Inextricably intertwined: Canada and the United States as global partners in securing safe, reliable, and new sources of energy.

Session Chair--David Crane

Speaker--Carl Bauer

Speaker--Meera Fickling

INTRODUCTION

David Crane

MR. CRANE: Thank you. I would like to welcome everybody to this panel. We have two very distinguished panelists and I know they will help us successfully launch this day and a half of discussion.

I would just like to start off, though, by making two or three comments to provide a little bit of context which went into our thinking as we started planning the Conference.

First of all, we wanted to underline the point that energy is about much more than just energy. It is about national security, (1) It has to do with the exposure of our electrical systems to acts of terrorism. (2) It is about exchange rates in currencies. (3) It is about foreign policy, and our vulnerability to events in the Middle East and elsewhere. (4) It is about competition between evidence-based findings and ideology. It is about industrial restructuring and the impact on jobs, growth, and inflation. (5) It is about capital flows. (6) It is about the environment, especially climate change and clean air. (7) It is about research and development policy. (8) It is about economic philosophy: do you believe in simply relying on markets to decide how these things could be settled or do you favor a more interventionist type of policy where the public interest is clearly defined and regulatory policy, as well as incentives, are used to achieve public interest goals? (9) And so it is more than just about what we put in our gas tank or what turns on the light each day.

It is very interesting that in the United States trade deficit last year oil accounted for more than fifty percent of the trade deficit. (10) Everybody focuses on China and its manufacturing exports and there is a lot of China bashing that goes on. (11) But if the United States really wanted to improve its current account situation, it could be much more effective by addressing the issue of oil imports. (12) If we look at the price of oil today, it is over one hundred dollars a barrel. (13) At the International Monetary Fund and many of the economic policy-making groups, the assumption is that, going forward, oil is going to remain above one hundred dollars a barrel. (14) That is very expensive and has huge implications.

This year for the first time it is estimated that the Organization of the Petroleum Exporting Countries ("OPEC") export revenues will exceed a trillion dollars. (15) Think of that going forward year after year: the countries in OPEC are generating more than a trillion dollars in export revenues. (16) What is that going to mean for financial markets, for exchange rates, for capital flows, all of these kinds of things? It has huge implications for the United States dollar and its future role.

We have issues about climate change. (17) How do you deal with climate change if so much electricity is coming from coal and we are relying so heavily on oil?

In a way, and this brings me to Canada, the issues of energy policy and climate change have fallen a bit off the headline radar. In our election campaign, which is underway now, there is virtually no discussion of energy policy or climate change. (18) Nobody wants to talk about it. I think that is partly an outcome of the serious recession that we have been through. (19) We have been much more focused on how do we prevent the next Great Depression, how do we restructure our banking systems, and now, how do we deal with the ongoing problems of unemployment and fiscal deficits, and these kinds of things. (20) But the climate change issue is going to come back. There is no question about that.

Canada's Constitution (21) affects the way we discuss energy in Canada, because electricity, for the most part, is a provincial matter. (22) In Ontario, we are going to have an election this fall. (23) Electricity will be a huge issue. (24) Pricing, the role of nuclear power, and the role of renewables are going to be very much at the front of stage, (25) but they are not an issue in the federal campaign. (26)

Likewise, oil and gas policies, royalties, the pace of development, these kinds of things, are largely in the hands of governments in Alberta, British Columbia, and Saskatchewan. (27) The federal government's role is limited to interprovincial-international dimensions, (28) so that is important in the Canada-United States context, and it is affected by how the federal government changes the corporate tax system to provide incentives or credits to energy development and renewables. (29)

Nonetheless, energy is becoming more of an issue in Canada. Like Australia, there is growing concern that our economy is changing (30) and we are devoting ourselves basically to digging stuff out of the ground and shipping it to another country, (31) and we are not capturing much of the value added out of that. (32) It has a big impact on our exchange rate. Our exchange rate is now 103 United States cents. (33) A few years ago it was sixty-five United States cents. (34) That is a huge change in our exchange rate. It has traumatic implications for the future of Ontario's manufacturing sector. (35) The Bank of Canada has finally acknowledged that this is a serious challenge for Canada going forward. (36) And if oil stays at above one hundred dollars a barrel and there is tremendous pressure to pump out as much oil as possible to meet United States needs, then our exchange rate is going to remain very high. (37)

There is also the Keystone Pipeline issue, and whether or not the United States will permit a pipeline to take oil sands oil down to refineries in the Gulf of Mexico. (38) But in Canada there is another issue: why are we not doing the refining in Canada? Why are we not capturing that extra value in Canada instead of sending the raw material to the United States to be refined in the United States where all those high technology jobs would be?

Energy is important in terms of we need energy, but energy is also important in a variety of macro-economic and micro-economic dimensions that we also have to take into account.

We have many technological opportunities. In the short term, we can look at compressed natural gas and liquid natural gas for highway traffic and for city fleets. (39) That can take some pressure off oil demand. (40) There is a question of whether shale gas is environmentally feasible. (41) The French government is considering a ban on shale gas development in that country. (42) the Province of Quebec, the provincial government has put a stop, at least for the time being, to development of shale gas in that province because it is concerned about the environmental impact on drinking water supplies. (43)

We still have hydrogen fuel cells, (44) a longer-term opportunity, and electricity smart metering, (45) but to really realize the benefits, it seems to me we have to get broadband fiber to the home, an accomplishment which would yield many other benefits in health, education, and security, for example.

And we have challenges in electricity storage. (46) We are building considerable wind and solar power. Can we store that electricity when it is not needed? Gains in energy efficiency and carbon caches storage are an interesting technology, but we still have big hurdles to overcome in cost efficiency and concerns over public safety. (47) We have the emerging challenge, a controversy on biofuels development versus food supplies. (48) So these are all kinds of issues.

We have two very good speakers to speak to us today, starting with Carl Bauer, (49) who I think can bring us a lot of useful insight into the technology side and the choices we face there. And so I think if we start with you, Carl, and then we will come to your presentation, Ms. Fickling, after that.

REMARKS OF CARL BAUER

MR. BAUER: I appreciate the opportunity to be here and I look forward very much to this gathering. It is nice to have a smaller audience to have a little more intimate exchange.

The challenge given to me to come and speak was to try to stimulate conversation, so I may push the envelope of comfort, and I am not going to tell you the answers. I will tell you some questions. I am a great believer that asking the right questions is very important to getting the right answers. Good answers to the wrong question are not very useful, even though they are good answers. So with that, I would like to go forward.

One of the things I will speak about is the Clean Energy Dialogue. As you know, it was started in February 2009 (50) and we have basically aimed at climate change and greenhouse gas. So by that definition, clean energy is about greenhouse gas and C[O.sub.2]. (51)

There have been quite a few meetings and action plans have been developed. In the action plans, there are twenty-some odd things that are going on, (52) but you can put them together in basically four categories. (53) These strategic demonstration projects of carbon capture and carbon sequestration projects are meant to get an understanding, on a full scale or a large scale, on what it takes to do it and how hard it is to experiment. (54)

Those are going on. There were a lot of initial starts and false starts and there are some that are going on fairly readily now. (55) Expenses are even higher than people expected in the beginning (56) and many have fallen off from that. But they have also been useful, (57) and since many of you are lawyers, this is probably good news. If you remember the Clean Air Act, (58) it was a decade of opportunity for the legal profession to argue things in court and set up many institutions that now exist. (59) I think we will see the same thing here as we argue about poor space rights, marching rights, and eminent domain. Suppose one person does not want to let them have the poor space, how do you deal with that? Those things are happening.

The alignment of key and regulatory standards is another area, which I think will be important. I do agree with the observations...