Natural Resources Committee on Feb. 23rd, 2017

[Dr. David Popp]

I think that's the right way to look at it. Renewables are things that are created from sources or inputs that are not finite. It could be wind and solar, but it also could be biomass. It could be the generation of electricity from municipal solid waste, which means that renewables and clean technology are not necessarily the same thing.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

My second question concerns Canadian and American renewable energy markets. As we know, China has invested a great deal in this area and is currently developing a number of forms of renewable energy.

Have you developed relations with the United States that would enable us to compete with China in the renewable energy field, in terms of the number of jobs, investments or the market of the future?

If you don't have experience in this area, you can pass.

[Brent Gilmour]

I'll offer this perspective. We are looking to engage with our counterpart in the U.S., with our equivalent, the ACEEE, the American Council for an Energy Efficient Economy. What we appreciate about ACEEE is that they have done their scoring—and this is something that we could consider about U.S.-Canada relations—and have developed a great policy assessment state-wise on how policies are working, whether that's around renewable energy, combined heat and power district energy, or energy efficiency.

What has that done? It's created an interesting process from a federal and a state perspective. States are actually competing to see who is driving effectively a policy that makes sense, relative to the demands of trying to put this forward. They've moved that down to a community level as well. At the municipal level, too, they're trying to see what kinds of policies are being put in place to really drive this.

Why I see that as being something that Canada can do is that I think it would also have the same effect, whereby we could start to compare how policies are having the intended outcome. We had earlier discussions, I think, with some of the other members, about whether policies actually are achieving what you want them to do. We haven't done a lot of that assessment. I think this is where we could head in terms of a direction that would help, whether it's on clean tech or right through. That's what ACEEE achieved. They didn't focus on clean tech; they just looked at energy as a whole and asked, “What are we doing well and what are we not doing well?”

We haven't done that. I think that's something we could do effectively across Canada.

[Marc Serré, Liberal, Nickel Belt, ON]

Mr. Popp and Mr. Watson, do you have any comments?

[Dr. David Popp]

I'd like to make a couple of points with regard to that question. I think there is obviously now less collaboration between the U.S. and Canada on environmental policy than there would have been before the election in November. As far as the Canadian perspective goes, I think the important thing to keep in mind is that most environmental policy, particularly that related to climate change, which is where a lot of clean technologies focus now, is happening at the state level rather than at the national government level. To the extent that you want to establish good relationships, I think it would be through working with states such as California, or in the northeast, where these policies are in place.

I do want to make another comment, though, because in that question you also made a specific comparison with China and asked about jobs. I think it's important to keep in mind that when we think about environmental policy, jobs are certainly relevant, but environmental policy isn't going to be the main thing that drives us. The reason that China has been so successful with solar panels, for example, is low labour costs. It's not that they're promoting solar energy in China.

To give you an example from my own work, in a lot of my work I look at patent data. In looking at patents related to wind energy in the United States, I saw that one of the states that has the most patents is South Carolina. It was a surprise when I found this out, so I started digging into the data. The reason for this is that most of these patents are assigned to General Electric. General Electric has a turbine-manufacturing facility in South Carolina. South Carolina has done very little to actually promote renewable energy. The reason the facility is there is that South Carolina has lower taxes and lower labour costs.

To attract jobs, the things that matter for other sectors are the same things that matter for the clean technology sector. Environmental policy isn't going to be enough to motivate that.

[The Chair, Liberal, James Maloney]

You have 30 seconds, Mr. Watson.

[Bryan Watson]

I'll try to take 15.

From our experience, most of the collaboration ends up being our technology companies selling into the U.S. and exporting technologies into larger products and projects with those companies. We really get to focus on the export side of our technologies. A good example would be Hydrostor, which stores wind energy for use in non-peak times or when there is not sufficient wind.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Strahl.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

Thank you, Mr. Chair.

I'll be sharing my time with Mr. Barlow.

Professor Popp, I've listened to your testimony, and I also have an article here from an August Globe and Mail, wherein you indicate among other things that “[s]ubsidizing consumers who adopt new tech is not the solution”. I take it that you would not be a fan of giving people who can afford a Tesla a government-funded $10,000 rebate.

[Dr. David Popp]

Your characterization is exactly right. I would not be in favour of giving money to people who can afford a Tesla to help support that purchase.

[Mark Strahl, Conservative, Chilliwack—Hope, BC]

My other question is about what you mentioned a few times: “breakthrough technologies further from the market”. In this article, you talked about perhaps the same thing: “emerging tech not yet cost-competitive”.

When a technology is far from the market, who determines when it is a breakthrough technology if it's not the market itself? Does that then fall to government bureaucrats? Government is not typically nimble. I think we heard previously about how sometimes it takes a year to get a project application through for these things. Government is not known to be nimble in responding to market needs. If the market hasn't already done it, how would this turn into anything but a bureaucratic nightmare if the government is the one trying to make the determination on what technology should be funded or what technologies are about to break through?

[Dr. David Popp]

I think the important thing there is that breakthrough is really a question of timing. It's about technologies that are five or 10 years away from the market, so the market isn't going to finance the development. The most important thing is to think about the government's role to be able to support a diverse portfolio.

I think you're exactly right. You don't want the government in the position of micromanaging and picking whether technology A or technology B is going to be the winner.

The reason it's hard for these things that are further from the market to be able to finance themselves in the private sector is that in a single investment each firm is all in, right? If the investment fails, the company goes under. The government has the advantage of being able to support several technologies and to see which ones work—essentially, to let a thousand flowers bloom.

There was a nice study done by the National Academy of Sciences that looked at the research supported by the U.S. Department of Energy in the 1970s and 1980s. The great majority—I think probably over two-thirds—of the projects were unsuccessful, but if you look at the cost-benefit ratio for the program as a whole, it was a resounding success, because the few products that were successful were really big hits. That's really the idea: to be able to diversify to support a larger portfolio of projects than any one company could do on its own.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Barlow.

[John Barlow, Conservative, Foothills, AB]

Thank you, Mr. Chair.

Professor Popp, my riding is in southern Alberta. I was reading a memo that you put out regarding your meetings with Ontario and Alberta, and I noticed that several of the five recommendations you put forward to those provincial governments included a carbon price. Our concern, with the United States now backing away from following through with a carbon tax, is how does Canada remain competitive? Do you see the United States, for example, falling behind in innovation and technological advancements when it comes to clean tech? They are not going to have a carbon tax. Does this show that the United States will be falling further behind?

[Dr. David Popp]

You've asked an interesting question. I think the key thing is that there are a lot of policies still going on at the state level. The largest markets in the U.S.—California, the northeast, New York, Massachusetts—are still making efforts towards a climate policy, so I don't think it's as simple as saying there is nothing happening in the U.S. It does raise the question about whether the bar will be as high, because the policies that the states are putting in place certainly are not as stringent as what would have been put in place, for example, if Obama's clean power plan had stayed in place. I think it's something for the governments to be cautious about, or certainly to be aware of.

One of the things I remember talking about in the policy brief for C.D. Howe was that it may mean that Canadian firms with a focus on clean technology will turn their attention to, or focus more on, the European market rather than the U.S. market. I think you're absolutely right that there is a danger of the U.S. falling behind in clean technology.

[John Barlow, Conservative, Foothills, AB]

Further, in one of your recommendations you talked about the possibility—I don't know if “risk” is the right word—that government funding for research and development could displace private sector funding for that. For me personally, that's something I would discourage. I want us to find ways to encourage private sector investment in research and development.

Can you expand on that a little bit, and on what your concerns were there? I think it's something we have to very cognizant of. Government, as my colleague said, doesn't always make the best decisions and certainly doesn't move quickly, whereas I think the private sector, carbon tax or not, has done some incredible work. We want to make sure that we incentivize them or encourage them to continue that work and that investment.

[Dr. David Popp]

Yes. I think there are two things there. One, as I heard in the previous session, involves making a distinction between more basic research, or the more fundamental science and the engineering behind these technologies, versus the applied research, or trying to commercialize these technologies. The government can play a role in that more basic research.

The other place where government can play a role is in thinking about things that are complementary to these technologies. We've seen the private sector do a lot of work in wind energy. There's less private sector research focusing on the transmission grid, on the smart grid, because that's an innovation that has huge public benefits with any breakthrough; that benefits all the companies who invest in renewables; and that will be hard for any one company to reap the rewards of. So investing in some of those complementary technologies is important.

It's really a question about technology choice, about trying to avoid doing the things that the market is already good at. I think that's one thing that's fairly straightforward for governments to observe, because it's easy to see what things the private sector is doing and is doing well.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Popp.

Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you, Mr. Chair.

Thank you to all of you for being here today.

Mr. Gilmour, you stated that communities account for 60% of energy use and over half of all greenhouse gas emissions in Canada. Could you comment on any government programs that might help communities reduce that energy use through clean tech or whatever? This is a study about clean tech and natural resources, and this is the natural resources committee. How would helping communities reduce energy costs and energy use affect natural resource companies, particularly energy companies?

[Brent Gilmour]

I think when we talk about communities, we often get into a couple of different areas that would affect any firm, natural resource companies or not. By this, I mean transportation and buildings. When we talk about where we use our energy, from the end-use perspective, 25% of our energy use is in buildings. On a community scale, you're looking at another significant portion for transportation.

You're looking for efficiencies. You're looking for natural resources in terms of what companies can be doing with them, such as in extraction areas, with communities, because it's a shared opportunity. Thinking about the north, you have communities with high-priced energy who are looking for great ways to work with their industry counterparts who are there, which might reduce their energy costs.

I think when we start looking at programming, as we've heard from some of the other panellists here, we look at twinning, at what you are able to do to help a community and the local industry there—not one or the other, but both. Everyone wins. When we pick one, that's when things go awry, and that's where you start offsetting.

I think this is why we're trying to encourage that. You'll probably hear it from some of the other witnesses here today. When we think of forestry or mining, their number one cost in mining, for instance, is energy for production. If you're going to help them, it's also a fact that the community likely has high costs for heating. It's not just for electricity production.

The other big part that I would encourage, when we're thinking of programming development, is with the types of investment areas. We've talked a lot about electricity, yet we only use about 30% of electricity totally, whether it's in terms of buildings or transportation. The rest of it is mainly for heating, in industrial processing or buildings. That's where I would be talking of thermal energy, when you are thinking of programming. Anything that can be done with clean technology opportunities to advance thermal opportunities will have a significant benefit for industry and businesses, whether it be in terms operating their buildings, their transportation, or their industrial processes.

I'll just leave it there. With regard to thinking about a principle of approach, we tend not to talk at all, for any reason, about thermal, yet that's our biggest challenge.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Okay. Thank you.

Mr. Popp, you mentioned briefly carbon pricing and externalities. I wonder if you could just quickly talk about externalities and why it's important to put a price on them in this situation.

[Dr. David Popp]

Sure. The idea here is simply that much of the benefit of using these clean technologies doesn't go to the person who invests in the technology. An externality is when one person's action affects somebody else. A smoker's second-hand smoke affects the person next to them. A firm's pollution affects the people next to them.

The idea of a carbon tax is to do what we call “internalizing the externality”. Market prices don't take into account the harm done by the pollution. If the tax is set a price that's comparable to the harm caused by the pollution, that now becomes part of the decision-making process of the firm. That cost is internalized, and it now becomes part of their decision-making process—the goal of the carbon tax.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

You mentioned that you aren't a fan of subsidies, for instance to incentivize people to buy electric cars. I'm wondering if you could comment on perhaps governments getting involved in infrastructure. A lot of the reason that people aren't moving as fast as they perhaps might to electric cars is that the infrastructure isn't there for refuelling.

Is that something that governments should get involved with? That's something I hear from my mayors. They want to see electric refuelling stations across my riding.

[Dr. David Popp]

If you're thinking about where to get the most bang for your buck, that would be much more effective than providing a subsidy. The idea behind it is that with the infrastructure, you're enabling people to do something they can't do right now. If you don't have charging stations, people will not purchase electric vehicles.

The challenge with a subsidy is that you can't differentiate with a subsidy. Are you giving the money to people who wouldn't have purchased the product without the subsidy, or would they have purchased it anyway? A lot of the money will go to things that would have happened anyway, so I think the infrastructure investment will be much more effective.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Okay.

Mr. Watson, you threw out a lot of acronyms and program names. I wonder if you could talk about where government could have the biggest impact, whether with an existing program or by expanding it, or developing a new program. Just pick one and....