Natural Resources Committee on Nov. 2nd, 2006

[Dan Woynillowicz]

It's difficult to comment on the ratio of profits to investment in research and development, particularly on environmental technologies, since we don't know exactly how much is going towards environmental technologies. What I will say about investment in research and development is that it is, of course, right now being directed not only at improving environmental performance, but there also has to be a cost payout. For example, around greenhouse gas emissions, energy efficiency is where the majority of the money is going, as opposed to things like carbon capture and storage, which doesn't necessarily have that economic benefit.

If we had regulations in place or full-cost accounting that actually began to place value on something like carbon, then all of a sudden the dynamic around where you spend your research and development dollars changes because there's a cost associated with not doing so. I think then, because we would have the balance sheet filled out, we'd probably begin to see more targeted investment in things like carbon capture and storage, and we'd actually see it on the ground as opposed to something that gets a lot of discussion but not a lot of action.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

I have another question for you, Mr. Woynillowicz.

You said recently—not you necessarily, but the Pembina Institute—that you would call for a moratorium on oil sands development. You said that:

It's not a question of whether, but it's a question of how it shall be done.

Could you comment please?

[Dan Woynillowicz]

The approach we've taken, I suppose, is one that is relatively pragmatic. It recognizes that we're dealing with a global commodity. We're dealing with something in which there's a significant amount of investment inertia. We're dealing with something that has the potential to create a lot of economic benefit, both within the private and the public sector. To try to stimulate a debate about whether or not oil sands development will proceed, in our judgment, is something that is not going to be a good use of our time.

Rather, we framed questions around how it occurs, both on the environmental side, in terms of having development occur within ecological capacity to sustain the environment over the period of development, and also by talking about whether Canadians and Albertans are maximizing the economic benefit in terms of public revenues and whether we can actually use that economic benefit to transition our economy away from things like the oil sands in a more accelerated manner, toward things such as fuel efficiency, energy conservation, and alternative, more sustainable, renewable forms of energy.

It really comes down to a matter that there is an opportunity here--it is happening--so let's set the proper parameters around how it happens. Right now we believe a moratorium is required so that we can actually set some of those parameters and make sure we have the right system in place before we go ahead with this rate of development that's currently proposed.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Do I still have some time left, Mr. Chair?

In section 4.0 of your presentation, entitled “Governance for sustainable development”, it is said that: “The Government of Canada plays an integral role in [...] oil sands development [...]”. That is pretty clear.

You then go on to say that fiscal policy related to taxation provides an opportunity to influence oil sands development.

Are you drawing a connection between those two statements?

[Dan Woynillowicz]

Is there a link between sustainable development and fiscal policy? Absolutely. I think if we are going to marry notions of economic prosperity with environmental conservation and social well-being, there are going to be linkages that run amongst all of those. In terms of the federal government, how it manages both its taxation as well as the incentives it provides for research and development play a fundamental role in terms of how we shift our economy, through both incentives and disincentives, away from some of the things like fossil fuel development that have significant environmental and social and economic challenges towards more sustainable forms of energy production and consumption.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you.

[The Chair, Conservative, Lee Richardson]

Merci.

Mr. Harris.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Chairman.

First of all, to Mr. Alvarez and Mr. Stringham, I want to thank you for this excellent simplified handout that you gave us. Coming from Prince George, I could tell you all about the lumber industry and pine beetles, but I have to admit, until today I didn't know a whole lot about the oil sands. This is vivid.

Mr. Stringham, you said that you can recover 30% of the oil product from the sands and the other 70% stays in the ground. I presume you're referring to this diagram in which you inject the steam down into the ground as opposed to the shovel-and-bucket method.

[Greg Stringham]

That is correct. The reference I gave you was actually for the conventional oil industry. For the mining industry, which you'll be going up to see in Fort McMurray, they actually recover about 95% to 98% of the oil.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Very good. Thank you.

Mr. Woynillowicz, I have a couple of questions, quickly. I'm curious about Pembina, because it's the first time I've been exposed to the organization. How do you get your money?

[Dan Woynillowicz]

We're somewhat of a unique organization within the environmental community, in that we draw our funding from a variety of sources.

One of the things we initiated back when the organization was first established was actually undertaking fee-for-service consulting work, whether with government or with the oil and gas industry. That provides strong relationships and fosters opportunities to actually work on solutions, as opposed to simply discussing the various challenges or impacts that we have concerns about. Right now, that represents just under half of our funding base. Last year, we also had in the order of about 25% to 30% that came from foundation funding for specific research projects. And the remainder is collected through various fundraising activities.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Can those who contribute to you get tax relief from it?

[Dan Woynillowicz]

There is the Pembina Foundation, which is a charitable organization, and the Pembina Institute. Donations to the foundation are charitable.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

But you wouldn't call that a subsidy, right?

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Not unless you give it to them.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I wanted to lead into my question. That was a little humour there. I'm from B.C., you know. We're kind of serious in B.C., so I have a hard time.

I want to get back to your reference to the accelerated capital cost allowance. You've referred to it as a subsidy, as have some of the other members. I just want to try to clear this up.

In business, Revenue Canada provides tax writeoffs for research and development, for building your project, for operational costs in every type of industry. Whether you're a farmer or a miner, or drilling oil wells or cutting trees, there are tax writeoffs that you can take. But they're never forever. Sooner or later, the tax is going to be paid. It's not something that you write off and you never expect to pay it. Two things are sure: death and taxes. You are always going to end up paying.

It's a little unfair or misleading to refer to the accelerated capital cost allowance as a subsidy, because, like any other industry—in this case, the oil industry—they're entitled to write off their input costs to develop their projects against their taxes on their revenue. Until the oil starts flowing, there is a period of time before they can claim it, and then they can claim it against their revenue in a shortened period of time. But they still have to pay those taxes. Some would say this is good business for the government, because it's creative and it fits the use to which it's put.

I want to question you about the term “subsidy”. If it was free and you never had to pay it, it could easily be called a subsidy. If the government was sending these companies cheques and was saying they were grants for these companies, those could easily and rightfully be called subsidies. But when you have to pay the tax at some time or other, then I have trouble with the term “subsidy”.

Could you explain your version of that and how you can call it a subsidy? Maybe Mr. Alvarez or Mr. Stringham could then respond to what you say, because I just want to clear it up.

Go ahead.

[Dan Woynillowicz]

I think it's somewhat of a nuanced point in terms of how one goes about defining a subsidy. It's been very clearly demonstrated that the accelerated capital cost allowance that is afforded to the oil sands sector is a preferential form of fiscal treatment relative to the broader energy sector, including their peers in the conventional oil and gas industry.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

If I could just interrupt you there for a second--and I apologize for that--people who are working for a wage, where tax deductions are made at source when they get their cheques, see the little mom-and-pop corner store down the road being able to write off a whole bunch of stuff because they're in business. They seem to think that's unfair too. But these businesses are not really getting a subsidy; they're just able to apply their operational costs against their revenue.

Sooner or later they all pay the tax.

[Dan Woynillowicz]

Yes. I don't dispute that, and I don't want to belabour the differences we may have in terms of how one defines a subsidy or uses that term.

I think the key point we'd like to make is that it is a form of preferential treatment. We don't dispute that perhaps when it was established it was appropriate for the oil sands industry, given the economic benefit that does flow from oil sands.

I think we're now looking at it today and saying, in light of the significant changes that have occurred since that was introduced, is it still appropriate? Also, in light of the fact that it is factoring into the rate at which oil sands development is happening, might we take that tax base and shift it over towards other more beneficial things or areas of the energy sector that could now use that same sort of helping hand to develop those sectors further?

So it's not a question of whether or not it was ever appropriate; it's a question of whether it's still appropriate today, given that conditions have changed significantly in everything from the operating cost to the value of the commodity.

To give you another example within the Alberta context, when the Alberta royalty regime was established they did not estimate that the price of oil would ever exceed $35 a barrel, so that regime was established with that as a cap, and obviously times have changed.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I appreciate your comment that it's a nuance.

[Greg Stringham]

Just very quickly, in the interest of time, I agree with the comments you've made on that. In this particular thing I want to emphasize again that the accelerated capital cost allowance is not just for the oil sands. It started in the mining industry, and it's now being extended in other forms of accelerated capital cost, to the renewables and cogeneration.

So from that perspective, it's not a subsidy. As you say, it's a deduction up front, and it has to be paid later on. And the restriction on it--back to Mr. Cullen's comment--is that you can't just keep pushing it off forever. It's restricted to the revenue that comes only from that single mine. You can't spread it out to the rest of your company. So eventually it will have to be paid. It's just a deduction.

It's a timing question. It's not a subsidy.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Yes, I was just concerned and I--

[The Chair, Conservative, Lee Richardson]

Sorry, Dick, but you're way over.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

I was just going to thank him for his.... Can I do that?

[The Chair, Conservative, Lee Richardson]

No, it's only fair to let the others get in.

Monsieur St. Amand.