Natural Resources Committee on Feb. 26th, 2013

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you, Mr. Chair. I'll be sharing my time with Mr. Nicholls.

Mr. Michaels, I have a question for you. You said that we need policy drivers to invest in waste energy management. Can you please expand a little bit or make suggestions on these policy drivers that you're looking for?

[Ted Michaels]

There are several different types in the United States. For instance, there are policies that have been implemented at the state level called renewable electricity standards. They will provide credits for renewable electricity generation. We've not seen that type of policy enacted at the federal level. I think that would create a much more significant policy driver and more of a demand for the type of energy they're seeking.

In addition, there are tax credits that are available, production tax credits. Unfortunately, in the United States they've only been available for one or two years—short-term extensions of this credit.

Waste energy facilities are facilities that have long lead times similar to biomass or geothermal facilities.

The only facilities that have really benefited greatly from the short-term tax credits have been the wind industry, given that they have the shortest lead time.

This goes back to the previous question about certainty. If we had more certainty that the tax credits would be available when we completed the facility, then those would be legitimate drivers of investment.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you.

Mrs. Labrie, you said that flow-through shares would be helpful for your industry. Can you expand a little bit on that?

[Marie-Hélène Labrie]

I'm not the expert on finance, but I know that we looked at it—not necessarily for the first plant, but this is a tool that would be useful for future facilities. For the first one it is not necessarily the best tool, but there are some fiscal incentives that could be looked at to provide a level playing field on the fiscal side.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you.

Mr. Egan, picking up on your comments about the regulatory framework and how it acts as a signal to investors, I agree with you, but I disagree with your conclusions regarding innovation and productivity.

I'd like to share with you a quotation from The Economist of October 6, 2012, which says that:

...Canadian private investment is divided evenly between machinery and equipment, which boost productivity sharply, and structures that store and transport goods, which have less of an impact. In the United States structures account for a far smaller share. This discrepancy may simply be a result of Canada’s dependence on natural resources such as oil, which requires pipelines. But it means that the country’s investments yield fewer gains in productivity than those south of the border do.

The position of gas and oil, with their rush to export to foreign markets using pipelines, will benefit shareholders, it's true, and will benefit some workers for a limited period of time, but not as much as if we added value here in Canada.

The study by the Institute for Competitiveness and Prosperity that just came out says that for each hour we work in Canada, we generate less value than our counterparts in the U.S. This prosperity gap is a productivity gap, and the productivity gap is an innovation gap: “...we are laggards in creating economic value per hour worked”.

With the focus being solely on export of product, I'd have to disagree with your conclusion about industry fostering innovation and productivity in its current state.

I think the downstream players have a large role to play. I'm excited about things such as integrated community energy solutions, which we talked about in Winnipeg, but I don't see that the signal is being given to investors to invest in those areas as of yet. I'd like to see that signal being given more, rather than the signal to simply export the product to foreign markets.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

That's not a question per se, but I'll comment on your comment.

First of all, natural gas is rapidly becoming a global commodity. It has to date been a regional commodity with three major global regional markets: a North American market, a European market, and an Asian market. The advent of really affordable gas is starting to change that, and the idea of moving gas from one market to another to bring efficiencies to overall markets is occurring. On balance, that's a good news story for the globe, because more efficient markets overall deliver a more affordable product.

In terms of exports and their impact, as you know, my member companies are distribution entities dealing with customers in Canada; we're not involved in the export of natural gas. But because of what I just said about markets, we look on the export of natural gas as being a favourable thing, a good thing for Canada.

[Timothy Egan]

But wouldn't you say that such an approach encourages consumption rather than energy efficiency—the fact that you said it brings down energy prices, which gives the signal to consumers to consume more because it's cheaper?

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Well, consumers can save money in two ways: by having a product that's more affordable or by using less of it. Those things aren't necessarily mutually exclusive.

[Timothy Egan]

May I...?

[The Chair, Conservative, Leon Benoit]

Be very brief, Mr. Egan.

[Timothy Egan]

They're not mutually exclusive. I can show you how natural gas for space and water heating is significantly more affordable than space and water heating with electricity or heating oil in Canada right now. But I can also show you how we're driving for yet more efficiency, because we're going to drive down cost. People are interested in saving money, and be it through efficiency or via a more affordable product, they will seek to do that.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Nicholls.

We'll go now to Mr. Anderson and then to another Conservative member.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I think the point should be made that we do not focus solely on exports. Clearly we have a fairly mature market here and we want to develop it, and we want to develop our resources.

To say that to market our product around the world encourages consumption—when we're actually increasing other people's standard of living—and that we shouldn't be doing it is a bit of a ridiculous argument.

Mr. Michaels, you talked a bit about the 85 plants that are in place in the United States. Could you give us an idea of where you think technology is going in the next ten years? What are the promising innovative technologies we might be talking about five or ten years from now, if we were to do this study again?

[Ted Michaels]

That's a great question, one I'm going to have an insufficient answer to.

The only ones that really are under development with respect to municipal solid waste are technologies we've been talking about for decades: gasification, pyrolysis, plasma arc. Those are all technologies that are in existence today; they're just not being used on a commercial scale for municipal solid waste. In the next five to ten years there will, I think, be some facilities that are using one of those three types of technology to handle municipal solid waste on a commercial scale.

Covanta Energy, which is a large developer and operator of waste energy facilities in North America—or actually, around the world—has a demonstration gasification unit at one of their facilities in the United States. They're actively marketing that type of technology. I would expect that we'd see one of those types of units in the next five to ten years, certainly.

Whether it's going to be market-shaking in terms of outperforming combustion-based technologies, I don't have any way to predict; I don't have an opinion on that. But I think we will see one of those other types of technologies get a foothold, and then we'll be able to analyze the results.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Are any of your projects being done strictly privately? I think you indicated that none of them can stand on its own at this point. Is that correct?

[Ted Michaels]

No, I don't recall saying that.

Roughly half, maybe just a little less than half of the 85 facilities in the United States are privately owned. About 44 of the 85, I believe, are publicly owned.

Oftentimes it's public. Whether it's owned by the local government or owned by a private company, it is a public–private partnership. The municipalities are the jurisdictions with the closest ties to the trash, and you need that trash to make a facility work.

There are private facilities under development in the United States today.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Do you have any suggestions for those of us who live in a rural area with a small population as to how we might apply that technology? Do you have any suggestions as to how some of this might work on a smaller scale? Transportation could become a big issue.

[Ted Michaels]

I tell you, that is really where I think some of the innovation may lie, and not necessarily in the means of converting the waste energy, whether it be combustion or gasification or other technologies. I think scale is going to be the next frontier, if you will.

Right now, there is an economic sweet spot with making facilities of 1,000 tonnes per day capacity or greater. There are just not as many communities that can utilize that amount as there are that might be able to utilize 100 or 200 tonnes a day. If we can make those economical, that will help communities like the one you describe.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Ms. Labrie, when you talk about the next generation of biofuels, what do you see the picture as being? You talk about cellulosic—that's what you're working on—while some others haven't been perhaps as fortunate as you in getting to the position you've reached. What are the new technologies in biofuels? What will be the next generation of biofuel technology?

[Marie-Hélène Labrie]

Currently, if we look at the second generation, there are really two types of innovation: you have biological processes using enzymes and you have the thermochemical pathway. What we see now is that there is a portfolio of maybe ten companies as a maximum that are ready to commercialize and that are developing—have concrete or fill in the ground and are building plants and developing commercial facilities. Enerkem is part of this first wave of commercial advanced biofuels facilities.

In the future, what we expect to see is continued innovation in synergies with the first-generation ethanol. They're also looking at other things. Also, I think algae is going to be looked at in jet fuel. Right now, in some cases it is technically feasible for jet fuel but commercially not viable—the costs are too high. So there's going to be more innovation.

We see the third generation as probably being at the pilot-demo phases in terms of technical and commercial viability.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Mr. Egan, you said you see improvements to existing natural gas end-use technologies focusing on four specific areas of focus.

This may get to be too big a question, but I'm wondering where you see the innovation coming in industrial use, in transportation—I'm interested in that, in where the innovations are going to come in transportation, and we talked a little bit about that earlier—in renewable natural gas, and integrated community energy systems.

I wish we had more time to talk today about integrated systems. We haven't done much on that.

Where are the improvements going to come in those four areas?

[Timothy Egan]

I'll throw out a couple of examples, and they actually pick up on the previous comment about innovation.

There's a technology called power-to-gas, which is a technology whereby you recover the energy in intermittent renewables by using it to drive electrolysis to produce hydrogen, and then the hydrogen can be stored in the gas grid. It's very innovative. There are almost 100 projects across Germany using this right now. One of my member companies is looking at a major project here in Canada for it. This is an example of an industrial application, which is pretty significant and allows you to bring renewables into an integrated approach with the gas grid.

Effectively, you're taking the electricity system and the gas system and you're integrating them in a way they've never been integrated before. That's actually facilitated by the affordability of natural gas, because it's the affordability of natural gas that drives the willingness to even consider that innovative application. Moreover, what it does is it takes what is right now, really, often waste energy from intermittent renewables, because you can't store it, and gives you a mechanism to store it. So there's one example.

With respect to transportation, as you know, there are a series of pilots under way across the country right now for heavy-duty vehicles using natural gas for transportation, some in the 401 corridor and some in the western corridors. There are a variety of new opportunities to further develop that for medium-range vehicles, and ultimately for light-duty vehicles, although we think that's farther off.

There's an opportunity to bring renewable natural gas into that conversation, where you can actually take renewable natural gas from landfills or from other sources, mix it into the gas grid and use it as an interchangeable fuel source in the transportation system.

The other innovation around transportation that's pretty interesting is how you use transportation—vehicular transportation—as a means to move natural gas to markets where you don't currently have it, through innovative CNG transportation technology or innovative LNG technology, and you're moving a product that you couldn't previously move in these ways. This suddenly opens new markets for natural gas that didn't exist because it wasn't affordable before.

Again, I will just underscore the point that it's the affordability of the product that drives that innovation. It's the fact that it is less costly than it used to be that is opening the door to these new innovative applications.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Egan.

Thank you, Mr. Anderson.

The bells are going, indicating a vote.

I'd like to thank all the members for great questions today, and especially our witnesses: from the Canadian Gas Association, Timothy Egan; from Enerkem, Ms. Labrie; from ENMAX, Mr. Hemstock; and from the Energy Recovery Council, Mr. Michaels.

Thank you to all of you. The presentations and the answers to the questions have been very helpful to our study, so thanks again.

The meeting is adjourned.