Natural Resources Committee on May 2nd, 2016

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you both for being here and spending your time with us today.

I'd like to sort of leap off what my colleague has been talking about. I'd like to thank you, Chris, and actually an earlier presenter, for affirming Canada's long-standing track record of world-leading environmental standards and enforcement, which extends to exploration and production, of course, and our world-leading innovation that has allowed us in Canada to produce the most socially and environmentally responsible oil and gas in the world.

To review the principles that were announced, of course a couple of them that I'm mindful of are this application of views of the public and community consultation, which has already been done through rigorous regulatory processes for decades; more meaningful consultation with first nations, which has also been done for decades because of the crown's duty to consult; and through the regulatory process. I'm mindful of, as our representative from the C.D. Howe Institute mentioned, this application of direct and upstream greenhouse gas emissions being linked to the approval of projects under review, which has already been done provincially for years to those existing projects.

What I'm concerned about is that it seems we have a case that the government is not being specific about what gaps they're trying to address. They've announced principles that are either unclear, or duplicate what is already done and has been done for a long time in several different ways.

I wonder if your members have received clarification or specificity from the government about what will be required in these new measures, that we know have increased the timeline, which increases costs and deters investments and can cause job losses. But I'd like to get at whether or not there's actually something concrete for proponents around certainty and what is trying to be accomplished.

Also, maybe from either of you, do you have any comment on this notion that application of upstream greenhouse gas emissions to the approval of energy transportation infrastructure is actually a measure that's not applied to the approval of any other major transportation infrastructure projects in Canada or, indeed, to the import of foreign oil?

If you have any comment on those two items, I would be interested.

[The Chair, Liberal, James Maloney]

In 50 seconds or less.

[Chris Bloomer]

Ben, I'll take a crack at it and try to leave you some time.

In short, I think the pipeline industry, certainly the CEPA representatives, don't believe that the inclusion of greenhouse gas into the pipeline process, as part of the interim process.... It's not part of regulatory law now, but we would strongly suggest that that not be the case, because pipelines do not contribute to greenhouse gas emissions in any material way at all. The jurisdictions that approve projects for the production of hydrocarbons, it's their jurisdiction to approve them.

Pipelines serve the market, so we would not support that going forward.

There has been no kind of clear-cut way of saying this is exactly what we're going to do with the information we're going to get on the incremental consultation or with respect to inclusion of greenhouse gas emissions. Generally, this is more information going into the process and they're going to use it as part of that process. There's no clarity around that.

[The Chair, Liberal, James Maloney]

I'm going to have to cut you off, sir, I'm sorry.

Mr. Cannings is overdue.

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

Thank you both for being here.

I'll start with Mr. Dachis from the C.D. Howe Institute.

According to a recent report by your institute, and I think you referenced it, there are a number of structural issues facing the Canadian energy sector, including issues regarding the realization of innovation and diversification of policy objects. What role do renewable and green energy sources play in accomplishing that goal?

[Benjamin Dachis]

No doubt renewable energy is going to make up a much larger share of our energy sources. I don't know when, but it will probably be a lot more in the long term than many people think, but also probably a lot less in the short term than many people think. It will be there, but we need to remember that the fossil fuels that we currently have will play a role in the energy sector in the future in some capacity.

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

That same report also points to other barriers, including the global competitiveness of the oil and gas sector. Oil sands and heavy oil projects face some significant disadvantages in the global marketplace, like a significantly higher cost of production.

We've heard in other testimony that innovation and new technologies can help lower those costs, but in your view are there limits to how much technological innovation can help to close that gap and put oil sands and heavy oil on a level competitive footing with other global oil sources?

[Benjamin Dachis]

Innovation is absolutely going to be the way that Canadian energy producers compete globally. Again, in your shoes, you have to ask yourself, what can Canadian governments, and in particular the federal government, do in order to foster that innovation?

When it comes to thinking about the kind of innovation that the new society wants more of, target that specifically. If the issue is innovating to reduce greenhouse gases, then let's find ways for companies to focus on reducing their greenhouse gas emissions. The way to do that, without a doubt, is a price on greenhouse gas emissions. All their policies, all their subsidy policies, innovation funds, these sorts of things are not nearly as effective on their own as carbon pricing.

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

I'll turn to Mr. Bloomer now with a similar question in terms of Canada's disadvantages in the oil market. We've all heard that one of the big pressures to build pipelines in Canada, especially getting them to tidewater, is to overcome this price disadvantage that we face because we can only sell within the North American market.

As I was mentioning in an earlier question to other witnesses, that price differential seems to be shrinking somewhat. There is also some indication that even if we did have a pipeline or pipelines to tidewater, selling that oil to other markets, particularly the Asian market, there would still be a considerable price differential.

I was looking at the Mexican Maya sour crude benchmark, which apparently over the past 15 months was priced on average $8.73 less in the Far East than it was in the United States. What economic advantages will pipelines give Canadian oil producers and will that be enough to make them competitive?

[Chris Bloomer]

Absolutely. It's essential to have pipelines built to access global markets where they can process our crude, rather than keep putting our crude into markets that don't have all the refining capacity to handle efficiently that crude oil. We're also competing against other crudes.

The markets are dynamic. They will change. Differentials increase, they decrease, light versus heavy. Over the long run, we have to strategically look at it.

These pipelines are not going to be built tomorrow. They're going to be built in seven to nine years. We have to make a national strategic decision that we're going to supply those markets going forward. Those markets need that oil and it will increase the value.

Looking at it on a daily basis doesn't help the discussion. It's really a strategic thing that we have to engage in to access those markets.

[Benjamin Dachis]

Pipelines are a necessary but not a sufficient condition.

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

I think it was again Mr. Dachis who talked about the price on carbon. I want you to expand on the comment you made about using a price on carbon and using those funds to drive innovation, to incentivize innovation.

Again, some people have been calling for the removal of those incentives on oil exploration and moving them to that sort of innovation.

[Benjamin Dachis]

When it comes to the incentives for oil and gas exploration, we have to think of them as part of a broader package, about what an efficient, broader economy tax system would look like, where we want to encourage, across the entire economy, the kind of behaviour that isn't a slam dunk economically. We want to ensure that people invest in things that might be good for society as a whole and in many regards impossible for the government to say that it should be biotech or renewables, or the oil and gas sector.

We want to have these kinds of policies that are very similar to what you see in the oil and gas sector applied across the entire economy. That's called the cash flow tax, rather than the current flow-through share system with the Canadian exploration expense.

I'd encourage the committee to look into this model of a cash flow tax and think about how you could apply this across the entire economy.

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

I just have a quick question on a national strategic oil reserve. Other countries have an oil reserve. Should Canada have one?

[Benjamin Dachis]

I don't have a clue about that one.

[The Chair, Liberal, James Maloney]

That's a perfect length of answer.

[Chris Bloomer]

I'd say Alberta has a strategic oil reserve.

Mr. Harvey. I'm going to give you two minutes, and then we're going to shut it down.

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

Okay.

[An hon. member]

You can't go into another round.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

No, you can't.

[The Chair, Liberal, James Maloney]

It's still the same round.

[An hon. member]

Is it? Okay.

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

I only have two minutes left in my slot.

We talked about the five principles of the new interim assessment process. When we talk about energy development in this country, I think it's really important that we look at projects, whether they're traditional development projects or new and emerging technologies, whether it's solar, wind, tidal energy, and we should really classify those—this is just my opinion of course—in the short term, medium term, and long term within the two individual pillars. With that in mind, recognizing that over a period of time it's definitely going to be necessary to get our resources to market and recognizing that the oil and gas sector has been very innovative and forward-thinking over the past years—and I think that everybody on all sides of government recognizes that—do you believe that those five interim principles are not in fact barriers to project and resource development, but just a continuation of the type of growth within that sector that we've seen over the past number of years—5, 10, 15 years—and a continuation of where we need to see that trend go, whether it's first nations' consultation, looking at the total scope of greenhouse gas emissions, or usage of science and technology? How we can use those principles to move this sector forward? Do you not believe that those five principles are going to be of benefit to the sector over the short, medium, and long term?

[Benjamin Dachis]

I'll throw that to you, Chris.

[Chris Bloomer]

Okay. Did you want...?