Natural Resources Committee on March 9th, 2017

[Jean-Pierre Finet]

Were you talking specifically about the commercial sector?

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

Yes, but I want to move on because I don't have much time.

Ms. Bak, you mentioned the fiscal subsidies on fossil fuels, and I think you put it at $3.5 billion. Could you expand on where that comes from? It went by me quickly.

[Céline Bak]

That's okay.

There is a global initiative under the G20, and there has been for many years, for there to be a prompt phase-out of fossil fuel subsidies so there can actually be positive carbon pricing, because if you have subsidies and carbon pricing, you end up with negative carbon pricing. Canada actually is the world hub of all of the data on fossil fuel subsidies. It's at the International Institute for Sustainable Development, which is in Winnipeg, and their data says that our fossil fuel subsidies are $3.3 billion in tax expenditures, and then our export credit agency, EDC, makes working capital loans, which are publicly financed loans, for about another $3 billion to oil and gas companies.

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

So that's—

[Céline Bak]

In total, it's $6.3 billion. You could underwrite a lot of performance contract risk with that.

The G7 and G20 are now moving toward fossil fuel subsidies being wound down in order to enable carbon-reducing infrastructure investments and risk mitigation.

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

Again, quickly, you mentioned something about the difference between Canada and the United States, and you used methane regulation as an example.

[Céline Bak]

I can give you a quick explanation of that.

When Alberta did the methane regulations, the innovators who are now helping to mitigate methane in the U.S., as an example, were not invited to the regulatory consultations. We established a methane regulation target that did not account for innovation.

Oddly enough, in the U.S., civil society makes that happen. The ENGOs make sure of it, and we have examples. For example, in natural gas being used for middle-distance heavy trucking, civil society, which is the Environmental Defense Fund in the U.S., sat down with a technology provider and made them prove their figures for emissions, for costs, etc. That technology is part of the road map for emissions reductions in transportation in the U.S. It's all based on science, on proof, and it's all done transparently.

We don't do that in Canada. When we do methane regulation reviews, we don't have the innovators or the scientists at the table to say, “Well, you know, we don't need to use the methodology that we've used for 25 years. We can use a different one. It's more cost-effective, and we'll get more methane abatement.”

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

Mr. Love, regarding retrofits or whatever work you do on buildings or the companies that you finance, what are the most effective? What's the low-hanging fruit?

[Peter Love]

It's lighting, definitely. If anyone still has T12s, change that out, or use incandescents. Lighting would probably be less than a two-year payback. Controls would be a very quick payback, two or three years. If there's an older boiler or chiller, that would be a medium length of time for payback.

Where the big jump comes in—and it differs for different buildings—is when you start looking at the envelope. You'll start looking at the walls and the windows. That's expensive. In order to get to the 40%, you're probably starting to look at the envelope. You're probably also starting to look at on-site generation, either with gas or with renewables of some sort. Certainly when people talk about zero carbon, you're definitely making major investments in on-site generation.

To take an existing building to zero carbon is.... People are just getting there with new buildings. You'd be looking at reskinning. Again, in Europe, where the energy prices are much higher, we see examples of that. People are just starting to look at that now in Canada, but the pricing is still difficult.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Love. I'm going to stop you there.

Mr. Harvey is next.

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

Thank you, Mr. Chair.

I was really intrigued by some of your comments, Mr. Love, as well as by yours, Ms. Bak. This study is on de-risking the adoption of clean technology in Canada's natural resources sector. I'm a big believer in a fair playing field, and I agree with something you said earlier, which was the idea that we need to develop these technologies without pitting one side of the sector against the other. Some of what I hear from witnesses—not necessarily you guys, but in general—is in fact doing that. Unintentionally it pits one side of the sector against the other.

I come from agriculture, so I always use agricultural analogies. I believe in broad-based policy and I believe 100% that we need to be pushing for technologies based on the idea that we have a goal we want to get to, and then developing the sector so that it meets those goals. I agree 100% with that.

This means to me, however, that if I'm a tractor manufacturer and determine that I can build an electric tractor, which John Deere has just done, and it meets the goal, then that's great, or if I figure out a way to convert the carbon created by a traditional tractor, I'm okay with that too. It's whatever gets us to where we need to get to as a goal. It needs to be goal-oriented and focused in that way, so that we don't....

When we talk about de-risking and the idea of government funding the risk to industry from the adoption of technology, we always need to be cognizant that at the end of the day we fund that de-risking with taxpayers' money. Moral hazard dictates that we need to be cognizant of what we're doing with that money. I think it's important that we do it in a manner that allows the adaptation and development of new technologies across the board, but that we don't do it in such a way that we pit one side of the sector against the other.

In that spirit, I want to ask you, Ms. Bak, how you feel government can play a progressive role in creating the environment that will allow for the adoption of clean technologies, recognizing that we don't live in a static environment. Companies and government have been pushing for the creation and adaptation of cleaner technologies for years. Yes, we're in an accelerated growth state right now, in which there's a higher focus on achieving those goals in a timely manner, but we don't live in a static environment. We need to continue to push in the same manner as we have done , but how can we do a better job of creating broad-based policy that doesn't pit one sector against the other and that creates the type of environment in which you really do have a level playing field?

[Céline Bak]

As I said, there are two things: performance and best available technology. If you have a performance goal, which is carbon intensity of some kind, and you have a commitment to making sure that all technologies are considered and that the best available technology is the standard, then that's the way to do it.

I'll give you an example of how agricultural services can be used for methane mitigation, for watershed services, for many things. In Halifax, for example, they have a nitrate problem in the harbour. You could use water treatment technology to address the methane problem. Well, you could also ask the farmers to use land-use services such that a certain proportion of the land was used as a watershed to make sure that no nitrate actually went into the harbour. The best available technology in this case is land-use services; it's not water treatment. The difference in cost is $1,000 for land-use services and $500,000 for water treatment.

We need to have performance-based approaches that require best available technologies and are cognizant of those best available technologies. Some of them will be traditional clean technologies, some of them will be agricultural.

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

Okay. That's good.

Mr. Serré has a question, so I'm going to give him the rest of my time. Thank you for that.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Harvey. I have a question for both witnesses and probably a minute each for them to answer.

The U.S. and China are our biggest competitors on the clean tech export side. What do you believe the federal government should do to ensure that Canadian tech companies remain competitive against such other countries as the U.S., China, and Europe?

[Peter Love]

Do you want to start?

[Céline Bak]

Shall I go first?

The U.S. has grown its exports of environmental goods quite smartly, but obviously China has grown them more quickly. I think we have an opportunity to partner with China. We've recently received a guest editorial from the Chinese minister counsellor, second in command to the ambassador, saying that they would like to partner with Canada on our expertise, whereas they have labour and can manufacture. We can guarantee our position internationally by partnering smartly with our erstwhile Chinese competitors.

In terms of the U.S., I would suggest that under the renegotiation of NAFTA we consider bilateral reciprocity for SME procurement. The U.S. has had SME procurement in part of its policy mix for many years, since 1958. If we gave the U.S. access to our SME procurement market and they did the same, there would be an overall innovative impact on the economy, because SMEs are the ones that are investing in innovation. Also, we would have a 10 times greater access to market than they would have, but it would be consistent with the policy environment in the U.S. It would be a bilateral approach to SME procurement with an environmental dimension to it.

[Peter Love]

I agree with that.

The other thing—it's hard to do, but I think it's a role governments can play—is to be strategic and put on almost a private sector hat. Do a SWOT analysis. What are our strengths? Where are our weaknesses? What are the opportunities, and what are the threats?

China dominates these markets. There's no sense going there, and the U.S. is here.

Here are some that are really strong. Ontario did this a few years ago. It looked at the technology sector and identified five sectors in which it thought it had particular innovation skills. That's not easy to do, but if you can do that—because you can't do everything—I think that would be one of the challenges.

This risks picking winners and losers, but at some level you probably want to say, what are our core strengths? Is it our educational system? Is it our resource base? We have some unique things that we probably should be looking to build on. If something mind-blowing comes up in other areas, that's fine, but let's really focus.

I'm also a big believer in making an appeal to the private sector by saying, as Céline described, “Here's our objective. This is what we want to achieve. Come to us. Here's a fund of money; we have some money available. We'll guarantee orders for a number of your units. Come to us with what you think is most creative.”

It's competitive—

[The Chair, Liberal, James Maloney]

Thank you, Mr. Love—

[Peter Love]

—and we're not going to give it to everybody. The criteria could be greenhouse gas costs or whatever. We're going to pick some winners and we're going to evaluate them. We're going to do this on a regular basis, and then you can control it.

Getting back to your idea—

[The Chair, Liberal, James Maloney]

Mr. Love, I'm going to have to stop you there. I'm sorry. We have to move on.

Mr. Yurdiga is next.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Thank you, Mr. Chair.

I would like to thank the witnesses for participating in the study, because it's a very important study.

Before I ask any questions, I want to make a comment.

Innovation does have a certain risk, and a lot of times that risk is put on the taxpayer. The taxpayer only has so many dollars. What may work in one community in one part of the country may not work in another.

I was involved in.... They constructed a government building, and they had solar heating to heat a certain part of the building—well, to subsidize it, anyway. It worked well in the south. It did what it was supposed to do. However, moving north, we had challenges. It was not producing enough heat. Actually, it was costing, as new boilers had to be put in to heat the space that was supposed to use solar heating.

Then in the summertime the heat load was too much, so we had to put a bigger chiller in. All of this innovation probably cost, operation-wise, in excess of 20%. Not all innovation works everywhere.

I'm going to ask Peter a question.

Are you aware of any of the performance contracts that went south and didn't work out the way they were supposed to?

[Peter Love]

Yes, not by name, but I know my members have had to make good on guarantees that didn't work. They'll tell me that it's a baseline problem that they were given. They made assumptions about the building that were not right and they did have to make good on those. They don't like to talk about it. You won't find it in the press, but they do exist.

They do guarantee their projects. There is a performance metric that's agreed to in the contract using an international protocol, and if it comes out that the performance is not there, they do make up the difference. That's part of the contract.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

If they're still in business....

[Peter Love]

Yes, they are, absolutely, because that doesn't happen often.

[David Yurdiga, Conservative, Fort McMurray—Cold Lake, AB]

Yes, but that's still a risk.