretched out, because companies themselves recognize that there are issues relating to costs and such that aren't in their own best interests.
I think you're seeing that this is occurring. There is a market response to it, and I do worry when governments decide that they'll be the ones that decide which project goes forward and which doesn't.
Outside of that context, as Dan said, there is a regulatory process here that is run by the federal and provincial governments. The last licence had over 100 conditions associated with it. These things are being reviewed. But I would agree with Dan. Do we need to look at how we do things differently? Yes, we do.
I would encourage you, if you have not seen it, to look at the material that has been put together by the Province of Alberta on their multi-stakeholder advisory process on the oil sands. They've travelled through six communities across the province to look at these issues. They've had a wide range of representations--from industry to first nations to the environmental community and others--to talk about these things.
What are some of the things that are coming up? I think there are three, and this is where I get to the levers. First and foremost is that people are saying that governments have done very well from the economic growth in western Canada and from the oil and gas industry growth, but communities are not seeing that money funnelled back to them. We're starting to see some of it on the health side. The federal government is now cost sharing on some road infrastructure and those kinds of things. But the fact is, governments, broadly, are not looking at these high areas of high economic growth and investing appropriately.
Second, I agree with Dan. Regulations need to change over time as technology improves. Syncrude has just spent $600 million to take their project up to 95% SO2 recovery. That takes a while, and it's a response to standards. The new Horizon oil sands project will have 99% sulfur recovery from the day it opens its doors. But there are limits to technology.
Again, I'll agree with Dan. We have a technology challenge here. If we want to continue to be a strong resource company--this is not just oil and gas--governments and industry have to get together and figure out how we're going to increase the amount of environmental technology investment in the environment to reduce our footprints. When I look, really, at the big ones over the long term that are going to make a big difference, to me it's about technology.
Conservative
The Chair Conservative Lee Richardson
Thank you. You used up my time too.
We'll go to Monsieur Ouellet.
Bloc
Christian Ouellet Bloc Brome—Missisquoi, QC
Thank you, Mr. Chair.
What you said earlier about the funds earmarked for the various types of research was vague. However, you just spoke about investments in research on sulphur dioxide. It is very surprising to see that such very well organized companies do not know exactly in what types of research they are investing.
Did they invest in the development of extraction methods used in the oil sands, or the reduction of pollution? Even if there were an overlap, we could know whether the investment is properly managed and whether it is earmarked for environmental protection or achieving greater efficiencies. But that is not the question I want to ask.
My question is for Mr. Woynillowicz. A lot has been said about the fact that technological innovation is not keeping up with revenues from the oil sands industry. What are your thoughts on the sizeable profits that are reaped, compared to the little research that is done?