Natural Resources Committee on May 9th, 2016

[Prof. Stewart Elgie]

In some ways, the Smart Prosperity initiative is about that. Part of this is probably about just telling a new narrative, about building a psychology of success in the country, about the things we are doing well and can do well. However, as you probably know, underlying any narrative has to be reality, and so I think part of it is that we need to really drive real change in oil sands production, and as we're doing that, we need to tell that story.

The story now is that we're really trying. The fact that you had the heads of four of the largest environmental groups in Canada standing on the stage with Premier Notley and four of the biggest oil CEOs does actually show that there is not a limitless bar. They got to the bar. They got to the bar where the CEOs of four of the biggest groups stood on the stage and Greenpeace put out a supportive press release that said this was good.

What they haven't yet done is backed down their campaigns against Energy East, but that takes time, and the momentum is starting to change on that.

So I would say continue to change the real practices, not just in the oil industry. Let some of the responsible environmental groups that actually want to see change be part of telling those stories themselves, because there's a certain credibility gap when it's just the oil industries that tell them. When they stand on stage with folks like the Pembina Institute or some of the folks in the Smart Prosperity initiative and they tell those stories together.... If you look on the website, you'll see lots of stories there about oil and gas innovation. They don't change the fact that we still have a high carbon footprint, but they show the really cool stuff we're trying, and if we keep doing this, that really cool stuff is going to work in five years. That's the honest story.

[John Barlow, Conservative, Foothills, AB]

I appreciate that. Again, working with CAPP, you understand what those four standing on stage with Rachel Notley did to a lot of those middle and junior producers. They're not so happy. I've spoken with Albertans in the oil and gas industry who feel as though they were sold out, because those four got on stage thinking that was going to give them the social licence to get pipelines approved and that Greenpeace was going to step off, and neither of those things has happened. They went on there certainly with a goal in mind, thinking that if they stood with Rachel Notley and her carbon program, they would get these pipelines through. That hasn't happened.

I understand what you're saying....

[Prof. Stewart Elgie]

The other side of it, though, is that the environmental groups that stood on stage are equally getting attacked by the people at the fringe of their movement. There's a group of leaders who are trying to carve out a solution space in the heart of a very, very divisive, acrimonious debate, and people on their own are taking shots at them because they're trying to carve out a solution space.

I give them credit for trying it. They're all getting tough skin right now, but somebody has to try to carve that space out.

[John Barlow, Conservative, Foothills, AB]

Yes, for sure. We can't stop just because it's not working.

Dr. Moore, I want to—

[The Chair, Liberal, James Maloney]

I'm sorry, you're right on time.

[John Barlow, Conservative, Foothills, AB]

Oh, sorry. That's my five minutes.

Thank you.

[The Chair, Liberal, James Maloney]

Mr. Lemieux.

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair.

I would like to thank the three witnesses for being here today.

My question is for Mr. Moore.

On April 13, 2016, Alex Ferguson, vice-president of the Canadian Association of Petroleum Producers, appeared before the committee. I asked him about market access for Canadian petroleum, since this is of particular concern to me. This was his reply:

If we believe that our natural resources in this country are and will continue to be an important part of our economy, we believe that there's a need to have a focused effort to find what it takes to get maximum flexibility for all of our natural resources to the right markets at the right time all the time.

Mr. Moore, in four minutes, can you explain how you think the federal government can help find coordinated solutions to achieve the greatest flexibility so that our petroleum products always reach the right markets, and at the right time?

[Prof. Michal Moore]

I would say there are three things that the government can do to make sure that the products get to market in the form that is most competitive and in the most appropriate time. We can't manipulate the market to make things get there faster or slower or sell more rapidly than other products, but we can make sure they get there in the most efficient way possible.

The first thing is to recognize that our oil products trade on world markets at the best rate they can. Heavy oil products are discounted when they finally get to distant refineries. Most of that refinery capacity today exists in the mid-continent. The United States has a lot of capacity. It can treat basically all of the product that we can send down, but it will do so at a discount, not only for the quality—in other words, they pay less to get a heavier oil—but it costs us more to ship it down. We can send product to those markets and get the best price possible when we have the most effective treaty or permission to cross with the pipelines that we have.

Second, we can move forward and begin to identify the rights of way that we'll need for pipelines, for wires, for storage capacity, and frankly for new rail facilities, where needed. The government can take a dramatically important role in identifying where those rights of way will go. Some of them will need co-operation from aboriginal groups, and some of them will infringe on private landowner rights, which we'll have to perfect in terms of compensation.

Finally, I think we can do a great service to the industry to make it as efficient as possible by identifying the ports of exit that we'll need for the future. We won't be able to depend forever on limited port capacity in the maritimes or out of Vancouver. We'll need additional ports to be able to export efficiently. I think to the extent the government can identify those, work out the details of compensation and land ownership, do it in as egalitarian a fashion as possible and eliminate some of the competition for 16 different port sites, narrow it down, and use the federal authority, the federal leadership, we'll make that market as transparent and as efficient as we possibly can.

[Denis Lemieux, Liberal, Chicoutimi—Le Fjord, QC]

In closing, I have a quick question for you, Mr. Moore.

You said earlier that it was a good idea for the provinces and the federal government to meet and discuss energy and the environment. What are your thoughts on the last meeting in Vancouver between the federal government and all the provincial governments?

[Prof. Michal Moore]

Yes, sir. I'll admit my bias at the front end. I'm a federalist by nature and demeanour, and I applaud the leadership of the federal government in taking a role in bringing everyone together, stating the unifying forms of the debate. I think that can do nothing but good if we stay with it and provide the right forum for people to debate how to overcome regional and provincial differences.

[The Chair, Liberal, James Maloney]

Mr. Doherty, over to you.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Moore, I really appreciate some of the comments that you've made. I've read your two reports, “Risky Business: The Issue of Timing, Entry and Performance in the Asia-Pacific LNG Market” and your national strategy paper.

I come from Cariboo-Prince George and I'm a proud B.C.er. In British Columbia we have some incredible LNG projects that would have far-reaching national implications.

All of the witnesses and our guests today talked about the competitive advantage that Canada has, but we also have a timing issue. As Mr. Elgie mentioned, we need to get some pipelines approved right away. We have hundreds of thousands of Canadians who are out of work.

But Mr. Moore, more to the LNG, we have one of the largest potential investment projects in British Columbian history, possibly even in Canadian history, which some have estimated could see us benefiting from up to $32 trillion in economic benefits to our GDP and the Canadian government. The British Columbian government has developed an LNG strategy with goal of having three LNG facilities in operation by 2020. Can you talk to me a little bit about the impact on jobs and economic growth in Canada if we are able to export liquefied natural gas overseas?

[Prof. Michal Moore]

I did write a report on that. You all have a copy of the link to it. Let me just summarize the conclusions and then point out what some of the probable opportunities are.

The first conclusion is that it's taking a long time to get that plan and the investment proposals together to try to be considered by various levels of government. In the meantime, the market in the Asia-Pacific region has changed dramatically. Let me just list two things that have happened.

The first is that, following the earthquake and the damage to the nuclear facilities in Japan, the demand for LNG shipped in to support the electricity industry climbed astronomically—up to seven LNG trains annually, a tremendous increase. Price increased, and it was very attractive for us to consider investing in that market. Now the nuclear facilities are beginning to come back on line, and the demand and the margins have collapsed quite a bit. It's changed the dynamic of how many trains of LNG we'll be able to use to penetrate that market.

Second, the market is based on contracts. It's a different market from the oil market. You arrange contracts ahead of time and you satisfy them over 20 to 25 years. If someone gets in ahead of you and scoops the contracts, you don't get back into the line again for a long period of time. That's changing; we're going to a spot market more now than we have in the past. I think that if we imagine making a decision and narrowing down the number of applicants, we'll be more competitive and we'll have a chance to penetrate what's left of that market.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Would you agree, though, that the timing is essential, that we need to act now?

[Prof. Michal Moore]

Yes, sir—

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Thank you.

[Prof. Michal Moore]

—we're at the far edge of being nibbled at.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Elgie, we talked about having a competitive environment. We seem to talk to our partners to the south, but everything that we do.... The time that we take to think things through is very important, but Canada needs to remain competitive. Canada needs to be competitive. You talked about an introduction of a national carbon tax. Would that not put Canada further behind than some of our competitors to the south in terms of carbon tax pricing?

[Prof. Stewart Elgie]

It's the overall cost on the envelope that matters, right? I mean, the change in the Canadian dollar in the last year has vastly reduced costs more than any carbon price would. I think the other way that I've heard oil and gas CEOs say this is that, compared to the amount of money they're losing by not getting market access, the carbon price is small. Their view on that is probably more valuable than mine. I guess what I would say is that a carbon price is relatively modest, particularly if the revenues get reinvested in helping to boost competitiveness, and that could either by through tax cuts or investing in innovation and technology.

[The Chair, Liberal, James Maloney]

We're out of time.

We will move on to the next set of questions.

Mr. Harvey.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Mr. Elgie, you mentioned in your opening remarks that the cost to industry of the lack of environmental confidence, or confidence in the industry in general, is $10 to $15 billion

I don't think anybody in this room doubts or would disagree with the following statement, which I truly believe, that our oil and gas sector is one of the most innovative in the world. I'm not trying to take that away from that sector at all.

As we move toward policy that's more centred around the total public confidence and a greener approach, taking into consideration that I don't believe—I think the graphs showed it very well—in this idea that we need to make a conscious choice of one versus the other, we're going to look for a collaborative approach to meeting our greenhouse gas emissions over the next 20, 40, 50 years. A viable oil and gas sector that utilizes innovations and technology and a greener approach as we move forward is going to give us a competitive advantage over other jurisdictions that choose to remain with older types of production.

My question, first, is where do you think the government should be within that process? Second, do you feel that private companies can play a collaborative role in that process with government, recognizing that the majority of large producers have said that it would be to their advantage to have a price on carbon?

[Prof. Stewart Elgie]

I guess the two go together, right? Where should government be, and do you collaborate with the private sector?

I think the opportunities for collaboration are greater now, in that most of the big oil and gas companies now agree on this vision for their future. You're not necessarily trying to pull them in a direction that they don't want to go. In some ways, they're actually ahead of the government, or they have been. They've been pulling the government in recent years to try to get in this direction. I think that's a good opportunity for collaboration.

Where should government be? We've talked a little bit about it. It's obviously a much deeper conversation. You need to pull innovation across that whole spectrum that we talked about. Professor Moore talked about building some of these research laboratories and linking into the U.S. capacity.

At the far end, we've said that if you don't have a price, you don't have a demand for clean innovation. That's the basics of it. You need either flexible regulatory standards or a price that creates a demand for it, and the government has to step in and play some role of supplementing investment, particularly in those early stages where private capital just never does. It's called the valley of death for a reason. Industry has jumped up in a way that it never has before. I think there's a real will to get there.

The other part we didn't talk about, and this goes to the cost part, is that this all has to be done in a way that also helps them not raise their costs and ideally drives them down a bit too.

Part of the innovation will do that, but again—environmentalists probably wouldn't like me saying this—one of the things we also need to look for are ways of creating more regulatory efficiency. Are there costly, cumbersome regulations in the approval system that we could find a way to make more efficient and lower the costs, so that they could invest more of the money in the green solutions that we want and less of them in the regulatory costs that don't necessarily achieve outcomes? That's just looking through the pipeline of approvals that they need and where you can find some efficiencies that buy cost savings for them.

Three years ago, I wouldn't have been very optimistic. I think there's a fighting chance that we really can put the industry on a trajectory to having a globally competitive environmental performance. We won't know for five to ten years whether we're there, but at least we're moving in that direction now, which is encouraging.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Mr. Plourde, I have a quick question for you.

In terms of carbon emissions, as we transition over the next 10, 15, 20 years, do you believe we will have better results if we try to impose a moderate price on carbon? That's recognizing, as I do as well as everybody else, that companies need to be able to be profitable and to reinvest in themselves. Industry always drives innovation—absolutely.

Do you believe that the companies will be able to further their innovation quicker by a moderate price on carbon and then the government in turn subsidizing innovation, or just straight subsidy on innovation? Which would be the most effective route?

[Dr. André Plourde]

What the history of Canadian climate policy over the last 25 years has shown is that we have relied mostly on a subsidy approach and that we have not gotten the type of results we anticipated from this.

Essentially, giving an incentive for people to invest requires some kind of pricing on emissions. I think all three of us have made that point in one way or another. That gives this active role. Every time you can cut a tonne of emissions, you basically avoid paying the tax, if you think of it that way. There is a continuous type of incentive in that system.

My view, for all of this, is that you need a combination of the two. You need to give a clear signal that there is a cost to emitting, but you also need to provide some R and D or public sector investment in innovation, the way you put it.

To me, the two are not separable. Relying on just one is missing part of the strategy.