Evidence of meeting #107 for Natural Resources in the 44th Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was tolls.
A video is available from Parliament.
Liberal
Majid Jowhari Liberal Richmond Hill, ON
Great.
I did interrupt you, but I was asking you to also talk about the economic benefit—the broader economic benefit—outside of Alberta.
Professor of Economics, University of Calgary, As an Individual
Just to provide an example of how much the oil and gas extraction sector in Alberta purchases from others elsewhere, if you add them together with refined product producers here in the province, Alberta purchases about $13 billion per year in goods and services from businesses outside of the province—$5.5 billion, for example, from Ontario alone. Those supply chain connections are an important way that the province—
Liberal
Majid Jowhari Liberal Richmond Hill, ON
I'd like to close by saying that we basically saved an opportunity cost of $245 billion by building this pipeline.
Thank you.
Professor of Economics, University of Calgary, As an Individual
I agree, yes.
Liberal
The Chair Liberal George Chahal
Thank you, Mr. Jowhari.
We'll now go to Mr. Simard for two and a half minutes.
Bloc
Mario Simard Bloc Jonquière, QC
Thank you, Mr. Chair.
Thank you to my friend Mr. Falk. I agree with him: I would really like to see an election on carbon pricing in Quebec. It would be fun, especially since carbon pricing doesn't apply in Quebec. Maybe we won't see his leader then, who knows.
Mr. Detomasi, you talked about the possibility of selling new technologies. I'm still thinking of the visit I made to Siemens in Berlin with Minister Wilkinson. Siemens clearly told the minister that we would never see the day when we produced hydrogen from gas with a carbon capture strategy, since the technological cost was much too high and no one wanted to go there. Those words got me thinking. When it comes to these new technologies, a lot of promises have been made, but I get the feeling that not much comes of it in the end.
When it comes to the movement of businesses, Quebec's problem is a nice one to have: everyone wants to set up there, but there aren't enough energy blocks. Quebec is very attractive to large energy-intensive businesses, but I don't see the same thing for other businesses, such as those that would set up in Alberta to produce aluminum or steel with a carbon capture strategy.
Isn't it selling a dream to talk about all the new technologies that will make it possible to reduce the carbon footprint of the oil and gas industry?
Professor, Queen's University, As an Individual
Thank you very much for the question.
I think there are a couple of things. The history of innovation is probably helpful to look at here. They said exactly the same thing about fracking for 50 years, that it would never work and never be profitable. One determined entrepreneur spent tens of millions of his own dollars and proved that it could.
There are numerous examples of technologies. Now, innovation is a messy business. Innovation is a slow business, until it's not. I would reference Matt Ridley's work on this. It's messy and slow until we hit something, and then it takes off. We just don't know when that's going to be.
Bloc
Mario Simard Bloc Jonquière, QC
I like your answer. We don't know where things will go, but it's possible that innovation will lead to the oil and gas sector being left out. It is possible that wind and solar energy will develop fairly quickly and that the oil and gas sector will be set aside. What do you think?
Professor, Queen's University, As an Individual
—I mean, not by itself because we still have problems with intermittency, and we still have problems with reliability. It gets damn cold in Canada, so we need a backup.
Liberal
The Chair Liberal George Chahal
Thank you.
Mr. Boulerice has shared his time with Mr. Morrice.
Mr. Morrice, you have two and a half minutes.
Green
Mike Morrice Green Kitchener Centre, ON
Thank you, Mr. Boulerice.
I'm a business grad myself. I understand we have some business profs in this room. What I learned at Laurier, in my business training, was that we have to listen to experts and that we have to think long term.
I'd like to introduce a quote from an expert in this area on climate science, Professor Jim Skea, co-chair of the IPCC, the Intergovernmental Panel on Climate Change, working group III. This is from back in April 2022. Dr. Skea says, “It's now or never, if we want to limit global warming to 1.5C. Without immediate and deep emissions reductions across all sectors, it will be impossible.”
I think part of why climate scientists like Jim Skea have spoken about this urgency, with my understanding of the climate science, is that we have feedback loops. Last year, in Canada, our emissions were 702 megatonnes. The emissions from the wildfires, wildfires that become more extreme and more frequent because of the climate crisis, don't show up in our climate balance sheet, but they were 647 megatonnes. That's before the Jasper wildfires and all the devastation that was there.
Part of how we try to make sense of that is there's the social cost of carbon. The social cost of carbon attempts to reflect the reality of the damages from carbon in the atmosphere at this stage of the climate crisis. It's used by countries around the world, including Canada and the United States. ECCC estimates the social cost of carbon to be $294 per tonne.
To Dr. Tombe, my question for you is this: In your assessment of the TMX's being worth every penny, have you included the social cost of carbon in that assessment, yes or no?
Professor of Economics, University of Calgary, As an Individual
Yes, and I'm happy to expand on that.
Green
Mike Morrice Green Kitchener Centre, ON
Okay. The social cost of carbon is $294 a tonne. The TMX pipeline is 84 megatonnes. That's another $24.7 billion added to the cost of the $35 billion from before.
Is your math different?
Professor of Economics, University of Calgary, As an Individual
Certainly. Much depends on who takes up the slack of the barrels of oil that we don't supply. If the production shifts, for example, to certain fields in Saudi Arabia, then you can get roughly equivalent to about $1,000 per tonne in economic costs incurred in Canada for the net avoided emissions. In that sense, blocking pipelines is a very high-cost way—and higher than the SCC approach—to lower emissions.
Liberal
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
Thank you very much.
Mr. Mason, I have a couple of quick questions for you first.
We heard earlier today that we're looking at about $11 per barrel on the toll rate right now. I'm wondering what you think the commercial value of the pipeline would be at $11 a barrel on that toll. What would that commercial value be?
Chief Executive Officer and Senior Managing Director, Project Reconciliation
That's a really good question, and I should have my finance guys with me.
I'm not here to pick what the number of the commercial value is today. It really has to get down to what ultimately the CER decides the shippers have to bear in terms of those cost overruns.
I think a big chunk of those cost overruns, as I started to mention before I got pulled, was the delays on the permits. That pipe sat on the ground for five-plus years. The standby cost contributed significantly, beyond the acts of God, and when places like Jasper burn, the taxpayer steps up and helps to rebuild. There is a basis that some of that cost overrun, when it is attributed to floods, fires and COVID, shouldn't necessarily all be borne by the shippers. There's a capped and uncapped portion of the existing contracts. There needs to be a regulator opinion on how much falls into each category.
In terms of the original tolls, it was brought up at $3 for line 1. That line was built over 70 years ago. That capital has been fully depreciated, and the key piece to that was really driven by the operating costs, not by a return on capital that's been fully depreciated.
I would like to add one more comment. As we got into the finance readiness, we had the banks and had a series of bonds planned. I was in and out of New York three or four times, talking to bond desks. We had the bonds priced as support by the National Bank of Canada. What got to that point of what was left? What does it mean for you as an indigenous owner? It amounted to about $430 million a year of available free cash flow for distribution.
I was sitting with the chief of Tkemlups—which is very close to Shannon's riding—and was explaining what it would mean for Tkemlups Nation to own it. I was going through the math in this indigenous sovereign wealth fund, and she said, “Steve, I've just got to stop you because I want to ask you a question. Do you have any idea what my nation earns from annual revenues for the surface lease on the existing pipeline?” I said, “Chief, I don't have any idea.” She said, “It's $1,200 a year.” That is what that nation was earning for surface lease rentals, when there are hundreds of millions, billions, of dollars of oil going through that pipeline every year.
This is key to the piece. I'm sorry to segue away from your question. I don't have the answer on what those tolls will be. The regulator will decide on what percentage of that $35 billion will be factored into the tolls.
Conservative
Jeremy Patzer Conservative Cypress Hills—Grasslands, SK
Thank you.
Really quickly then, do you know the number, or have you looked at what the number would be for those rates to get a $34 billion valuation? Do you have that number, or no?
Chief Executive Officer and Senior Managing Director, Project Reconciliation
I have a view on that number, but it's not something I would like to share in public.
Chief Executive Officer and Senior Managing Director, Project Reconciliation
I will say that the shippers have other alternatives to having to pay that, and that's to continue to put it by rail.