Natural Resources Committee on June 13th, 2006

[Roy Cullen, Liberal, Etobicoke North, ON]

I'm going to have to interrupt, because my time is running out.

I hope someone at the political level and the departmental level is hearing that this is creating a lot of uncertainty. Investments are getting parked. We could lose some momentum, and we're just trying to catch up.

On the program with respect to ethanol, the government recently announced this commitment to ethanol content and almost simultaneously said that the funds were frozen for the ethanol expansion program. This seems to run counter to what the government announced. I wonder if you could comment on that. What was actually agreed upon or discussed at this meeting with the minister and the provincial counterparts? The two actions seem to be inconsistent.

Secondly, you've probably heard about different standards, provincially, for interprovincial trade, and that if different provinces have different targets, it's going to create good opportunities perhaps for some, but for Canadians generally, it could create problems.

Could you comment on these questions, please?

[Christopher Johnstone]

With respect to your question about what was discussed at the May 23 meeting, the ministers discussed the path forward in terms of obtaining that level of 5% renewable content by 2010 and the existing measures that were in place.

As you mentioned, this need to look at a national strategy is very important. We're hearing from industry that a national approach is required, that this patchwork of provincial programs is causing inefficiencies, and it is causing trade barriers, as you mentioned. So the fuel distribution industry, the renewable fuels producers, agricultural producers, vehicle manufacturers, all these stakeholders are calling for a national approach.

This strategy towards obtaining that national approach was discussed at the May 23 meeting. It will be the subject of further stakeholder consultations and meetings throughout the summer.

[Roy Cullen, Liberal, Etobicoke North, ON]

What about the first question, the seeming contradiction between announcing this commitment and yet freezing or scrapping this other program that encourages that type of development?

[Christopher Johnstone]

I understand. The ethanol expansion program is awaiting the same decision as some of these other programs. It's in the exact same boat.

[Roy Cullen, Liberal, Etobicoke North, ON]

To conclude, we heard at another meeting that the Treasury Board and the Privy Council Office do these evaluations. I hope the department is plugged into that and has some sense of what is being evaluated, what the results are, and that there's a way to enter into that discussion. Because if you kill or freeze something, then you either replace it with something that's better or you say you're not committed to that any more.

I don't know where that sits. Are these political decisions? What role is NRCan as a department playing in that kind of consideration?

[Tom Wallace]

As a department, we've been participating in the decision-making process. There is a decision-making process in government that involves cabinet and Treasury Board approval before announcements can finally be made. As I say, for that set of programs that were subject to the climate change review initiated by the previous government, and then presented to the current government, I think we're ending the end stage of that process. I'm hopeful that we'll see some decisions emerge very shortly. I really can't get into cabinet committee schedules and stuff like that.

When those decisions come out for most programs they will be to provide another year of funding. For some of the technology ones it will be another two years of funding. The logic has been to give the new government time. Really I think it relates to what you're saying to give the new government time to figure out the approach it wants to take without unduly disrupting the industry. For those programs that were subject to the...and that includes the ethanol program, but it also includes the REDI program, all I can say is I think we're very close to getting some decisions that will unblock the situation and respond to some of the legitimate concerns that have been raised by my colleagues.

In the case of the wind program, it is much larger program. The expansion was something in the order of $900 million over 15 years. That's a bigger decision the government will make. Certainly a decision will be made, I would think, one way or the other by the fall. I know the minister was here last week and was reading the transcripts, and he has clearly indicated his support for wind and how he sees wind as part of the government's broader energy strategy.

I'm not in a position really to predict timing on this, but I can indicate that I think some of the very legitimate concerns that Robert and his colleagues have raised regarding the implications of an extended delay are resonating and are being heard. I'm not just really in a position today to talk about timing vis-à-vis the wind program and whether this would happen early or it might have to be delayed until September. I just can't predict that.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Wallace.

Thank you, Mr. Cullen. I appreciate that.

We'll move on now to Monsieur Cardin.

[Serge Cardin, Bloc, Sherbrooke, QC]

Thank you, Mr. Chairman.

Good morning, gentlemen. I'm pleased to meet you, especially since we're discussing a subject of the greatest interest to me, renewable energy.

You've told us about the various classes of renewable energy. What reassures me, in a certain way, is the public opinion poll that was outlined to us in the solar energy document. That reassures me about citizen perceptions. I believe we should follow its example. In particular, it refers to solar energy, wind energy and hydroelectricity, and states that 92 per cent of people accept solar energy, 90 per cent accept wind energy and 82 per cent accept hydroelectricity. Those are the three classes people turn to first of all and where they find "renewable" energy in the real sense of that word. You also told us about renewable fuels. I'm a bit more reluctant when I hear about ethanol, however. You seem to say that the government should normally make efforts of that size with renewable.

Of course, the government no doubt has a promising plan that we'll be able to see at some point and to assess its merits. For my part, I would focus my efforts on solar and wind energy.

Can you tell us what kind of actual incentives there are in the research and development and program sectors? These energies permit more innovation than others. What kind of research is being done on renewable fuels in the transportation industry, since transportation is the main sector responsible for climate change, and what are the programs in that area?

I'm a neophyte, but I feel the solution lies in electrical energy accumulators, for example, regardless of how that energy is produced. Electricity could even play a greater role in transportation.

What orientations are there in that area? I don't want you to immediately tell me about a plan. Governments come and go, but senior public servants remain and have influence. So I'd like to know where we're headed.

We've come a long way. When we started talking about wind energy, I sometimes got the impression that the Liberal government at the time didn't know whether the wind turned the blades or the blades produced the wind. Matters have settled down since then, and increasingly large investments are being made. As you know, however, the Bloc advocates a doubling of investment in wind energy and perhaps in solar energy as well.

I'd like you to tell us about the government's orientations. I'd also like to hear the comments of the representatives of the wind and solar energy industries.

[Christian Vachon, Former President, Canadian Solar Industries Associations]

Thank you for your question, Mr. Cardin.

I want to note one point with regard to renewable energies. What is interesting is that many problems specific to wind energy that were raised by Mr. Hornung also apply to solar energy problems. Renewable energies aren't competing energies. Ethanol drives vehicles, wind energy produces electricity, and thermal solar energy, which moreover is quite widespread in our region, heats water and air.

There is a program, the REDI program, or PENSER in French, which has done its job very well since 1998. Mr. Goodale, the Minister of Natural Resources at the time, and Minister of Finance in the last government, established the first facility under this program in 1998. That was at Farnham, in southern Quebec. Since then, the REDI program has done a very good job.

I say it's doing a very good job because it pays 25 per cent of the total capital expenditure incurred for a project in non-residential sectors, that is in the commercial, industrial and institutional sectors. People have benefitted from this program, and I believe the federal government has made a good investment. Adjustments may have to be made to the program as it progresses, and that's normal. However, we see that, in certain other countries that have very good subsidy programs—moreover, I met with people from Austria on this subject last November—there is stability. As Mr. Hornung mentioned, stability is extremely important for investment and for the signals that are sent to the market, both for clients and for the industry that develops as a result of the incentives in place.

So stability is very important. We can understand that the present government has other priorities than the previous government and that it wants to change matters. That's not a problem for us. What hurts is mainly the break between the two. There should be a transition period. What I would like is for some stability to be maintained, even if arrangements are changed, if, for example, the government drops the arrangement whereby it pays 25 per cent of the capital cost for a thermal solar system and decides instead to provide assistance on a per-kilowatt or per-square-meter-installed basis. Regardless of the form that might take, I would definitely encourage it to maintain stability. It can introduce another program, based on its priorities, but it must at all costs continue in the wake of what is already in place and not interfere with the progress that has been made.

[Tom Wallace]

We could look at this in two phases. The first priority is if we could unblock next year's funding in the REDI program and continue, we would go a long way toward meeting the immediate needs of Rob and his constituencies. However, there's the issue of what comes after the previous program that was going to expire at the end of 2006-07.

The program to date on the solar side has been providing a 25% capital subsidy for investments in solar technologies used in the commercial and industrial sectors. It has not been available for programs in the residential sector. We are undertaking a number of pilot projects. The technology that's closer to being economic is solar hot water heating. We are evaluating the results of those pilot projects, and that is one area as we look toward the future.

Certainly, in letters to the minister, we receive a lot of interest from individuals and homeowners. We are working within the program on some of the other barriers to residential hot water heating. I think Rob mentioned a difficult problem in Ottawa, where it's still not legal, and we're working with the standards people to get certified hot water standards. I think that whole area of the residential sector is something we're not really active in now and it could be something we should take a look at on the basis of our pilot projects.

In a sense, on the solar side, our deployment incentives go toward those technologies that are closest to being commercial. They've tended to be the thermal technologies in the commercial and industrial sectors. Photovoltaics, which Rob spoke about, are supported and delivered more through R and D. Discussion and maybe differences of opinion continue as to whether we've got the balance right, and that continues to be an element of debate. There certainly have been jurisdictions, such as California and most recently Ontario, that have adopted programs for the production of electricity from photovoltaics. Currently, the Canadian market for those technologies is largely an off-grid applications niche.

The question of whether that is or is not good public policy.... To some extent, these issues are addressed at the state level in the United States and the provincial level in Canada. It's really a question of how much you want to force your consumers to pay higher prices for electricity to support an industry whose cost of production now is quite high but coming down rapidly. Different jurisdictions reach different decisions on that. Certainly the Government of Ontario is moving much more aggressively than it had previously.

[Serge Cardin, Bloc, Sherbrooke, QC]

Time is passing quickly. I'd like to make a brief comment and ask a brief question.

May I take the liberty of strongly suggesting that we move toward wind and solar energy in the residential sector? A lot of people would be prepared to invest in these energy forms to produce energy for themselves and perhaps even trade it when they have too much. I think these are very promising avenues.

You said we shouldn't set ethanol aside, and I know it can help reduce greenhouse gases, but, in a context in which oil prices are rising sharply, wouldn't adopting ethanol as an alternative fuel encourage people to replace current crops with corn to manufacture renewable fuels? In some countries, they grow coco because it's more profitable than growing tomatoes or other things. Don't you think there'd be a risk that everyone would start growing corn in order to produce ethanol, which will always represent only a small percentage of fuels used? Aren't you afraid high oil prices will become an incentive to transform agriculture in Canada?

[The Chair, Conservative, Lee Richardson]

I think we'll have to wait until the next round to get the answer to that question. We're way over time.

Ms. Bell.

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

Thank you

And thank you for your excellent presentations.

I have just a few questions around public acceptance, and I think it's pretty high from what I've seen—and I'm from British Columbia, where we don't have any wind power. I think there are problems with connections. I don't think those are from provincial rules, but from hydro policies and their rules. I think we need to overcome some of those hurdles, because there are people in British Columbia who are ready to go. They've done a lot of work in securing the land and the technology, and there's a great need for increased wind production. Maybe you can talk a little bit about that.

Also, there was some talk about small wind energy production or manufacturing. Is that for individual homes? Maybe you can explain a bit more about that.

On solar energy, you said the Canadian government has no targets for solar energy at this time. If we did, what would they be?

And maybe on the framework of a national energy policy, could you give me a vision of what that would look like with regard to wind power and solar? I think those are important.

Also, there are investment tax credits to the tune of about $1.4 billion for the oil and gas sector in Canada. If those investment tax credits were equal for the renewable sector, what would the sector look like? How would that change the shape of what you're trying to achieve?

[Rob McMonagle]

With regard to targets, in the briefing notes I've given, we've suggested some appropriate targets for solar through to 2025. Particularly when we're dealing with solar, we're looking at very segmented markets, so we've broken it down, depending on the technology and depending on whether you're talking about new buildings or current buildings. With new buildings, we have a tremendous opportunity in Canada. CMHC has started an initiative called net zero energy healthy housing, with a target of making all new homes by 2030 net zero energy users, so they would basically consume no energy. That is quite feasible, and it's already being done around the world. There's a possibility of Canada taking very much of a leadership role in this, because of the large number of new buildings that we're building.

For photovoltaics and solar thermal, hot water, we feel that a target of about 10,000 megawatts, typically, is appropriate in those areas.

[Dr. Robert Hornung]

You raise a lot of things in those questions.

First, you asked a question about public opinion. The experience in Canada for wind energy has been that the overwhelming majority of wind energy projects have actually encountered very little in the way of public opposition. There have been instances where there has been public opposition, primarily over visual impacts associated with wind energy.

From the perspective of the wind energy industry, it's a difficult issue to deal with because it's completely subjective. What we try to do as an industry is to ensure that we have proper engagement with communities, to work with them early enough to identify such concerns, such that you can take steps to try to mitigate those concerns going forward.

You talked about the fact that British Columbia does not have any wind energy at this time. That's correct. There are two main reasons for that. One is that British Columbia has had still an ample amount--although it's now running out--of small hydro developments that they could pursue, which could still come in more cost competitively than wind. And that's why this is going forward. But it's also a bit of institutional culture in terms of the utility and a lack of leadership I think from the provincial government in that regard.

I presented a set of targets earlier that provincial governments had adopted. Those are almost second-stage targets. There were initial targets. Provincial governments and utilities got more comfortable with it; they said, we can go further. They have adopted new targets. Almost every jurisdiction in Canada is now studying how they can go beyond those targets. So, for example, in the Quebec energy strategy, there was a commitment to provide funding to do a series of studies to look at how much further than 4,000 megawatts you could go. In Ontario, the Ontario Power Authority is now looking at what are the implications of integrating 8,000 megawatts of wind into the Ontario grid. So there's a level of comfort, and B.C. is at the back of the train in terms of starting to move through those various stages.

For small wind turbines, we're referring to primarily turbines that, yes, you use within the context of a residence or a cottage, or a remote community, or a small business, or a farm or a school--products like that. As I said earlier, we do have within one size, between 20-kilowatt and 100-kilowatt wind turbines, three of the five leading manufacturers in Canada. But again, that is mainly going overseas to developing countries.

With respect to targets and objectives going forward, the Canadian Wind Energy Association has long had a target of 10,000 megawatts by 2010. We're confident we will meet this target at least in terms of contracted power, even if it's not all power that's in the ground yet at that point. We're currently talking about targets that go beyond that, and we're doing this in conjunction with some of the utilities and others, in terms of the various integration studies that are going on. I can tell you that in February, President Bush in the U.S. did a major energy policy speech where he indicated that he thought wind energy could meet 20% of the U.S. electricity needs going forward.

The last point in terms of subsidies and tax instruments and things like that is that I think it's quite clear that historically there has been an under-investment in renewable energy relative to other energy sources. I think governments have started to take steps in the last few years to begin to address that. I would say it's still far from a level playing field. But one thing I would point out is that the types of instruments matter and make a difference. So, for example, when we talk about tax incentives, it's important to recognize that it's very hard to design tax incentives so that they treat everybody equally because everybody has a different kind of tax appetite, tax situation. Therefore, for example, it may be harder for a small company to benefit from a tax incentive than a large one. We've always been very supportive of the wind power production incentive, and the Department of Finance has been supportive of the wind power production incentive, as a relatively simple and straightforward program where funds are provided only when you actually demonstrate that you've generated electricity. I think it's been quite accountable that way.

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

Is there any time left? Can I share it with Dennis?

[The Chair, Conservative, Lee Richardson]

No, I'm sorry.

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

Okay. I wasn't sure how that worked.

Thanks for your answers. I wonder, NRCan, if you have anything to add to that.

[Tom Wallace]

The federal government hasn't adopted any specific targets for renewable energy in any of these sectors.

The question of targets comes up all the time in debates on renewable energy. Some people argue that it's important to have targets because you need to have a vision that can portray a sense of direction for all the various federal, provincial, and industry stakeholders. The reality is that your ability to realize those targets depends on market forces, technology developments, and provincial policies, as well as federal policies. Many of these levers are beyond your control.

There's always a concern, on the other hand, that if you're too ambitious in developing targets, how does that square with a market-oriented system for producing energy? Does it then simply become a vehicle to criticize governments for not providing sufficient money down the road to realize those targets? People will land on different sides of that debate.

The only other comment I would have is on manufacturing. I don't think Robert had time to really address that.

Right now, for most of the wind side, major manufacturers of turbines are located in Europe. At some point a few years ago, the hope was that with the appreciating dollar, the very large size of the blades—they're half the size of a football field—and the heavy transportation costs, there would be a facility located in North America. We were kind of in competition with the United States and hoped we could attract it to Canada. I guess that hope remains, although my understanding is that firms have recently been looking more at the Chinese market as the location for investment.

On the Canadian side, it may be that we should be looking at some niche technologies that we could specialize in to increase the Canadian content in manufacturing above where it exists now. There has also been an array of provincial policies, particularly in Quebec, that have tried to encourage assembly and some manufacturing in Quebec.

Robert, you may have more to say on the manufacturing side. I think it's an important dimension as we go forward.

[The Chair, Conservative, Lee Richardson]

Mr. Hornung, briefly.

[Dr. Robert Hornung]

I only have a quick comment.

Historically, manufacturers didn't look at Canada because it didn't have a market of adequate size. Clearly, having a market of adequate size for your product is a necessary pre-condition to attract manufacturing. But it's not necessarily a sufficient pre-condition to attract manufacturing, particularly in an era when we're talking about large multinational companies that can decide to make those investments anywhere.

It speaks to the need to have a more comprehensive strategy in place, which sends a clear signal that not only are we creating market conditions, but we're actually interested in having manufacturers come here. We're interested in working with them on research and development and other issues. It's what other countries have done to try to bring in manufacturers.

[The Chair, Conservative, Lee Richardson]

Thank you.

Thank you, Ms. Bell.

Monsieur Paradis.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Thank you, Mr. Chairman.

I'll start by asking questions on solar energy, which I'm less familiar with.

Does the Canadian climate lend itself to solar energy production? You say the technology exists, but are there enough hours of sunlight. We know that the light isn't the same in winter.

[Christian Vachon]

That's a good question.

We're truly privileged in Canada.

We're blessed in Canada.

Compared to the bigger countries currently using solar heating, Canada is the best place in the world for solar heating. In Germany, for example, they can generate approximately 400 kilowatt hours per square meter per year to heat a house. In Canada, we can generate twice as much. Why? Because we have more hours of sunlight here than in that country. We have one and a half times as much sunlight as Berlin. We also have a long heating season. Earlier Mr. Wallace mentioned niche markets. We're the best place in the world for solar heating. In that respect, we could be the Hong Kong of the North. We have the longest heating season and the most sunlight.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

You said that class 43.1 wasn't a crutch, but hurt you. I'd like to have some clarification on provincial policies on incentives. Is there already something in this regard?