Thank you very much, Mr. Chairman.
I was worried about coming to Ottawa, after Calgary had its way with Ottawa on Sunday at the Grey Cup, so thank you for the invitation and that I haven't been kicked out of the building. It was a good game, and it was about time, so I'm very pleased for the Stampeders.
My name is Allan Fogwill, and I'm the president and CEO of the Canadian Energy Research Institute. My remarks come from experience at CERI, as well as work designing and implementing natural gas energy efficiency programs in Ontario, and from my involvement as chair and CEO of the Canadian Energy Efficiency Alliance and as a member of the National Advisory Committee on Energy Efficiency. I have been dealing with energy efficiency matters for over 25 years.
As an analyst, I look at energy efficiency activities with two lenses: economic development and energy system planning. Through these lenses, what I see today is that the original objectives of energy efficiency have been obscured by the multiplicity of stakeholders, each using energy efficiency programs to gain some type of credit with Canadians. For example, think of air-source electric heat pumps in Newfoundland when they are going to experience a surplus of electricity from Muskrat Falls, or in Ontario with an electricity surplus promotion program of energy efficiency activities with a minimal return on savings. From a systems planning perspective, both miss the underlying context of surplus electricity. In the latter case, a UC Berkeley study found the financial returns for a similar program in the U.S. at a negative 2.2%.
Regarding the economic development focus, there have been numerous studies over the last three decades that suggest that the most cost-effective options for energy efficiency improvements reside in the industrial sector. The major industries consume a great deal of natural gas and electricity, in particular. They also face very practical challenges of competition for investment capital within companies and a lack of information at senior levels regarding the benefits of these types of activities. Studies typically show that the potential for efficiency improvements in industry outweighs that in commercial and residential applications, and they are almost always of greater economic value, yet you will find in many organizations a broad cross-section of programs targeting all three sectors. Thus, from an economic efficiency perspective, we are diluting the impacts of scarce funds to ensure that the program sponsors get credit.
Should the pot of funding for energy efficiency programs be triaged to target the full potential of those most economic programs? Keep in mind that the productivity and competitiveness benefits relate almost completely to the industrial sector. Competitiveness at the national level should be viewed as competitiveness between countries. Should the federal or provincial government be concerned if one commercial building or another in a community's downtown is more competitive than its neighbour?
Another economic development aspect is the creation of jobs. Energy efficiency programs create more jobs, and local jobs, per dollar invested compared to energy supply projects or complex infrastructure. The reason is that many of these tasks can be done by local energy services, HVAC and building envelope improvement companies. Many of the major projects, energy or otherwise, often rely on outside labour specialized in certain skills. “Outside”, in this instance, could mean another Canadian city or an international jurisdiction.
Therefore, what economic development objectives do we have? Is it GDP and competitiveness, or job creation? Often I have seen both be a consideration. In such a case, the division of funds then makes sense between the cheaper industrial programs with lower local labour impacts and the more expensive residential programs with more significant labour benefits.
Regarding energy planning, there are two elements to consider. The first is managing the overall cost of service to customers. Sometimes it is cheaper to save energy than to build up supply to serve a growing demand. This is demand-side management. The second is managing greenhouse gas emissions. Lower energy consumption can translate into lower emissions.
Regarding the overall cost to customers, especially with non-utility programs that have not gone through a rigorous regulatory review, it is not clear to me that there is any connection between the cost of an efficiency program and the cost of additional supply. Electricity and natural gas commodity costs have come down significantly in recent years. For electricity, the one exception is Ontario.
That means new supply options are cheaper than they once were, yet we seem to be expanding our energy efficiency programs without evidence to demonstrate that this is a cheaper option than the supply alternative. Please note that we are talking about new supply or energy efficiency. We are not avoiding the infrastructure costs to deliver that energy; the vast majority of that infrastructure is in place and will be billed for regardless. So it is the replacement of the commodity option, which usually accounts for one third to one half of the bill.
I would suggest that the question be asked of program managers to show that the money being spent on energy efficiency is lower than the next most expensive commodity option.
When considering greenhouse gas emissions, we should also note that our electricity systems are almost 85% non-emitting, and with the coal phase-out scheduled for 2030, that number will be over 90%. This would mean that if stakeholders want to use energy efficiency programs to reduce emissions, they would best focus on programs related to hydrocarbon consumption efficiency: natural gas, gasoline and diesel, primarily. Again, it does not appear that this type of analysis is part of the consideration of which programs to sponsor.
This leads me to suggest that a clear framework for the policy objectives be considered, along with a robust set of analyses to ensure that programs are targeting the right sector and the right energy service for the right reasons. It would also help with transparency if the results of these tests were published as part of the program's communications.
Finally, I would like to comment on the fragmentation of effort we see in this country. We have programs from the federal government, from the provincial government, or sponsored by associations, municipalities and utilities, with insufficient regard for the existing delivery mechanisms in the form of retail or commercial service companies. Each program manager has their own delivery system, complete with their own branding.
If we had a common set of initiatives endorsed by all major funders, such as the ENERGY STAR program, with only one delivery strategy and one branding strategy, it would make it much easier for industrial, commercial and residential customers to understand the need, the benefits and the processes. We need to acknowledge that companies and citizens are not captive to local markets anymore.
Energy efficiency activities can be an important tool for economic development and system planning. It is not always the best default solution, but it is an important consideration. Its value depends on the context, something we need to incorporate into our energy efficiency program designs to a much greater degree.
Thank you.