Natural Resources Committee on Dec. 7th, 2006

[The Chair, Conservative, Lee Richardson]

Thank you for being here on time--as best we could.

We're going to hear further today on our oil sands research project and the role of the federal government in the development of the oil sands.

We're going to hear witnesses: from Energy Alberta Corporation, Wayne Henuset, from Calgary; the Bruneau Resources Management Limited, Angus Bruneau, president and corporate director, from Newfoundland; and David Keith, professor of the department of chemical and petroleum engineering in the department of economics at the University of Calgary.

I think you're familiar with the procedure. We're going to ask you to provide a little background information for the committee, the members will ask questions, and we'll hope we can conclude. I'm going to ask you to try to keep your presentations to close to 10 minutes, if you can. We started a little late today because of the vote.

Dr. Keith and Dr. Bruneau, have you coordinated your presentations, or were you planning on doing 10 minutes each? I'm sorry, I didn't confirm that with you before the meeting.

[Dr. Angus Bruneau, President and Corporate Director, Bruneau Resources Management Limited]

We have not coordinated, but I can make my opening remarks fairly brief.

I assume I've been invited because I chaired the panel--powerful connections--and I don't know if--

[The Chair, Conservative, Lee Richardson]

Yes. I think it was that you had looked at this whole area. There were members on the committee who felt your expertise might be useful in terms of answering questions. I would appreciate a short opening statement too.

Why don't we start, perhaps with Dr. Keith, and then we'll go to Dr. Bruneau. Then, Mr. Henuset can tell us about the private sector initiative.

You can begin, Dr. Keith.

[Dr. David Keith, Professor , Department of Chemical and Petroleum Engineering and Department of Economics, University of Calgary]

Thank you very much, and thanks for being here.

Angus and I will be pretty complementary. I'm going to start by saying some general things about climate change, and then what I think might be an appropriate structure for the government to get involved in to enable innovation in the oil sands. But I won't say much in detail about the blue ribbon report. I think we can leave that for questions.

Canada has what many nations lack: abundant and secure energy resources. I think the two most important challenges our energy system faces are to access these resources while protecting the climate, and maximizing their economic value to Canadians. To meet these challenges we must accelerate the pace of innovation in science, technology, and management throughout the system.

I will address the climate challenge first. I may preach at you a little, but that's what I feel I should do. I'm going to frame the story around three important dates. The first of those is the end of the Eocene, which isn't a historical date, if you'll forgive me; it was 35 million years ago. This was the last period in which CO2 concentrations stood above 1,000 parts per million. That's about four times their value in the 17th century, before humans started messing with them.

The Eocene climate was a lot warmer than the climate now. Crocodilians walked the shores of Axel Heiberg Island, in what is now the Canadian High Arctic. Within one century--not 25 million years but 100 years--the lifetime of my kids if they're lucky, human actions may push CO2 concentrations to the same level as we saw in the Eocene. We cannot accurately predict the results of this planetary-scale experiment, but it's safe to say that if we continue our present course we will be committing our children to climate changes that will be large and rapid, in comparison to those humanity has seen since the invention of agriculture.

It is completely plausible, for example, that sea levels will rise more than five metres within one or two centuries. A sea level rise of just a few metres is enough to dramatically alter coastlines, as seen from space. So a sea level rise of just a couple of metres makes Florida look half as long as it does now, and erases the Fraser Delta.

There is nothing wrong with the Eocene climate, and no inherent reason why we should prefer our crocodiles in Florida rather than Axel Heiberg Island. But our infrastructure, crops, and the very locations of our coastal cities have evolved for this climate. While it is beyond the ability of social scientists to predict accurately the exact economic cost of this action--I don't believe exactly what's in the Stern report, I can tell you that--it's clear there will be some winners from climate change, but it seems very likely the losers will outnumber the winners enormously.

The second date is 1965. That was when the most powerful politician in the world got the first high-level scientific report on climate change. President Johnson's report from his senior advisory panel said essentially the same facts we know today. Carbon dioxide concentrations are rising due to human action, and if left unchecked, substantial climate change is to be expected within a century. We've known this a long time. I mention the 1965 report to emphasize the consistency of scientific judgments on this topic and to illustrate the absurdity of claims made by some of the so-called climate skeptics, such as Calgary's own Friends of Science.

The last date I will mention is 1994, the year the Framework Convention on Climate Change was negotiated. This event marked the emergence of climate change as a high-profile political issue. I'm not claiming any great merit for the convention or the subsequent Kyoto Protocol. Indeed, my personal view is that the Kyoto Protocol may represent a dead end in international action on climate change. My point is that after more than a decade in which this has been high on the agenda, we have achieved essentially nothing. I don't just mean in Canada; the Europeans have said a lot of words, but they haven't achieved much in reducing emissions.

In the years since 1994, the growth of carbon dioxide concentrations has only accelerated. The most measurable direct result of all the politicking and international negotiations has been the CO2 emissions from participants' air miles.

Substantial uncertainty about the climate's response to our meddling will remain unresolved for decades. Uncertainty is not justification for inaction any more than uncertainty on the battlefield is justification for delaying decisions about the movement of troops. This issue will be uncertain for a long time. You folks need to find a way to regulate in the face of that uncertainty, understanding that climate change may turn out to be a little worse or a little better than our best estimate projections. If you wait for us to be certain, you'll wait forever.

It's not yet too late to act. There are many steps we could take today that would take a substantial bite out of our CO2 emissions at a cost of a few percentage points of GDP--comparable to the amount we spend on our military, and much less than what we spend on health care or education. The use of wind power, coal with CO2 capture and storage, and nuclear power would allow us to make deep reductions in emissions from electric power systems and heavy industry. Improvements in the efficiency of our buildings and transportation infrastructure can reduce downstream emissions.

Innovation must be a cornerstone of our energy strategy, yet Canada does not do enough energy R and D. Canada spends less as a fraction of GDP, and significantly less in relationship to energy production, than do our major competitors. The Canadian energy industry invests only about 0.75% of revenues in R and D, less than one-fifth of the Canadian industrial average. Federal spending on energy R and D is down 70% from its peak in the 1980s, and this when we face big challenges in the energy business.

Money alone is not enough, as we argued in the blue ribbon report. Management of R and D funding is too diffuse, both within the public sector and the private. Funds are divided into so many pockets that we have difficulty reaching critical mass in any one of them. The report recommended that federal R and D be restructured around a few core areas within which managers would be responsible for decisions across the entire innovation chain, from research to commercialization.

A more innovative energy sector could position Canada to meet the climate challenge. Equally important, more innovation could increase the economic productivity of our energy resources. Our goal ought to be to move up the energy value chain, to maximize the value added to the Canadian economy per unit of energy extracted. Sustainable high-quality jobs are created by innovations that capture the most value in Canada, not by maximizing the rate of resource extraction.

How can we make our energy system more innovative? As an academic, you might expect that my prescription would be more money for university research, and I'd be happy to take the cheque. But while focused government funding would certainly help, I don't believe it can be effective on its own. Innovation in energy technologies works when R and D push is matched to market pull. In the case of environmental innovations, such as new technologies to enable deep reductions in carbon dioxide emissions, governments must play a central role in creating that market pull. One may debate the merits of a cap-and-trade system, a carbon portfolio standard, or a tax, but without transparent economic signals that put a price on carbon, we will not enable the private innovation and private capital that are necessary to solve this problem.

I'll say a few more words about oil sands. Tools to manage CO2 emission from the oil sands are available today. Doing research so that we have these tools sometime in the future is not an excuse for inaction. The industry will continue to improve the energy efficiency and cost-efficiency of the process, but efficiency improvements alone cannot reduce emissions. Reducing emissions requires technology that produces heat and hydrogen with minimal CO2 emissions. The most important technology is probably CO2 capture and storage, although nuclear power, biomass, and deep geothermal could also play significant roles.

Oil sands are an unusual niche market in the global energy system, and our strategy must take account of the specific character of that niche. For example, gasification with capture and storage is relatively more competitive in oil sands operations—because they need both heat and hydrogen—than it is in the rest of the electricity sector. Likewise, nuclear power is conversely, in my view, slightly less competitive in oil sands operations than it would be competing directly against CO2 capture and storage of the electricity sector, because of the need for heat and hydrogen. Finally, deep hot-rock geothermal, if it could be developed, would be particularly competitive in the oil sands niche because of the need for low-grade process heat.

Increased funding for R and D may produce innovations that will eventually reduce the cost of managing emissions from the oil sands. Nevertheless, in my judgment, the single best way to stimulate new technologies is to put a price on carbon. Several large CO2 capture and storage projects, for example, are near reality. Some, such as Shell's Quest project, would likely move ahead rapidly if there was a serious signal from government.

The history of power plant sulphur controls is instructive. Passage of the U.S. Clean Air Act amendments in 1970 stimulated innovation, as evidenced by a burst of patenting activity and private R and D. Government set the rules, but private industry delivered the innovations. Over the next two decades, the cost of sulphur scrubbers fell by more than 50% as regulation created a strong competitive market for these technologies. In the wind power industry, in contrast, early U.S. government R and D helped start the modern wind industry, but without stable incentives, the U.S. lost leadership to Europe in the 1990s. In Europe, stimulated by government incentives and now by carbon regulation, a $10 billion a year industry has emerged, based in part on early research funded by the U.S. government.

Canada had an early lead in CO2 capture and storage technologies. In my judgment, we have now lost that lead, and without decisive action, we will soon lose any chance to regain it. Let us not repeat the mistakes of the U.S. wind power program. If our goal is to reduce emissions and capture the economic benefits of new technology for Canadians, then R and D push must be matched to market pull. For CO2 technologies, these markets must be created by government regulation.

Funding for research in universities and government labs or incentives for research and demonstration by industry will be at best inefficient and at worst ineffective without a clear market signal from government. You need to do both. We have had at least a decade of consultation on this topic in Canada. We've had enough. Now is the time to make decisions, the time to act.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Dr. Keith. That was very helpful.

Dr. Angus Bruneau.

[Dr. Angus Bruneau]

Mr. Chair, now that I've heard him, I am going to do something quite different from what David has done. I want to start by standing back a bit and dealing with some of the very fundamental issues.

Often there is confusion in people's thinking about the role of energy in climate change. I think it is very important to understand that it is not the energy we use that gets us into trouble, it is the material byproducts of the conversion processes that we use to put energy into forms useful for ourselves.

If you run the numbers, mankind could use 150 times as much energy as mankind uses today, and if it all became heat—which is a pretty good assumption anyway—150 times today's use would only raise the temperature of the surface of the planet by 1° Celsius. The energy does nothing.

We're in trouble because we haven't paid attention to the byproducts of our processes and because somebody discovered three millennia ago that if you got a lump of coal hot, it would burn in air, and subsequently oil and gas and so on. We've been doing it for millennia, and we think it's our God-given right and privilege just to do this in air.

We weren't doing very much until fairly recently. We're now doing a lot, and there's not another industry in this country that expects, with impugnity, to dump the material byproducts of its conversion processes freely into the atmosphere. If you go back thirty years, the paper industry knew it couldn't keep doing it.

So be very clear. The object is not to figure out how to use materially less energy. It is taking charge of the byproducts and working on the technologies that can change what the byproducts are. We do nothing with energy in extraction, in development, in processing, in refining, in using, that does not involve technology.

People will say I'm just one of these people who says the solution is always with technology. In energy, you have nothing if you have no technology. Every step is a technology, so it is important, if you want to change the system, that you make investments in good minds that can be innovative, that will help us understand science and changes in the technologies that will deal with the issue that is central for all of us, and that is the unfettered dumping of our byproducts into the atmosphere.

Let me say something about the tar sands. I think one of the most important things that came out of our panel discussions and thinking was the observation that we could take real steps forward if we began looking at those components of our energy systems in a systematic way. In other words, you don't simply look at one bit here and see how we optimize this or how it works best in today's economy. You have to look at a broad system.

I'm going to talk about one system. That's a geological system and it's called the western Canada sedimentary basin. We have an extraordinary layer cake, and the trick is whether we can have it and eat it too. That layer cake is unique to Canada. Nobody else in the world has the same overlying layers of coal, bitumen, heavy oils, conventional oil, liquid gases, and gas. We have them all together.

Historically we had an oil industry. It wanted conventional crude and light sweet crude. You pumped it and you put it down their system. Then a gas industry grew up. They had their own system and their own infrastructure. We can go through all the stages.

Today we have an oil sands industry. They're hardly connected. One might be a market for another, but we have never sat back and said that we have a unique opportunity in this country in the western Canadian sedimentary basin; if we are really smart about how we manage this basin, with the optimum use of the resources available to us, and recognize that for all practical purposes we can also store safely in that basin an infinite amount of carbon dioxide in terms of Canadian production, a thousand years of Canadian production at the present rate, and we take the constraint and make it clear that we have to change what we're doing to the environment, and we look at what we have in that basin--nobody else in the world is going to do that for us--then that's a Canadian opportunity.

A lot of people will say that we've gone so far now, how can we possibly change? But listen, when we've done the mining that we're committed to today, and are building today, and are thinking about building in the next few years, we will have dealt with only about 20% of the resource in place.

Now, how do Canadians realize the maximum value of this extraordinary resource? It will only ever happen if we stand back and start getting very bright minds looking at how we can optimally use these resources to yield the products that we need and want, and at the same time take responsibility for the byproducts that we simply cannot continue to dump freely into the atmosphere.

Mr. Chairman, that's only meant to challenge and perhaps engender some discussion. I'm going to stop right there. Obviously I'll deal with questions in time.

[The Chair, Conservative, Lee Richardson]

Thank you, Dr. Bruneau. I think that's a pretty good start.

We'll now hear from Mr. Henuset, who has a possible solution to some of that problem.

[Wayne Henuset, Energy Alberta Corporation]

I have 10 minutes. I had a little speech to give for 10 minutes, and I could actually throw it all away after listening to my partners here. I'm going to go through it, though, as I would probably go on and on forever.

Energy Alberta was started as a corporation to be profitable as an energy provider at the lowest cost, utilizing nuclear power in Alberta. The need for alternatives to natural gas as a source of energy becomes apparent when you examine only the small area of Alberta energy demands, and that's in the oil sands.

The National Energy Board and others have forecast that oil sands productions could increase fourfold by 2015 in the SAGD projects alone, using natural gas cogeneration systems. We can see natural gas demand in the region skyrocket to over five billion cubic feet a day by 2015. This scenario is on the graph. You can see the graph on the side. It gives you an idea. Our strength allows us to provide a long-term competitive advantage for the off-takers.

First of all, we are an environmentally superior hedging alternative to natural gas. Nuclear energy emits nearly zero CO2 emissions over the life cycle of the facility. This can provide the oil sands off-takers with continued compliance with future environmental legislation and a long-term competitive, stable price.

Second, nuclear energy has a long-term stable fuel cost, contributes about $550 million per year for a single CANDU 6, where gas is at about $650 million per year at $7. So price-wise we're competitive, and as far as the CO2 emissions go, it's definitely a positive.

Our business plan reinforces nuclear energy's unique ability to act as a hedging tool. Our technology choice is best for the industry. AECL has a track record of building nuclear power plants on time, on budget, with a fixed turnkey price contract: this will be the model that we're proposing in Alberta.

Our business plan uses various insurance programs to mitigate the risk of unexpected cost overruns or project delays which would impact off-takers' revenue. This will ensure our ability to provide a long-term hedging option for energy output costs. Our energy outputs are stable for in situ development, be it SAGD or carbonate for upgraders and other interested parties.

Within the Clean Air Act, which was proposed legislation seeking to reduce greenhouse gas emissions by 65% of 2003 levels by 2050, a component of the emissions reduction strategy is to provide emission intensity targets to the energy industry. While this is not completely defined at this point, companies will be required to lower their emissions on a per unit of output basis.

Nuclear energy's proposed contribution to the Clean Air Act for the oil sands is based on a nuclear power plant's ability to drastically reduce nearly all the emissions required in the production or upgrading of bitumen. This would result in a project's having a near zero emissions intensity level over the life of the project.

Nuclear energy will result in displacement of nearly 3.3 million tonnes of CO2, amounting annually to about $70 million Canadian in savings, and it's expected to rise as values associated with carbon increases.

The nature of nuclear energy aids in its ability to act as a hedging tool against inflation and input fuel price fluctuations. Nuclear energy is a capital-intensive project with over 74% of the $550 million annual revenue requirement for the facilities related to the repayment of capital for the construction of the facility, including 2% for the decommissioning and spent fuel management; 26% of the revenue requirement is subject to inflation, including $8 million for nuclear fuel.

Comparing natural gas production, to produce the same amount of energy, natural gas fuel costs amount to 94% of the total annual revenue requirement of the facility. Energy Alberta brings to the table a long-term hedging option contract for nuclear energy at a stable and predictable price over the next 20-year period.

The inflation components have little impact. A doubling of the commodity price of uranium would only increase nuclear energy costs by about 3%. The ability to hedge is not only helping to develop the concept in Alberta, but is one of the reasons why nuclear is expanding across the globe.

We are living in a nuclear renaissance. There are over 442 reactors open around the world today. There are 28 new reactors under construction, and another 62 are in the planning stages. It is anticipated that the new Ontario reactor will be built by Atomic Energy of Canada using the CANDU technology. This will produce advantages for the new builds in Alberta.

A question that is commonly asked of us is whether or not Alberta is ready for nuclear. Before starting this project, we commissioned an Alberta-based public opinion poll. The results supported the project; 40% of Albertans favoured the proposal, and 36% were neutral to the concept. Over the past few months, Alberta has seen a strong public shift in the provincial mood towards nuclear power.

In early October, Alan Greenspan spoken about the need for alternative sources of energy to an audience of over 2,000 businessmen and businesswomen in Calgary. He made it clear that nuclear is an option Alberta could see in the oil sands.

In August of this year, we entered into an exclusivity agreement with Atomic Energy of Canada to market, own, and operate a CANDU 6 to support oil sands development. AECL is providing us with their nuclear experience.

AECL's track record for building CANDU 6 nuclear power plants is excellent. Since 1996 all six of the reactors have been built on time and on budget, and the current project in Romania is on time and on budget.

Spent fuel will be safely managed in accordance with Canadian regulatory procedures. Spent fuel management costs are built into the energy output prices, so we look after our waste. Long-term storage will be based on the recommendations that have been submitted to the federal government by the Nuclear Waste Management Organization.

This will likely be outside Alberta, and we would like to see the federal government provide clarity on this issue. We've spent about $1 billion so far, and the federal government have come up with a program, but they haven't passed it.

Since then, spent fuel is physically a small amount and the transportation of stored spent fuel is a fully insurable process happening around the world today. The off-takers are not responsible for it.

Working with consulting experts in the Lloyd's of London insurance market, Energy Alberta has developed a plan that will provide additional insurance against any risks associated with nuclear accidents. In addition to this, we have developed a plan to insure against unexpected cost overruns.

That being said, we understand we are facing labour and infrastructure challenges that are being experienced by oil sands operations in the regions. Given the importance of the oil sands to Canada and the delays associated with inadequate infrastructure, developing reliable infrastructure in the area should be an issue of national importance to the Canadian government.

The CANDU 6 reactor power plant will provide three streams of energy: steam, hot water, and electricity. Through electricity, hydrogen can be produced. In situ operators need steam and electricity for SAGD, and they need electricity to extract bitumen from the carbonate deposits. Mining operations require large quantities of hot water and electricity. All upgraders require large quantities of electricity and hydrogen. Last, and equally important, is the need for electricity by the non-oil sands sectors in Alberta for residents and the industry.

The federal regulatory process is well defined, and we will require Energy Alberta to apply for licensing for the site, construction, and the operator. These applications could be reviewed by the Canadian Nuclear Safety Commission in accordance with the process defined by the federal licensing process for new nuclear power plants in Canada.

The process also requires Energy Alberta to complete an environmental assessment. We hope we can use some of the existing ones to help us as well.

Combining the federal regulatory process with the provincial requirements is an issue that needs to be clarified. Various organizations may be involved in the federal process as stakeholders or may be unsure about how they could be involved in the process. It is important that there is regulatory clarity provided by the federal government to the provincial government. Such clarity should help ensure a reliable and effective regulatory process for all stakeholders.

In July 2005 the business concept to deploy nuclear power to support the oil sands develop was formed with Energy Alberta. Today we have an exclusivity agreement with the AECL to market, own, and operate a CANDU reactor power plant in support of the oil sands. The energy from this facility will either be contracted with direct agreements with an off-taker or will be an open season process to go for bid. By March 2008 we should be in a position to initiate the regulatory process and by 2016 the facility could be operating at full capacity.

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Henuset.

With that, I think we'll just get right into questions. We're going to keep the first round, as usual, to 10 minutes for questions and answers for each of the questioners, and then we'll move into the second round at five minutes for each question and answer.

We'll begin the first of the 10-minute rounds with Mr. Cullen.

[Roy Cullen, Liberal, Etobicoke North, ON]

Thank you, Mr. Chairman, and thank you to all of the presenters today.

I'd like to start with Dr. Keith. First of all, congratulations on your award as environmental scientist of the year from the Canadian Geographic. Well done.

You talked about the need to accelerate the pace of innovation and the need for economic market signals. You also noted the need for other initiatives, but the market signals were quite important. You talked about a price on carbon. Would a cap-and-trade system fit within that rubric or be a proxy for a price on carbon?

Secondly, the government has, with the Clean Air Act, talked about intensity-based reductions. I have some difficulty with that in terms of whether it's the appropriate market signal, but I wonder if you could comment on that.

On value-added, the use of natural gas in the oil sands raises some questions about whether this is the highest and best use of our natural gas resources. The petrochemical industry is looking for feedstock and having to chase it. We saw in the presentation from Mr. Henuset that we're going to be importing natural gas. When we raise this question, people say the market will decide. Apparently we're told the market is going to decide a lot of things, but I'm not sure it will decide all these things or whether it should.

So in terms of value-added and the best use for our natural gas and moving up the value chain, what sort of market signals or policy environment do you see as appropriate there? And I wonder if you could talk about the economic signals question and expand on your thoughts on that.

[Dr. David Keith]

Thanks very much.

Well, first of all, let me start with the comments about intensity-based regulation. I don't think that's the big issue. You could do a fine job solving the climate problem based on intensity. The issue is where you set the knob, how tightly you ask intensity to decline. If you ask intensity to decline at one percent per year, then you won't get real reductions in CO2, because the economy will grow faster. If you make it decline more quickly, you could easily achieve the results you want with intensity.

My view is that this is sort of a false debate. I have no problem, personally, with that part of the Clean Air Act at all. I think the big choice is whether we make a system that is really transparent, that talks to the engineers in companies instead of one that talks to the lawyers in companies.

I want to relate an example of what I mean by that. The U.S. Clean Air Act for sulphur is in some ways really simple. The basic rule is that you have a designated set of facilities, and at the end of each year, each of those facilities has to have the right number of permits to match its emissions, and if it doesn't, the plant gets a lock on it.

The way you make a market is that you make it simple and you make the enforcement so strong that nobody ever breaks the rules. So nobody breaks the rules, because the enforcement's very hard. There are very high penalties if you don't comply, so everybody complies. Other than that, it is completely the industry's business how to handle this. They can use whatever technology they want; they can use a futurist market if they want. It's their business. And I think it really is important to stick with that.

The fact is that people in the energy business understand how it works—I hate to say it—better than people in the Canadian government probably do. The government's role is to set the overall objectives. So I'm not at all claiming that the carbon market will happen just by free enterprise. No. Emissions of carbon to the atmosphere, using the atmosphere as a free dumping ground for the material products of our combustion, is an environmental risk, and the parameters of dealing with that risk need to be set by government. But after that, I don't think government should be involved in the details.

The current way we look at regulating is nothing like that. So if you look at the details of the large final emitters scheme, there's going to be enormous complexity at the facility-by-facility level, which is a recipe for a huge number of consultants and lawyers getting a lot of money, and it won't speak to engineers.

Let me tell you one anecdote about how well this works when it works. There were various stages of nitrogen regulation in the U.S.—I spent most of my career in the U.S., so that's what I know best—and there was a stage when you had to put a certain kind of combustor on your power plant called an overfire air combustor. It was a command-and-control regulation that said, “Put this widget on your power plant,” so people said they would put the widget on their power plants. But it didn't say, “Tune the widget up,” because that wasn't anybody's responsibility.

Then we moved from that regulation to a newer set of regulations, where we now have tradeable permits for nitrogen emissions. And suddenly what happens is that people at the head office phone up people in the local power plant outside Pittsburgh, where I used to live, and say, “Can you do something about these nitrogen emissions, because they're costing us a bunch of money?” What well-run businesses know is how to do cost control, because that's what makes good businesses run.

Then it turns out that there are little things you can do that actually cost you zero money--just adjusting this enormous fire you have inside the giant gigawatt coal-fired power plant. It turns out that with no new capital at all, that just by tuning up that fire, you can cut your NOx emissions by a few percent. So a bunch of plants have done that.

The lesson of that story is that you want something that speaks unequivocally clearly to the guy operating the plant. The kinds of regulations we're now discussing, the kinds of regulations that the last government put forward and that this government is now in the middle of discussing, are so complex that there are an enormous number of people who I deal with every day in Calgary in the oil patch who are in the middle of hiring teams of lawyers and senior vice-presidents on environmental compliance and what not to figure out how to manage them. They don't just put a price on carbon. There's talk about how we'll pay for the difference between our target and what we actually emit on a facility basis by buying a technology fund. But of course, actually counting emissions on an industry basis is not easy. There are all sorts of complexities about what is and isn't in your business.

So that's my overall comment on that. You really need to look for simplicity. That's my biggest single comment on that.

[Roy Cullen, Liberal, Etobicoke North, ON]

Okay, thank you. That's useful information.

In terms of the intensity targets, I agree with you that theoretically, if you ratchet up the levels of the intensity of reductions, you're going to get to the same outcome, but I'm not so sure that that's where we're headed.

What about the question of value-added and natural gas? What sorts of market signals do we need to make sure we're getting the highest and best use out of our natural gas resources?

[Dr. David Keith]

When I think about value-added and what our committee thought about value-added, the key thing is really to move our energy system up market. Canada has enormous resources, but in the long run I don't think we provide really productive jobs for Canadians by just pulling those resources out at minimum cost, so what I really mean by value-added is putting a lot more R and D money into being the developers of some of the newer higher technologies that provide both more value-added jobs in Canada and more exports. Whether it is advanced fuel cells or advanced ways to make hydrogen from natural gas or gasification technologies that replace natural gas in oil sands--such as the OPTI/Nexen plant in the oil sands--or advanced nuclear power plants for electricity, those are the kinds of things that move us up the value chain.

I don't think the government only should set the prices; there are things we need to do to encourage innovation. I would like to get more funding for R and D in universities and in industry and so on. We need ways to encourage that, and ways to provide incentives for early risk-takers.

On your question about natural gas, there are methods now for reducing natural gas use in oil sands operations and replacing it with other technologies. Nuclear power is certainly a possibility, and gasification of residuals is more than a possibility; that is what OPTI/Nexen is doing at Long Lake. They are actually cutting metal today, but they're taking some big risks to do it. I think we need to set up schemes that make it easier for the company to take the first big risk.

[Roy Cullen, Liberal, Etobicoke North, ON]

That is a good segue into Mr. Henuset's presentation. Thank you.

On the nuclear option, could you comment a bit about the issue around spent fuel and nuclear waste and how that would be dealt with? I think that would be a question people would have.

We hear about this idea of a nuclear reactor up in the Fort McMurray area, but we hear the other side of it: when the producers there can get cheap natural gas, there is no incentive for them really to promote this. Unless someone takes some leadership, it's not going to happen.

Could you tell me where you're at with your proposal? Are you waiting for some shoe to drop to say you're going to proceed this way or for perhaps the private sector to come up with a funding package to allow this to proceed? It's a good idea. We're hearing a lot of good ideas, but we're not hearing a lot of action. Where is it?

[Wayne Henuset]

Initially we went directly after the steam producers in the SAGD. The SAGD processes in operation today aren't large enough to take the amount of steam that the nuclear reactor produces. Right now, until we get a SAGD operator that is planning to do something in excess of 200,000 barrels a day in a radius.... None of them are stepping up. They've made plans for it, but those are just long term, and they are all staged plans.

Right now we've backed away a little from straight steam operators and we are looking more at the electrical side. Right now we have a surplus of electricity in Alberta, but with the demand that's coming with the hydrogen and with the need for electricity from Shell and Husky, we feel that's probably the direction we have to take.

I'm a little worried for some of the operators in terms of the amount of gas they're using in cogeneration and the carbon dioxide that is being put into the air and how much they're using. The graph there shows that 10 years from today, we're going to need imported gas in order for these facilities to operate. I think it is up to you, the federal government, to put some policies in place so that we use the gas for the right process, and you're not burning gold to produce coal. We've got that problem right now as we're burning good gas.

The operators up there are actually taking it on themselves. As we've said, they're trying some different processes because they've got the concern that they're building these big infrastructures to produce this oil and they won't have the fuel to maintain those processes, so they're looking at other ways. Right now they're looking at cogeneration of bitumens, but we're trying to show them the cost-effectiveness of nuclear.

Nuclear for Albertans is a strange and winding road. In the last year we've got them around that, to the point that now they're looking at it and entertaining the idea, but at first it was just really scary for them, because these guys are oil guys, and they didn't want to talk about a competitive industry in their backyard.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Cullen.

And thank you, Dr. Keith and Mr. Henuset, for that response.

We're now going to go to Mr. Ouellet of the Bloc.

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

Thank you, Mr. Chairman.

Dr. Bruneau, I quite liked the way you explained the problem. Clearly, I felt you had taken a holistic approach but I didn't really understand where this approach took you. In other words, I understood your analysis, but I didn't understand if you had drawn a conclusion or if you had summarized your analysis.

Does this analysis lead us to the depletion of greenhouse gases, as was just mentioned? If not, should we move towards CO2 sequestration in the soil? You talked about layers. Should we simply forget gas and use another form of energy such as nuclear energy?

[Dr. Angus Bruneau]

Thank you.

In saying what I had to say, my intentions was not, in any sense, to summarize anything said in the report, but rather to make it very clear that we're not going to get to where we want to go simply by trying to use less energy.

Ultimately, when we have benign energy systems, we will have a far more energy-intensive society than we have today. If you want to clean up a coal plant today, you have to spend energy to do it. And I'm just talking about using the technology that's available today.

The intent in talking about this was to suggest that we don't get drawn in by those who say we should be using less energy. Understand that where we are creating a problem for ourselves is in the uninhibited use of the atmosphere as a free dump of materials. That's the problem we have to address. If we address that problem, many things will come from it.

I don't know if that answers the question that you were phrasing, or if you would like me to say more.

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

If you were to evaluate how to resolve this problem, where would you start? We use all the energy we need, we use lots of it, but how can we protect our planet from greenhouse gases, which are produced by increasing energy consumption?

[Dr. Angus Bruneau]

Greenhouse gases are produced when we use mostly carbon-based fuels. What we suggested in the report is that one of the very important technologies that we think Canada should really focus on, right from very basic research through to demonstrations of commercial-scale operations, is a technology broadly described as gasification. What this means is taking these materials and breaking them down into constituent parts in a contained, closed system and reassembling those parts with other materials—you may put more oxygen in, or whatever—to produce different products. When we do that, we have technologies that would allow us, if we produce a lot of CO2 in that gasification process, to separate that stream of CO2.

Following from that, the second major technology push we talked about in the report that we think Canada should focus on was one David spoke about in his address, and that is how we can essentially store that CO2. We have to separate it, we have to transport it, and we store it. We talk about sequestration, and that's storing it.

I suggested that we have more room to store CO2 than we will ever produce of CO2, in the western Canadian basin. What we need to do is to find those principles that the government and the private sector can agree on as to where we want to drive this system. It could be in part by regulation.

I would cite an example of very effective regulation that was also brought in, and in a very effective way. That was for sulphur in gasoline and sulphur in diesel. It took over a decade to do it. Industry was involved, a timetable was worked out, the investments were made in R and D and in new processes that allowed it to happen, and everybody got there. In fact, the interesting thing is that every industry in the country was using a target lower than the target agreed with government, because they knew that eventually, if it was possible to do it, they'd be required to do it anyway.

To do these things, think of the energy we're using up all of a sudden to collect, transmit, compress, and store the CO2. The system gets more energy-intensive, but it's cleaner in terms of the things we think we need to do to clean it up.

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

Does anyone know, Mr. Bruneau, how much additional energy we would need per barrel of crude for CO2 sequestration?

[Dr. Angus Bruneau]

I wouldn't put a number out here, but the purpose is simply to suggest that if we clean up the process, as we know we can do today, it will become more energy-intensive.

Of course, my original premise was that it doesn't make any difference whether it's more energy-intensive, because we will never run out of energy. We just run out of some of the forms of materials we use—or we may—but we have always stopped using energy sources not because of running out of them, but because there was a better technology and a better source. We didn't stop using coal to heat our houses because we were running out of coal. It was a whole lot easier to put an oil burner in, or an electric.

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

If I understand correctly, you prefer CO2 elimination through increased energy consumption, which would come from other sources, in order to eliminate greenhouse gases.

[Dr. Angus Bruneau]

I'm not advocating any particular process here. I'm citing that as something that, given the processes we have and can manage today, if we want to make a difference with them, we have to start sequestering the carbon dioxide. If that costs more—and it will cost more—but if it costs significantly more, smart minds will start figuring out different ways to do those processes. That's where the investment in research and development and science technology is absolutely vital. You make those investments, often targeting a particular expectation, but usually it's the surprises that you learn along the way, that are created along the way, that really change the way we do things. It's the investment in intellectual capital that I am arguing for, but only to say, if you start with the premise that we have to use less energy, we're not going to get there.

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

So financial incentives are essential. The government could offer incentives to ensure that this would work.

Thank you.