Monday 14 December 1998
Environmental Protection Amendment Act, 1998, Bill 34, Mr Carroll / Loi de 1998 modifiant la Loi sur la protection de l'environnement, projet de loi 34, M. Carroll
Commercial Alcohols Inc
Mr Doug MacKenzie
Canadian Renewable Fuels Association
Mr Jim Johnson
Canadian Petroleum Products Institute
Mr Bob Clapp
Mr Richard O'Farrell
Mr Robert Sicard
Canadian Vehicle Manufacturers' Association
Mr Mark Nantais
Mr Blake Smith
Mr Keith Madill
Ontario Medical Association
Dr Ted Boadway
Mr Warren MacLean
Ontario Corn Producers' Association
Mr Doug Eadie
Mr Terry Boland
Ms Lesley Taylor
Independent Retail Gasoline Marketers Association of Canada
Mr Colin Robbins
STANDING COMMITTEE ON RESOURCES DEVELOPMENT
Chair / Présidente
Mrs Brenda Elliott (Guelph PC)
Vice-Chair / Vice-Président
Mr Peter L. Preston (Brant-Haldimand PC)
Mr David Christopherson (Hamilton Centre / -Centre ND)
Mr Ted Chudleigh (Halton North / -Nord PC)
Mr Sean G. Conway (Renfrew North / -Nord L)
Mrs Brenda Elliott (Guelph PC)
Mr Doug Galt (Northumberland PC)
Mr John Hastings (Etobicoke-Rexdale PC)
Mr Pat Hoy (Essex-Kent L)
Mr Bart Maves (Niagara Falls PC)
Mr Peter L. Preston (Brant-Haldimand PC)
Substitutions / Membres remplaçants
Mr Jack Carroll (Chatham-Kent PC)
Mr Harry Danford (Hastings-Peterborough PC)
Clerk / Greffier
Mr Viktor Kaczkowski
Staff / Personnel
Mr Lewis Yeager, research officer, Legislative Research Service
The committee met at 1543 in committee room 1.
The Chair (Mrs Brenda Elliott): Good afternoon, everyone. The standing committee on resources development is called to order for the purposes of hearing presentations on Bill 34, An Act to amend the Environmental Protection Act.
Our first order of business is the draft report of the subcommittee. Do I have someone who will move this?
Mr Peter L. Preston (Brant-Haldimand): So moved.
The Chair: Questions or comments on this subcommittee report? Seeing none, shall this report be accepted? All those in favour? Carried. That was easy.
ENVIRONMENTAL PROTECTION AMENDMENT ACT, 1998 / LOI DE 1998 MODIFIANT LA LOI SUR LA PROTECTION DE L'ENVIRONNEMENT
Consideration of Bill 34, An Act to amend the Environmental Protection Act / Projet de loi 34, Loi modifiant la Loi sur la protection de l'environnement.
The Chair: Now we come to the most interesting part of the day. This is a private member's bill and it has been proposed to the Legislature by Jack Carroll, so we're going to begin our hearings today with a presentation from Mr Carroll. Welcome, Mr Carroll. As I'm sure you know, you have five minutes for presentation time, and we look forward to your report.
Mr Jack Carroll (Chatham-Kent): My comments are going to be very brief because what I have to say won't be nearly as important or as interesting as what our presenters have to say.
The thing I feel good about is the fact that we have got to the point where we're going to have a public discussion about this issue. I think it's important that we have that public discussion. The environment and ways to protect it are important to all members of society so I think it's good that we've elevated this to a public discussion.
The bill, while it doesn't talk specifically about ethanol, talks about the environment, talks about oxygenating agents and of course it deals with renewable fuel sources, and it creates some positives. Obviously, from an environmental standpoint, it reduces the emissions of benzene and carbon monoxide. There has been a study done in the northeast states of the United States that talks about the positive effects on cancer risk as a result of the use of oxygenating agents, so there is a health issue here. It will be interesting to hear what the OMA has to say when they come forward.
As a renewable fuel source, it causes us to be less dependent on foreign crude oil, which some might argue is a good target. I think it is a good target and certainly members of our government do.
I do want to compliment the New Democratic Party. Howard Hampton certainly has been supportive of this. I know our ethanol plant in Chatham-Kent is there due in large part to the efforts put forward by the members of the New Democratic Party. Elmer Buchanan was the minister at the time, Randy Hope was our local member. I know their position on this alternate fuel has been very strong and I compliment them on that.
The thing I look at is that the technology exists. We see it between Commercial Alcohols and Sunoco and Suncor to merchandise a fuel that is up to a 10% blend of ethanol. That fuel has been given a green ecology label by the federal government. I'm not an expert in matters of ecology but, based on the information I have read, it would appear as though gasoline blended with ethanol is more friendly to the environment than gasoline that isn't blended with ethanol or some similar oxygenating agent.
If the technology exists, and if it is effective, then the question I ask myself is why s Sunoco is the only company, along with UPI, that I'm aware of down our way that in fact sells all their gasoline with the ethanol blend in it. It will be interesting to hear the other gasoline producers talk to us about that. I'm sure they will tell us, "We don't want you to mandate how we have to do things." I guess the question I would ask is, when will you do it if we don't mandate that you do something?
It's going to be an interesting day. I thank all of you who have taken the time to come forward. I thank the committee for allowing public hearings on a private member's bill. It is rather unusual, but we've gotten to this point. A lot of people had a hand in this getting to this point. Madam Chair, I thank you for that, I thank all the members of the committee and I thank all presenters who have taken the time to come forward. I know you're not all going to agree and that's great. If everybody agrees, we have to think that maybe this isn't that good. I'm interested in hearing the dialogue and hopefully we'll have a chance to have a good public discussion and move the agenda forward in whatever direction it should go.
COMMERCIAL ALCOHOLS INC
The Chair: On that note, we welcome our first presenters for the afternoon, representing Commercial Alcohols Inc. Please, would you come forward. Are you Mr MacKenzie?
Mr Doug MacKenzie: Yes.
The Chair: Welcome. If you'd like to introduce yourself formally for the Hansard record, you have 10 minutes for presentation time. If you wish, you may leave time in that 10 minutes for questions.
Mr MacKenzie: I'm Doug MacKenzie. I'm president and CEO of Commercial Alcohols. Prior to taking this position, I spent 23 years in the oil industry in various capacities including several senior executive positions. For those of you who don't know, and I think most of you do, Commercial Alcohols is Canada's largest producer of industrial and fuel alcohol. They are essentially one and the same.
With our newly commissioned plant in Jack's riding, along with our prior plant in Tiverton, Ontario, and our packaging businesses in Tiverton and a newly acquired business in Danbury, Connecticut, we are now the largest packager of industrial alcohol in the world. As Jack said, a lot of thanks goes to the former government and some of the members there for some support along the way, and to Jack himself and Premier Harris. So we are our on way to becoming, with a new plant in Quebec and expansion of Chatham, the third-largest distiller in the world. We expect that in about two to three years.
I'd like to make three comments in my submission, and I must say that it's impossible to talk about this in 10 minutes or less -- Jack knows I can't spell "ethanol" in less than 10 minutes -- so I'm going to skim through. I've put some more detail in the brief. I would also be glad to provide any evidence in due course. We obviously can't spend a lot of time debating some of the issues, but I'll give you an overview of some of my perspectives.
First of all, putting oxygen in gasoline, when properly blended, can have a material effect on environmental emissions. As a subset of that, it can also, when looked at in a global economic perspective, be very competitive with oil-based products, assuming crude oil is something more than $3 or $4 a barrel.
Second, ethanol is a very acceptable product to blend with gasoline in almost any level, including up to 100%. There are cars that burn 100% ethanol. By the way, the environmental benefits also improve when the blends get above 10%, into 20%, 30% and up to the full 75% or 80%. The blends in Brazil typically are 22% to 26%.
Third, the oil industry will not voluntarily accept such changes as suggested by this bill nor any other material changes, nor have they in the past unless a gun has been to their head, to make some fundamental changes to gasoline. I'll come back with a quote later dealing with some of those issues. Some examples include lead reduction -- and I was chairman of the CPPI when that process was going through federally -- MMT, sulphur in diesel and sulphur in gasoline.
I would like to add that I am referring here only to the industry as a collective group, both in the United States and Canada. There are, however, many companies such as Sunoco and one other in Quebec that are taking a very progressive and environmentally positive stance. For this, I think they deserve a great deal of credit.
First of all, dealing with the environment, ethanol, a renewable fuel that can be made from agricultural crops, is one of the best tools we have to fight air pollution. Ethanol reduces pollution through volumetric displacement of gasoline components to help greatly reduce exhaust emissions. In fact, the use of ethanol results in reductions in every pollutant regulated by the US Environmental Protection Agency, including ozone, air toxics, carbon monoxide, particulate matter -- PM 10 -- and oxides of nitrogen. The EPA considers ozone to be one of the most widespread air pollution problems.
Ethanol provides the following environmental benefits --in my text I've given you a paragraph or a page or two on each one; I won't go through them all, but I'll just highlight them: reductions in carbon monoxide emissions up to 30%; reduction in greenhouse gas emissions; reduced exhaust VOC emissions and ozone formation from exhaust tailpipes; reduced NOx emissions up to 2% -- there has been a debate on that issue, but more recent studies conclude that in fact there is up to a 3% reduction; reduced air toxics emissions up to 30%; reduced particulate matter, PM 10, emissions.
Nobody's talked an awful lot about this, but particulate matter with diameters of less than 10 micrometres is emitted from a variety of stationary and mobile sources. PM 10 is regulated by the UPA because these small airborne particles can reach the lower levels of the respiratory tract and cause serious health problems, including damage to lung tissue, cancer and premature death. The use of ethanol significantly reduces the tailpipe emissions of PM 10.
Ethanol, in terms of the clean air solution: Because of the environmental benefits, the US Clean Air Act requires the addition of oxygenates such as ethanol to gasoline in areas that exceed public health standards for ozone and carbon monoxide, known in the US as non-attainment areas. Today, approximately 35% of the nation's gasoline contains some level of oxygenate in order to reduce harmful emissions and improve the US's air quality.
Finally, to support some of that, the Argonne National Laboratory, in its recent study, Fuel Cycle Fossil Energy Use and Greenhouse Gas Emissions of Fuel Ethanol, found that corn-based ethanol results in a 35% to 46% reduction in greenhouse gas emissions and a 50% to 60% reduction in fossil energy use.
Second, ethanol is a very acceptable product. Ethanol refineries are excellent economic vehicles. If you look through the whole system, you'll see that they create more jobs per gallon than oil refineries. Sometimes oil companies argue that ethanol is bad for the environment. It's hard to make that argument because, to me, it flies in the face of common sense. How can replacing the most toxic parts of gasoline with a drinkable liquid degrade the environment? Ethanol blends can reduce the overall toxicity of gasoline. Ethanol reduces climate-altering greenhouse gases and, unlike oil spills, ethanol spills are not an environmental hazard.
Given that ethanol is a liquor -- and some of you would know it more commonly as vodka, which simply has 60% water added -- the base chemical in drinkable alcohols, I sympathize with those who think it's too good for our cars. But I'm taken aback by some who claim that cars are too good for ethanol. Your car is more likely to be harmed by the remarkable variations in ordinary gasoline than by ethanol. Since 1990, GM has recommended ethanol-blended fuels for its cars. US motorists have driven more than a trillion miles on ethanol blends with no problems.
Third, oil companies will not voluntarily change. I don't think I have to remind you of the various changes that have had to be brought forward to force the oil companies to change, whether it was final legislation or simply a gun to the head. First, it was the elimination of lead. It's a tremendous precedent to take a look at and study.
Allow me to paraphrase some excerpts from a speech by David Morris of the Institute for Local Self-Reliance: In 1923, ethyl, as leaded gasoline was popularly called, went on sale, but an explosion at a Standard Oil refinery in New Jersey killed several workers and severely injured many others and the nation became aware of the dangers of high lead levels. Were there problems caused by low lead concentrations? To answer that question, the Surgeon General convened a task force. A year later it gave leaded gasoline a clean bill of health.
Fifty years later historians found that Ethyl Corp had used its partners' considerable clout to manipulate public opinion and interfere in the fact-finding process. Ethyl argued that since leaded gasoline had been used for two years and no problems had appeared, it was clearly safe.
By 1940, the majority of all gasoline had lead in it. Thirty-five years later the EPA reduced the allowable level of lead in gasoline because it interfered with the efficient workings of catalytic converters. In the 1980s, the overwhelming evidence of lead-associated damage in children's nervous systems led to the phasing out of lead in gasoline. Of course, that was fought every step of the way.
When lead was banned in the US, lead continued to be sold overseas. Lead levels along the roads in Nigeria are reaching, and have been reaching, the order of 7,000 parts per million, about 15 times greater than the level required to be designated a Superfund site in the US. In Mexico City, half the children tested have dangerous levels of lead. In fact, the continuing reluctance of the oil companies to voluntarily eliminate lead in least-developed countries speaks tonnes for their motivation.
In 1954, a substitute was invented for lead. Based on another heavy metal, manganese, the additive is called MMT. But MMT was never as cost-effective as lead and thus enjoyed only a small commercial success. When the EPA began to phase out lead, sales of MMT started to expand. The EPA tried to ban it, but eventually the federal court ruled that the EPA had no authority to deny the use of gasoline additives for health reasons. The Canadian government, unlike the EPA, has allowed the use of MMT since 1977.
Scientists know that manganese does cause brain damage when inhaled in high doses. We don't know what its effects are at low dosages. Ethyl and the oil industry assure us that everything is fine because MMT has been used in Canada and no one has been injured yet. Given the terrible results from previous policy mistakes regarding lead, the EPA prefers to err on the precautionary side, but US courts have denied it that right. Canada too, although for different reasons, has tried to adopt a conservative approach. There is a similar pattern to the reduction of benzene, reduction of sulphur in diesel, reduction of sulphur in gasolines etc.
In summary, it's a very difficult topic to cover, summarize and debate in detail in 10 minutes or less, but very simply, putting oxygenates in gasoline, when properly blended, can have a material reduction on environmental emissions. Ethanol is a very acceptable product to blend with gasoline and it will be difficult to make those changes unless there is some regulatory direction with respect to changing the gasoline quality in Canada.
There is some good news in some headlines recently around North America: Life magazine recently rated air-friendly ethanol among the 100 best things about America now; government vehicles in Mexico City are mandated to use 10% ethanol blends currently, and Mexico City is one of the worst pollution areas in the world; California is one step away from allowing ethanol; "US Senate Votes to Extend Ethanol Tax Incentive"; "Minnesota's Successful Oxyfuel Program Prompting Other States"; "E85 Use Will Rise Substantially By Year 2004". E85 is an ethyl 85 blend. A lot of car manufacturers are making vehicles to allow its use today.
In conclusion, in support of this bill and debate around it, I would like to remind you what Bertrand Russell once said about the distinction between change and progress:
"Change is inevitable, while progress is problematic. Change is scientific, while progress is ethical. Change will come about whether we will it or not. But progress will be achieved only if we make rules that channel scientific genius and entrepreneurial energy and investment capital in directions compatible with our values." I suggest that environmental cleanup is one of our values for society. Thank you.
The Chair: Thank you very much, Mr MacKenzie. A profound beginning to our presentations this afternoon. Regrettably, there is not time for questions, and that may be a frustration we have from time to time this afternoon, but I can assure you that we thank you very much for coming before us with this presentation. I know that if my colleagues around the table feel the need to ask you questions, they will call you personally.
Mr MacKenzie: I'd be delighted.
CANADIAN RENEWABLE FUELS ASSOCIATION
The Chair: I now call representatives from the Canadian Renewable Fuel Association, please.
Mr Jim Johnson: Thank you, Madam Chair. On behalf of the Canadian Renewable Fuels Association, I would like to thank you and your colleagues on the resources development committee for the opportunity to discuss the important issues surrounding Bill 34.
Mr Preston: Please identify yourself.
Mr Johnson: I'm sorry. I'm Jim Johnson and I'm with the Canadian Renewable Fuels Association.
Our members include agricultural and forestry organizations, engineering and energy firms and environmentalists. The association's efforts have been largely devoted to the promotion of ethanol, made from biological materials, for use in the transportation sector.
The CRFA supports the desire of the member for Chatham-Kent to put forth Bill 34 to improve air quality. We are very concerned about clean air, we're also concerned about global warming, the rural economy, and Canadian energy self-sufficiency. We believe that ethanol offers an excellent opportunity to address these concerns.
Traditionally, blended ethanol has been what we call a low-level blend, in the 5% to 7% range, the rest being gasoline. This blend does not require any vehicle modification, which is very important because we feel we can get the product into the gasoline stream very efficiently in this manner. Right now in Canada there are approximately 1,000 stations selling ethanol-enhanced gasoline. Ontario is the leader in this. It has over 527 stations as of November 1998, and those are just the stations we have on record. There may be others that haven't notified our organization.
The benefits of ethanol are many and varied and compelling. Air quality is certainly one of the issues that very much concerns the Canadian Renewable Fuels Association. One of these is in the area of smog formation or ozone formation. Environment Canada believes that smog is responsible for thousands of premature deaths in Canada. Although it's hard to put a price on human life and human health, it has been estimated that it costs up to $10 billion a year for health costs, lost productivity and other constituents because of the damage done by smog. We believe that ethanol can play an important role, particularly properly blended ethanol, in reducing the levels of smog. The compounds that we can reduce are carbon monoxide, VOCs, which are volatile organic compounds, aromatics such as benzene, and nitrous oxides.
As an oxygenate in the 10% ethanol blend we can reduce carbon monoxide emissions from 25% to 30%. We also reduce volatile organic compounds by up to 7%, particularly unburned hydrocarbons. Ethanol is a substitute for benzene and other aromatics which have been linked to cancer-causing phenomena, particularly benzene. Benzene has recently been reduced from a high of around 5% to below 1.0% in Canada. Ethanol really has two benefits in that scenario in that benzene is produced to increase the octane level of gasoline, and ethanol has an excellent octane-enhancing capacity in its own right. Therefore, if you remove the benzene and other aromatics, you can replace them with ethanol and get the same octane benefit. Also, because ethanol itself doesn't contain any aromatics, the addition of the ethanol further dilutes the amount of aromatics that are left in the gasoline. It also reduces the amount of sulphur in gasoline, because ethanol is a pure chemical and doesn't contain any sulphur. Therefore, the more ethanol is put in the gasoline, just by simple dilution factor there is less sulphur.
It has been argued that agricultural activity may increase noxins, particularly NO2, somewhat. There's a lot of ongoing research into this. We believe, in the system of agriculture, that if we increase the demand for corn, we're probably going to replace the production of another crop with corn to meet that demand, and a lot of those other crops also produce nitrous oxide. So we could really see scenarios where you have a reduction in nitrous oxide and not an increase.
All oxygenates such as ethanol produce aldehydes, mostly acetaldehyde and some formaldehyde. The Royal Society of Canada has determined that aldehydes, particularly from ethanol production, are effectively removed by the catalytic converter in the oxidation part of it. So the net effect of using ethanol fuels is that you're going to get an improvement in air quality, a reduction in smog formation and a reduction in toxicity as well.
In climate change, Canada committed itself at the Earth Summit to the so-called Kyoto agreement, where we're going to reduce our CO2 level to I believe 6% below the 1990 levels. Just as an aside, I saw some predictions that the business-as-usual scenario by the year 2012, I believe, will be 27% above the 1990 levels, let alone anything to reduce that. So we've got a significant amount of work to do if we're going to have much of an impact on that.
Carbon dioxide is one of the key components, and one of the largest contributors of carbon dioxide is the burning of fossil fuels. Because ethanol is a renewable fuel and the CO2 that's burned in the combustion of ethanol is reabsorbed by the plant the next year, even though we use some fossil fuels in the production of the corn and the production of the ethanol, we still have a significantly positive benefit from using ethanol. We believe that with a 10% ethanol blend you can reduce carbon dioxide by between 6% and 10%. With a 10% blend there's about a 2.5% to 3% reduction in net greenhouse gases and a further contribution to reducing global warming by reducing fossil fuel use by 3.3% to 3.9%.
I'd just like to mention that these are the most recent analyses we have, but the most important thing is that the trends have been positive in that area, both in the production of corn, where we've managed to reduce our energy use to grow a bushel of corn, and in the modern ethanol plants, which have significantly reduced the energy required to turn that corn into ethanol.
From the rural economy point of view, it's an important market for grain corn, and that can include a market for damaged and off-grade corn which appears in the market from time to time. Nobody grows that quality of corn on purpose, but it's certainly in the marketplace from time to time and that's a very good outlet for it, into the fuel ethanol industry. There are obviously opportunities for other crops such as wheat, the starch crops, and also cellulosic materials. There's a lot of talk now and a lot of interest and study and using what we call lignicellulose products with different enzymes to break them down to produce fuel ethanol from. This also expands our base products to make significant amounts of ethanol.
From a Canadian energy self-sufficiency point of view, even though we produce a lot of fossil fuels from heavy oil, most of that oil goes south and we're still importing significant amounts of offshore oil. We believe that an indigenous supply of fuel ethanol can reduce our dependence on foreign oil imports.
Finally, I would like to point out that ethanol is an important contributor to the environment, energy self-sufficiency and rural economic growth. It's an easy way for Canada and Canadians to contribute to a lot of the environmental issues we're faced with today. The emphasis of Bill 34 on clean air is very important to the Canadian Renewable Fuels Association. Ethanol is an excellent way to meet requirements for a more rigorous clean air policy. The support of the Ontario government has been greatly appreciated and is crucial to the expansion of the industry in Ontario and Canada.
I would like to take this opportunity to again thank the members, some of whom aren't here and aren't even in politics any more, who helped us to get to this point. We're certainly interested in furthering debate on fuel ethanol and its benefits. Thank you very much.
The Chair: Thank you very much, Mr Johnson. Regrettably, there's no time for questions, but thank you very much for bringing your organization's point of view forward to us today.
Mr Johnson: I wonder if I could correct one oversight. I would like to introduce Ellen Klupfel. She is our public information coordinator. She has just been newly hired by Renewable Fuels and her job is to expand information about fuel ethanol for the general public. She is available for any further information.
The Chair: Thanks again.
CANADIAN PETROLEUM PRODUCTS INSTITUTE
The Chair: I now call representatives from the Canadian Petroleum Products Institute.. Welcome to the committee.
Mr Bob Clapp: My name is Bob Clapp. I'm the vice-president of the Ontario division of the Canadian Petroleum Products Institute and have spent over 30 years in various aspects of the oil industry. Canadian Petroleum Products Institute represents companies engaged in the refining, distribution and marketing of refined petroleum products across Canada. In Ontario our membership includes Imperial Oil, Petro-Canada, Sunoco, Shell, Canadian Tire, Nova, Safety Kleen and Ultramar. We operate six refineries, over 150 bulk plants and somewhere in excess of 2,600 service stations. We employ over 120,000 people across the province and collect in excess of $4 billion in taxes for provincial and federal governments.
I would add at this point that the CPPI have been engaged over the years in industry and voluntary initiatives. We were the first country to move out of lead. We led the charge. We reduced sulphur in distillate voluntarily, preceding a legislative response to that. Our industry has the cleanest water effluence in North America. We led the charge in the development of the MISA standards for the province. We have I think an exemplary record of voluntary approaches, leading, in many cases, because of the nature of the industry, to a regulatory backdrop.
First I'd like to talk generally about some principles and where we're coming from as an industry. When we sit back and look at the role of the government, we see that it is to set air quality standards. The role of the industry is to meet those standards through formulating their products or running their operations in the most efficient manner to meet those needs and to meet the needs of consumers.
I believe that this government has emphasized that through the recent regulatory reform initiative, the red tape review process and through the streamlining that has gone on in the last couple of years, and one that we strongly have supported. Basically it is identifying what the broad objectives are that industry needs to meet and getting out of the prescriptive remedies that are there. This bill has a bit of the prescriptive remedy aspect of it in mandating how we make our products.
With respect to the specific bill, CPPI member companies have used oxygenates and they're continuing to use various oxygenates in their products. The choice is a strategic, economic and environmental one. Each of them, as you will hear today, has their own reasons why they are or are not using the product. In Ontario, we have used ethanol and other oxygenates in our products. What the members oppose, however, is the concept of mandating oxygenates as a prescribed means of formulating gasoline and basically telling us how to make our products. We think we know best how to make the products and will meet the environmental standards that the government requires of us in terms of air quality.
Let me now talk about some very specific issues. I'm going to reference, as Jack has, the state of Minnesota. Jack spent a lot of time with them. I will use some of their references as well. Overall, environmentally when you look at ethanol and ethanol blends, both the US EPA and Environment Canada say that it's a wash between ethanol-blended gasolines and gasolines as we see them being reformulated in time. Whether you're talking CO, benzene, smog or global warming, when you look at the picture totally on a life cycle basis, they're a wash.
Let me address a couple of the specifics that have been talked to today.
Lower emissions of carbon monoxide: Today, ambient levels in Ontario are well below provincial objectives. In fact, they've decreased by 36% between 1986 and 1995. The Minnesota auditor, when they looked at the Minnesota ethanol program, noted: "Most of the reduction in atmospheric CO in recent years is due to improved vehicle emission equipment. It is not clear that use of oxygenated gasoline can be linked to a significant reduction in CO. Scientists say that little or no reduction in ambient CO levels can be expected from the use of oxygenated fuels in newer vehicles with properly operating vehicle emissions systems."
The previous speaker talked to the benzene changes. Federal benzene regulations, which kick in in July of next year, will reduce benzene in Canadian gasoline to the lowest levels in the world. There'll be less than 1%, which represents on average an over 50% reduction in benzene levels. This certainly meets all objectives laid out by Environment Canada and your Ministry of the Environment. The remaining dilution of any benzene in tailpipe emissions from ethanol is an insignificant and very small part of that. The major part of benzene has been done.
We talk about smog. There are many elements of smog. I'll go back to the Minnesota auditor, who said, "The net environmental benefits of ethanol are minimal or non-existent in the summer," relating to the smog season. It's also been stated that ethanol needs to be properly blended into gasoline if it's to be truly effective. That's very important. You cannot just take ethanol and splash-blend it on top of regular gasoline. You lose any environmental benefit with respect to smog that there may be by doing that. In fact it makes it much worse, with much higher level emissions of volatile organic compounds.
The impact on jobs that Jack has mentioned: I'd only say with respect to the job aspect that claims of job creation really need to be treated with extreme caution as you go forward. The Minnesota people looked at a very comprehensive evaluation of the jobs. When they looked at the entire state, their job impacts ranged from a loss of 492 jobs to a gain of 583 jobs across the state. So that needs to be looked at very carefully. You also need to look at where ethanol may or may not come in the future. It may come from new plants in Canada if it were mandated; it may not. There's certainly plenty of capacity from large plants in the US.
I've heard several mentions of dependence on foreign oil. A couple of statements: Canada is not dependent on foreign oil today. We are a net exporter of oil and will be for as many years as we can see into the future. We have plenty of oil. The shipments to the US are a matter of geography in how that happens. A lot of the oil from western Canada goes into the midwestern US states because of proximity and oil is imported into eastern Canada. But on a net, if you take our exports minus our imports, we're still net exporters of oil and will be for the foreseeable future.
Economics have not been talked about. I'd just like to point out a couple of things. Today ethanol is exempt from the federal excise tax of 10 cents per litre and the Ontario tax of 14.7 cents per litre. If you extend the mandate and put 2.7 weight percent oxygen equivalent, the ethanol requirement is about a billion litres per year. The cost to the Ontario taxpayer then is about $250 million per year in order to go with this mandate; $150 million is Ontario and the other $100 million will be the federal government.
Minnesota, referred to again, has a 74-cent-per-gallon subsidy. That's equivalent to about 30 cents Canadian per litre. Statements coming out of the US federal General Accounting Office report: "The ethanol tax incentives allow ethanol to be priced to compete with substitute fuels. Without the incentives, ethanol fuel production would largely discontinue." Minnesota also reports, "The loss of the 54-cent federal subsidy would be catastrophic to the ethanol industry, and Minnesota ethanol production would decline to near zero."
Two final comments: When I'm talking about the corn market, I just have a couple of questions. If it is mandated, you'd need to stand back and look at the adverse affect this could have on other industry sectors that rely on corn as feedstock. There are many and I don't pretend to understand that, but you need to look at it holistically. You also have to ask the question, in terms of subsidy, what portion of that subsidy actually goes to the corn producer and how much of it actually stays in Canada if we start importing from the US to meet such a mandate? Thank you very much.
The Chair: Again, I'm afraid we have no time for questions. Thank you very much for the thoughtful presentation you've brought this afternoon.
The Chair: I call representatives from Imperial Oil. Good afternoon. Welcome. Please begin by introducing yourself for the Hansard record.
Mr Richard O'Farrell: My name is Richard O'Farrell. I am the manager of external relations at Imperial Oil's public affairs department. I thank you for allowing me, on behalf of Imperial Oil, to speak to Bill 34. My purpose this afternoon is to share with you some information which Imperial Oil believes deserves full consideration by the committee as it moves forward in deliberating this private member's bill.
I would like to clearly state at the outset that Imperial Oil is not opposed to the use of oxygenated fuels in gasoline. In fact, Imperial Oil currently uses one of the oxygenates, MTBE, in the production of some of its gasoline. What Imperial Oil is opposed to is the mandating of the use of oxygenates as a prescribed means of formulating gasoline. It is our belief that industry should meet the established government environmental standards in the formulations of its product through the most efficient and cost-effective methods.
I'm going to progress fairly rapidly. You'll find many of these points very similar to what was articulated in the association brief, as our views are very similar.
In addition to the belief that we should formulate in the most efficient manner possible, we also do not believe that consumers should have to pay through higher taxes which are required to offset the revenue loss from the subsidies to make the oxygenate ethanol viable.
In the area of environmental considerations, in our review of current literature and our own studies, it is our view that the benefits from oxygenate ethanol are neutral at best. The possible benefits that have been described on many occasions here this afternoon are also outweighed by some of the negatives that were not mentioned, including looking at the production of ethanol through its full life cycle basis.
One possible benefit of ethanol-blended gasoline is the potential to reduce carbon monoxide emissions. However, that same benefit can be and is being derived through newer vehicles with properly operating vehicle emission systems. CO emissions are not a significant ambient air quality problem in Canada today. Emissions have dropped in the last two decades, primarily due to the improvement of vehicle emission controls.
As you know and heard earlier, in the state of Minnesota, which has the highest percentage of ethanol-blended gas in the United States, the state-legislated auto committee asked the state legislative audit office to look at the cost and benefit of the program designed to promote the production and use of ethanol in automotive fuels. The auditor's report was not nearly as positive about ethanol programs as the program supporters would have hoped. The report reiterated the fact that the majority of the reductions in carbon monoxide in recent years have more to do with the technology of cars than anything else. Specifically, the auditor's report stated that scientists say that no or little reduction in ambient carbon monoxide levels can be expected from the use of oxygenated fuels in newer vehicles with properly operating vehicle emission systems.
In addition, there's mention of the need for benzene reduction. I point out, as the CPPI did, that upcoming federal regulations governing benzene, which will come into effect on July 1, 1999, will be the most stringent comprehensive national benzene regulations anywhere in the world. Under these new regulations, Canadian gasoline will be limited to less than 1% or a 50% reduction in the Canadian average benzene content, thus satisfying all government objectives concerning tailpipe emissions of benzene. Any further effects of diluting gasoline with ethanol will be insignificant with regard to benzene levels and certainly not large enough to justify the use of ethanol in all Ontario gasoline.
Some proponents of ethanol claim that it is effective in combating summertime ozone formation which leads to smog. The emerging scientific consensus notes that ethanol is not particularly effective for ozone control. This was also noted in the Minnesota auditor's report that concluded their analysis of the summertime use of ethanol by saying that the net environmental benefits of ethanol are minimal or non-existent in the summer.
With respect to job creation, again similar to what was stated in the CPPI report, we suggest one proceed with caution. The auditor's report estimates of the economic impact focused on the benefit of ethanol production while ignoring the cost of the state programs. The report estimated that in 1997 there would be a loss of anywhere from 492 jobs to a gain of 853 jobs. They really were unable to get more precise data, and the range is much less than what was suggested as the potential impacts or benefits from building ethanol plants in Ontario.
Construction and operating of any sort of plants such as ethanol is an advantage to the community in which it is located, but this localized effect is offset by the overall reduction in household spending, due to the costs of mandatory ethanol programs that are borne by all citizens.
If new plants are built, there is no guarantee they would be constructed in Canada and not in the United States. In addition, the creation of new ethanol plants could mean the closing of existing refining facilities.
In the area of import of foreign oil, displacement of foreign oil, again similar to the CPPI, Canada is a net exporter of oil, and ethanol would not impact in this area.
In the area of cost, throughout the fuel ethanol community it is broadly recognized and accepted that ethanol from corn is too costly to produce to be competitive with conventional fuels. Therefore, various governments employ heavy public subsidies such as tax relief, loan guarantees and outright capital grants in order to permit fuel ethanol to compete. Our federal government exempts fuel ethanol from the 10-cents-per-litre excise tax on gasoline. In Ontario, the provincial government further exempts fuel ethanol from the 14.7-cents-per-litre provincial road tax on gasoline. The net result for Ontario gasohol blenders is a total of 24.7 cents per litre for each litre of ethanol blended into gasoline.
Without going into detailed calculations, mandating the use of ethanol would cost the provincial government approximately $150 million per year in lost road tax alone. The federal government would see a drop in existing tax revenue of $100 million per year. Obviously, these tax shortfalls would have to be made up by increasing the tax burden on Ontario and other Canadian citizens by other means.
In summary, I would ask the members of the standing committee on resources development not to endorse the bill, based on the three broad areas I've presented today: The bill is environmentally neutral when one looks at the production of ethanol on a full life-cycle basis, consumers will eventually end up paying for the lost tax revenue, and the proposed legislation will not necessarily produce more jobs when all implications of the bill are considered and the benefits are weighed against the impacts on other industries.
The Chair: Colleagues, I'm going to ask your indulgence that I be as fair a Chair as possible. It will be difficult given that we have a brief time period, but I think we have time for questions. Just one, and we'll do it from the government caucus, and we'll do a single question next from the Liberal caucus when there's time.
Mr Carroll: A quick question, sir. Sunoco has the federal environmental endorsement and Imperial Oil doesn't. Are you telling me that a gallon of your fuel burns every bit as cleanly as Sunoco's and that the federal environmental issue is just nothing?
Mr O'Farrell: I believe a gallon of our gasoline burns as cleanly as Sunoco's. I'm not sure of your reference to the federal government.
Mr Carroll: The environmental -- Sunoco has the green label.
Mr O'Farrell: I'm not sure what the criteria are for the green label, but I don't think it necessarily means one burns cleaner than the other. It just means it meets certain standards that they've established. To be honest, I'm not familiar with the standards in detail, but they don't necessarily imply one is better than the other.
Mr Carroll: One other quick thing: You're going down to 1% benzene because it was mandated by the government. Had it not been mandated by the government, how soon would you guys have gotten down to 1% benzene?
Mr O'Farrell: That's rather speculative to say. I don't know. I think the point is that we worked with the government in reaching a regulation that meets the needs they have for environmental matters, and it was done in a way that we can live with and manage within our processes and do it in a cost-effective manner.
The Chair: On behalf of all the colleagues, I thank you for taking the time to come before us on this matter today.
The Chair: I now call representatives from UPI please. Good afternoon and welcome. Please begin by introducing yourself for the Hansard record.
Mr Robert Sicard: Good afternoon, honourable members and ladies and gentlemen. My name is Bob Sicard. I am an oil industry veteran, believe it or not, spanning three decades.
My work experience includes senior positions with organizations such BP Oil Ltd, Petro-Canada, MacEwen Petroleum Inc. and now UPI. My current position, which I've held since December of 1992, is that of president and CEO for UPI Inc.
UPI is a regional petroleum marketer and wholesaler with annual sales exceeding $200 million. Our primary market is rural Ontario where we supply the Ontario co-operative system -- farmers, homeowners and motorists -- with a line of quality motor fuels and heating fuels.
My purpose in speaking to you today is really twofold: First and most important, as a citizen of this province and as a parent of two teenaged children, I am anxious to promote initiatives that will help preserve the environment for future generations, and second, as a marketer of petroleum products with a mandate to supply the province's agricultural co-operative system, our company, UPI, supports initiatives that will benefit our customers and their communities.
Bill 34 would regulate the quality of gasoline in Ontario by requiring all gasoline sold to contain 2.7% oxygen by weight. The primary benefit of adding oxygen is that it will result in a fuel that burns cleaner than gasoline produced under current standards set by the Canadian General Standards Board.
Cleaner-burning fuels result in a reduction of carbon monoxide emissions. Carbon monoxide is a toxic gas that contributes to air pollution and is of particular concern during the winter months. Oxygenated gasolines promote a more complete combustion process, which in turn lowers CO emissions.
A number of different additives could be used to achieve the oxygenation level proposed by Bill 34. These would include ethanol, methanol, MTBE, ETBE, TAME, TAEE and some others. UPI supports the use of ethanol as an oxygenate. Ethanol, and more specifically, ethanol made from corn or grains grown in Ontario, presents many additional benefits when compared to other synthetic oxygenates mentioned.
Fuel ethanol produced from corn or grain is biologically renewable. Quite simply, this means that because the feedstock is grown in the field it, unlike petroleum, can be replenished. With the introduction of new farming practices such as precision farming over the past decade, average yields have been increasing. Demand for fuel ethanol provides a new market opportunity for Ontario corn and grains.
Fuel ethanol production results in a number of by-products which also provide additional market opportunities. Some examples of these by-products include flour, corn oil, corn meal, and corn grits. These are used in producing food for human consumption.
Fibrotein: This product is used as a high-fibre and protein food additive. Corn gluten meal and corn gluten feed are used as high-protein animal feed additives. Amino acids are also used as animal feed additives. Dry distiller's grains or DDGs, perhaps the most widely used by-product, are animal feeds that are high in protein and energy. Carbon dioxide, otherwise known as CO2, can be used as a refrigerant to carbonate beverages and as a rapid-growth agent for vegetable crops and greenhouses.
Along with the benefits to agriculture are the equally important spinoff economic benefits generated by increasing ethanol production. The new Commercial Alcohols production facility in Chatham is a prime example. The plant is able to produce 150 million litres of fuel ethanol annually. It also produces 127 tonnes of DDGs and 100,000 tonnes of compressed CO2. Over 400 full-time direct and indirect jobs have been created, not to mention the 400 person-years that went into building the facility.
The annual economic impact for the region has been overwhelmingly positive: $53 million in corn purchases, which is 15 million bushels; $27 million in DDG and CO2 by-product sales; $14 million in supplies and services; and a $2.5-million payroll. This represents a total annual economic impact of $96.5 million.
Taking this example one step further, there are approximately 13 billion litres of gasoline sold in Ontario each year. If every litre sold contained 7.8% ethanol, more than one billion litres of ethanol would be required to satisfy that demand. One billion litres of ethanol production would require 100 million bushels of corn or be the equivalent to a production output of more than 6.5 times that of the Commercial Alcohols facility in Chatham.
UPI, the company I represent, has been a long-time proponent of the use of ethanol as an oxygen. In fact, UPI was the first oil company to successfully market ethanol-blended gasolines in Ontario, in large measure due to the support it received from organizations like the Canadian Renewable Fuels Association, Ontario corn producers and other special interest groups.
The development of an ethanol industry in Ontario also receives support from both the provincial and federal levels of government, who granted temporary tax relief in order to provide a window for production facilities like the one in Chatham to be constructed.
Since launching ethanol-blended gasolines on a province-wide basis in 1992, UPI has sold nearly 700 million litres of ethanol-blended gasolines to motorists and farms from Windsor to the Quebec border and throughout much of northern Ontario.
So strong has UPI's penetration been that for several years our company's sales in ethanol-blended gasolines far exceeded that of all other Canadian retailers combined. Simply put, increasing both the production and the use of ethanol benefits rural citizens of this province. It specifically benefits Ontario farmers by presenting a new market opportunity for their products and it also benefits local economies by creating jobs and other spinoff benefits. Thank you for your time.
The Chair: We have time for a question from the Liberal caucus.
Mr Pat Hoy (Essex-Kent): Thank you very much for your presentation this afternoon. As one who has grown corn and used ethanol-blended gasoline as a matter of choice, I'm pleased to hear everyone today.
You mentioned that the compliance with this bill might incur a plant six and half times that of the one in Chatham? Is that what you've stated?
Mr Sicard: To produce the ethanol required to blend one billion litres, you would require six and a half times the output.
Mr Hoy: Do you think that could be done by January 1, 2005?
Mr Sicard: I can't answer that. If you're asking me personally, no.
Mr Hoy: If it was mandatory and we didn't have the plants with the capacity to provide the product, we would have quite a difficulty, wouldn't we?
Mr Sicard: Again, I really can't answer that question, sir.
Mr Hoy: The government today introduced balanced-budget legislation. I don't know what it would say with regard to taxes that are currently exempted. I haven't looked at that. It was just tabled a few hours ago. It will be interesting to see what the bill would say on exempted taxes with regard to the fact that future governments wouldn't be able to raise taxes without some kind of criteria, that we also will have a look at as well.
I know a number of presentations have talked about the exempted portion of the cost of this particular fuel. There may be an impact from that bill as well with regard to exempted taxation. But you're reasonably confident that by January 1, 2005, the petroleum industry could comply?
Mr Sicard: I didn't say that. I'm fortunate, I'm not in the refining business. I'm a marketer. I buy the product refined and I sell it to our customers. I'm not impacted by the price of crude as a refiner. I'm impacted, obviously, on the street price. We're a regional marketer; we are not refiners. We are not involved in the upstream part of the business either.
The Chair: On that note, thank you very much. We appreciate your taking the time to come before us this afternoon. I am sure if colleagues have further questions, they will contact you.
CANADIAN VEHICLE MANUFACTURERS' ASSOCIATION
The Chair: I now call representatives from the Canadian Vehicle Manufacturers' Association, please. Good afternoon and welcome. Please begin by introducing yourself for the Hansard record.
Mr Mark Nantais: Good afternoon. My name is Mark Nantais, and I am the president of the Canadian Vehicle Manufacturers' Association.
Mr Blake Smith: Blake Smith, director of environment, energy and vehicle safety for Ford.
Mr Keith Madill: Keith Madill. I'm manager of policy development with the Canadian Vehicle Manufacturers' Association.
Mr Nantais: Let me begin by saying that we're pleased to be here to address Bill 34. If you're not aware, the CVMA represents Chrysler, Ford, General Motors and Volvo Canada, as well as Freightliner and Navistar International Corp. We're going to tell you what the impacts would be on vehicle operation from our point of view.
We have reviewed the proposed bill and found its requirement for a minimum 2.7% oxygen content by weight somewhat problematic. A 2.7% oxygen-by-weight specification is the upper limit -- I emphasize upper limit -- for the use of ethers and aliphatic alcohols in gasoline for use in existing and planned vehicles. At the present time, conventional gasoline vehicles can operate on a maximum of 3.7% oxygen by weight of ethanol; that essentially equates to about a 10% by volume level. But other fuel characteristics, such as volatility range, including vapour pressure, detergency and corrosion properties, just to name a few, must also be addressed and, in our view, mandated to make it compatible. Conventional gasoline vehicles in Ontario and in North America can function with oxygen levels less than the following limits for specific oxygenates: ethanol at 3.7%; tertiary butyl alcohol at 3.5%; methyl tertiary butyl ether at 2.7%; other aliphatic alcohol and ethers, excluding methanol, at 2.7%.
In all of the above cases, there are a number of additional fuel characteristics similar to those outlined for ethanol which have to be addressed and mandated to make the fuels compatible for use in conventional fuels. The use of fuels with any greater amount of oxygen by weight requires vehicles which are specifically designed for that purpose. Already there are a limited number of dedicated vehicles presently in use in Ontario which are designed to operate with ethanol at that 3.7% limit. Those are what we call E85 vehicles. Vehicles operated on amounts of oxygenate in the fuel in excess of limits mentioned will cause Ontario drivers to have significant problems relating to the operation of their vehicles. These problems could include difficulties in starting vehicles, stalling and the associated driver and passenger safety issues, increases in vehicle emissions and long-term durability issues, along with potential fuel system leakages and some increased fuel consumption.
The issue of identifying and proposing fuel characteristic requirements is very complicated. Vehicle manufacturers would be pleased to assist the Ontario government in identifying the requirements to address this issue on a broader national approach. To address this complicated issue, vehicle manufacturers from around the world are finalizing the worldwide fuel charter. The purpose of this charter is to set out the key fuel requirements which are required to maximize the environmental and other performance requirements of vehicles.
Members of the Canadian Vehicle Manufacturers' Association applaud the Ontario government for their understanding that changes to fuel quality are necessary to maximize the emissions performance of vehicles. However, our members cannot support the passage of the bill in its current form. The CVMA would once again caution the government that passage of this bill has the potential to have negative impacts on vehicle operation in the province and the environment, which is equally important for the satisfaction of all motorists who will incur problems in the operation and perhaps the maintenance of their vehicles.
Instead of mandating the minimum oxygen content of fuels, we encourage the government of Ontario to actively work with the federal government to develop a national standard which deals with fuel quality requirements in a more holistic fashion. If developed, this should harmonize with the introduction of the vehicle; that is, introduce them when the vehicle technology hits the marketplace. This could ensure that customers can maximize the emission reductions from their vehicles by providing them with the fuel quality that is required for the designed operation of the emission control hardware and vehicle performance. This is the vehicle hardware that Ontario drivers have already purchased and will continue to purchase in the future. They are entitled to the full environmental benefits.
The Chair: Thank you very much. I believe we have time for questions from each caucus. We will begin with the NDP caucus. No, you're entitled to a longer time period --
Mr David Christopherson (Hamilton Centre): That's right, yes.
The Chair: -- so we'll start with the government again. I apologize.
Mr John Hastings (Etobicoke-Rexdale): I'm very interested in what would be the acceptable standard or standards if they were incorporated in a national, holistic way into Mr Carroll's bill.
Mr Nantais: Our view is that we should, first off, pursue a national standard which is consistent across the country. We've said to the federal government now on several occasions that we would like to see them draw up a national clean fuel strategy for Canada which looks at, as I said, fuels in a more holistic fashion. We've suggested that the starting point for those discussions be the worldwide fuel strategy that I've mentioned. That strategy is this document here, which was opened for comment in September and should be reissued in final form by the end of this month. We're saying here that the 2.7% by weight minimum level is actually already at the maximum level our vehicles can tolerate.
Mr Hoy: Thank you for your presentation. I'm reading from a press publication from June 26 of this year. "Minnesota's Ethanol Commission says blended gas makes cars run cleaner, doesn't damage car engines or foul fuel injectors and never requires gas-line antifreeze in the cold weather." Did I hear you say that ethanol may be a problem with some vehicles or is it just if it exceeds the requirement of this bill?
Mr Nantais: Virtually all vehicle owner's manuals that I'm aware of, from all vehicle manufacturers, specify a maximum of 10% ethanol by volume. Once that level is exceeded, then they are very concerned about potential problems with drivability and durability of the fuel system and delivery system. So, beyond that level, we are concerned.
Mr Hoy: It's simply beyond that?
Mr Nantais: Yes.
Mr Christopherson: Thank you for your presentation, Mr Nantais. I just want to follow a similar line of thought. Minnesota is being held out as the example. Am I understanding correctly that you're saying using that as a comparison isn't accurate because they are under the 10%?
Mr Nantais: I would say, if I'm understanding you correctly, that if you're below the 10%, there should not be a problem.
Mr Christopherson: I don't know enough about Minnesota's situation. Where are they in terms of that percentage?
Mr Nantais: That's a good question.
Mr Carroll: It's 2.7%. That's 7.8% ethanol by volume, so it's well under 10.
Mr Nantais: In the list of maximums I've mentioned here, I specifically have said ethanol at 3.7%, which would approach the 10% by volume level.
Mr Christopherson: I'm still having trouble understanding. Let me go back to the basics here. Minnesota is being held out as an example of a jurisdiction that has taken the steps you're concerned about, and they're getting rave reviews, certainly from some quarters, although others are suggesting that it's not certain yet. Can you tell us how we're different from that? Why would our drivers and car owners in Ontario have difficulties that citizens and car owners in Minnesota didn't face?
Mr Nantais: Assuming that the Minnesota level is a maximum level, as has been suggested at 2.7, that comes below the 10% by volume which we have said is acceptable in our owner's manuals. So, there should not be a problem, and we would be on an equivalent basis here in Ontario.
Mr Christopherson: If I can, a question to Mr Carroll: Is there any other jurisdiction that takes us into the area you're taking about here?
Mr Carroll: Our standards are exactly the same as Minnesota's, 2.7%, which is 7.8% by volume when it comes to ethanol. It's well under the 10% volume. Ours is modelled very much after Minnesota's.
Mr Christopherson: The question, then, is valid, to the extent that if Minnesota car owners didn't have that problem, what problems are Ontarians going to face that Minnesotans didn't?
Mr Nantais: It comes down to whether the 2.7% is a minimum, which means that you could go much higher than 2.7%. In this case, it would have to be ethanol. We've said 3.7%, or 10%, in our manuals. It's a question of where you set the minimum or maximum.
Mr Christopherson: Right. But I'm hearing from the proponent of the bill that we're OK, we're in the same world that Minnesota's in. Let me just ask, for the sake of argument, if that were true, are there other concerns that Ontarians would have that Minnesotans wouldn't face?
Mr Nantais: That would raise the other question of whether some adjustments I've mentioned to the other fuels' attributes have also been made.
Mr Christopherson: But it would seem that they made those adjustments and it's working there. What I'm trying to find out is, what are the problems we would have that they don't, given that they've already broken the ground?
The Chair: In the interests of fairness, I have to interject. I'm sorry. That's something we'll have to think about. I'm sure colleagues are going to discuss that among themselves and perhaps will contact you for further reference there. Thank you for coming before us this afternoon. I appreciate it.
ONTARIO MEDICAL ASSOCIATION
The Chair: I now call representatives from the Ontario Medical Association, please. Good afternoon and welcome. Please begin by introducing yourself for the Hansard record.
Dr Ted Boadway: My name is Dr Ted Boadway. I'm the director of health policy for the Ontario Medical Association. I welcome this opportunity to present to you this afternoon. I've presented to this committee before and presented a great deal of the information, so I won't reiterate it.
In May of this year, the Ontario Medical Association produced a document entitled Health Effects of Ground-level Ozone, Acid Aerosols and Particulate Matter. I presented, as I say, on this very document to you before.
The Chair: On a point of information for you, sir, I think probably only Dr Galt and maybe Mr Hastings were members of the committee at that time. The committee members do alternate, depending on the bill before us.
Dr Boadway: Thank you.
We were very pleased when shortly thereafter a scientific peer review journal published our article, to give it that level of credibility, unchanged, as we had originally written it. In that paper, we point out that the incidence of these particular pollutants in our environment is a public health disaster. Whatever may have been said about the standards that exist today, it is the standards that exist today that have resulted in the public health disaster we are now having from these particulates in our community. The people of Ontario are suffering from this at the present time. It is not only the old; it's the young, it's those sick from illnesses and it is everyone who is affected by this. In fact, each and every one of you has been affected by this in your lungs this summer, particularly if you were in Toronto. But it was also true if you went away on a vacation and were in holiday places; it's also true if you sent your kids to camp, because this pall of pollution covers all of southern Ontario.
Carbon monoxide is a part of that mix. There are other volatile organic chemicals which come out of cars and many other sources, of course, but today we're just talking about gasoline fuels. Our present environmental standards have been inadequate and have allowed this to come forward. You, this summer, would have had a decrease of lung function, which you were insensible to and cannot measure for yourself, of anywhere between 6% and 10%. That's as a normal human being without any illness, no illness existing in you.
We believe there is no magic cure to this. In our recommendations, we list a great variety of recommendations for each particular cause and source of a pollutant. We believe this has to be approached bit by bit. There is no magic bullet which will solve this.
There may be good and sufficient environmental or economic development reasons for the passage of this bill, but we believe health considerations should be primary among those considerations. As we have been talking to other communities where this particular form of oxygenation has been brought in, we have been able to discover that in California oxygenated fuel programs were responsible for approximately a 5% to 10% reduction in mean ambient carbon monoxide concentrations.
Before I came this afternoon, I checked with colleagues I know in Alaska, since they've had their oxygenated fuel program brought in -- now with ethanol; before with MTBE -- and they too have experienced a decrease in carbon monoxide. It is true that the carbon monoxide decreases are frequently due to modern, improved vehicular technology. However, we have a lot of old vehicles on the road, and our new vehicles do degrade. These are helped by these particular ethanol additives.
However, it is not up to us to recommend to you that this is a measure that should be taken in and of itself to be sufficient to increase the health of the population. But if you've come to the conclusion that this will decrease levels of CO in the environment, levels of volatile organic chemicals in the environment -- and our preliminary recommendation is that it will -- then we believe, since we know you are legislators who are concerned about the health of the people of Ontario, you should take action in this regard.
The Ontario Medical Association supports initiatives by this government, by the Legislature as a whole, which will result in improvements of the environment and a decrease of smog. It's a critical issue for the people of Ontario, and we hope you will take action in this regard.
The Chair: You've given us lots of time for questions. We'll begin with the Liberal caucus.
Mr Hoy: We had a presentation earlier that talked about emissions and the fact that ethanol would indeed be a cleaner fuel, first of all, and actually answer the question that you have on carbon dioxide. Would you not be adamant that we should do something about clean air and look at ethanol as an alternative to getting to that result, cleaner air in Ontario?
Dr Boadway: Absolutely.
Mr Hoy: The government and we in opposition have always seen ethanol fuels as environmentally friendly, and we concur with you that anything we can do to provide clean air for our citizens would be of benefit. The questions that are being asked today by all members here are about the best way to arrive at that result you're looking for, in particular around some of the questions of taxation. We've talked about compliance, whether we can meet that goal by 2005, whether it should be mandatory or not.
Knowing the marketplace, as you must as a consumer of other products, and how other companies will move to something that is selling well in the marketplace, do you have an opinion as to whether this should be mandatory or just given to the marketplace to determine if this is a clean-air fuel and have them move to that market situation, or do you think this requires mandatory legislation?
Dr Boadway: Well, sir, when you talk about manipulating the marketplace, you are talking to one of the world's ranking non-experts, so I don't think my advice would be worth much to you. I'm a health expert, and I try to stick to my knitting, quite frankly.
Mr Christopherson: Thank you, Doctor, I appreciate your contribution. In these kinds of deliberations, as parliamentarians it's very helpful for us to get experts in the field of health who are prepared to go on the record and talk about these things as public health issues, because, as you know, oftentimes the economic arguments about taking mandatory measures are often very persuasive, particularly in, shall we say, rocky economic times.
I want to make sure I heard correctly. Did you say that over the last summer most Ontarians, particularly those in southern Ontario, would have lost 6% to 10% of their lung function?
Dr Boadway: Yes, that's correct. When a person has an ozone exposure, they have an increase in swelling, in the mucus production inside their airways, and that affects the very smallest airways in their lungs. The result of that is a narrowing of the smallest passageways, which you count on to deliver oxygen to your alveoli for oxygen exchange. You can actually measure how much ozone increase will result in how much decrease in size. They go like this: They cross each other. This summer, Toronto had ozone exceedances of greater than 120 parts per million on six days. That's sufficient to result in a 10% decrease in lung function.
Mr Christopherson: Is that a permanent decrease?
Dr Boadway: No. It's reversible very quickly.
Mr Christopherson: But the cumulative effect, I gather, over years and years could lead to some permanent damage, or does it always come back?
Dr Boadway: No, it has no cumulative effect as far as we can tell. That's still open to study. It has an acute effect on the individual at that time. If you are a runner who pushes yourself to the maximum on an individual day, you will notice it. But quite frankly, if you're like me, who doesn't do that on many given days -- I won't notice the difference. If I'm someone who is asthmatic, or a cardiac patient or a chronic bronchitic, I will notice the effect on that day. In fact, that could push me into a serious condition.
We sent you a copy of our report when it was published. You may not have one, but we outlined that in detail in our report.
Mr Carroll: Thanks, Dr Boadway. I appreciate you coming forward. The Motor Vehicle Manufacturers' Association suggested we wait for the feds, that we try to get them to do something. Everybody knows that the Golden Horseshoe or the greater Toronto area has by far the biggest concentration of this problem, so we think waiting for the feds is folly.
The CPPI came forward and told us, "Don't tell us how to do things; just leave it up to us and we'll get the job done." You explained the health impacts of us not getting the job done. We know the technology exists. We know that Sunoco and UPI sell gasolines that are blended up to 10% with ethanol and we know that the federal government has said they are environmentally more friendly. That technology exists, yet it hasn't been expanded. Do you have confidence that the petroleum industry will do what it has to do to clean up the environment if we as legislators don't, as Mr MacKenzie said, put a gun to their head?
Dr Boadway: Personally, after the experiences I've had with the feds, I don't have, in many areas, a lot of confidence the feds will do it. I think it's a recipe for waiting and doing nothing perhaps, from time to time. I'm also concerned if you say, "Set up the ambient standards and let us meet them." The ambient standards are inadequate at the present time. That's why we have the problem we have.
Secondly, if we take the sulphur in fuels standard as an example, the attitude of the petroleum industry was, "It's not our problem." They need to stand up to it and measure up to it and say, "It is our problem," and then become part of the solution to the problem. In this one, too, they duck and say: "Ozone isn't our problem; it's somebody else's problem. Therefore, we don't have to change what we do." That won't help us a bit. Everybody who contributes to it has to do what they can, and that's whether we're dealing with this problem or other problems.
I'm afraid if you leave it a huge open book, everybody will say, "It's not my problem." It's the tragedy of the commons.
The Chair: Thank you very much. On behalf of the members of the committee, I do appreciate you taking the time to come before us this afternoon with your advice.
The Chair: I'm now calling on representatives from Sunoco. Good afternoon. Welcome. Please begin by introducing yourself for the Hansard record.
Mr Warren MacLean: Good afternoon, ladies and gentlemen. My name is Warren MacLean. I represent Sunoco as vice-president, sales and supply. Sunoco is a subsidiary of Suncor Energy, a growing integrated energy company. In addition to a refinery in Sarnia, Sunoco has a network of more than 500 service stations. We manufacture, distribute and market transportation fuels, heating oils and petrochemicals, primarily in Ontario. Recently, we have entered into marketing natural gas to commercial and residential consumers in Ontario, and also have entered the heating, ventilation and air conditioning service business with the launch of the Sunoco Home Energy Dealer Network.
First of all, Sunoco is a member of the Canadian Petroleum Products Institute, and we endorse the basic position CPPI presented to you today. Specifically, we believe that the role of government is to set air quality standards and that the role of industry is to meet or exceed those standards in the most efficient, cost-effective manner. We do not support the mandating of specific fuel components.
Having said this, it is not my intent to repeat what you have already heard. The purpose of our presence here today is, first, to ensure that during the debate around Bill 34 we reinforce that ethanol-blended gasolines provide high-performance transportation fuels; and secondly, having operated with ethanol-blended gasoline throughout the Sunoco-branded channel, we can share with you the benefit of our experience over the past year.
Sunoco has spent considerable time and resources in building a reputation of marketing high-performance gasolines. Our Ultra 94 premium gasoline has the highest octane available in Ontario. It was therefore imperative to us that as we entered the market with ethanol-blended gasolines, these products would not affect our performance relationship with our customers.
For 18 months prior to the launch of ethanol gasoline, Sunoco both performed laboratory testing to measure the impact on key parameters and did large-scale pilot tests to gauge customer reaction. Only after satisfying ourselves that ethanol-blended gasolines would meet our high performance standards did we embark on rolling the product out across our entire network.
We believe Sunoco is well positioned to differentiate our gasolines in the market, as well as take advantage of the attractive supply economics. Sunoco has a corporate commitment to support the development of alternative or non-conventional fuels, as evidenced by the introduction of methanol-blended gasoline in the 1980s, the marketing of propane as an automotive fuel and recently our participation in a pilot to fuel large trucks with natural gas. We viewed ethanol-blended gasoline as a logical extension of this commitment.
After having a full year of implementation behind us, we can say that the customer acceptance has been exceptional, but we have had to overcome some significant logistical barriers. Within Sunoco's sales orbit, we have created a proprietary distribution system due to the non-fungibility -- meaning it doesn't mix with other gasolines -- of our ethanol-blended gasolines. This required a significant capital investment to blend a low-volatility sub-octane blend stock produced at our Sarnia refinery with ethanol at each of our distribution terminals. This was necessary to ensure that we could meet all applicable quality specifications, including vapour pressure. I think earlier presenters talked about splash-blending of ethanol on conventional gasoline. That would cause an increase in the vapour pressure and an increase in the emissions relative to conventional gasoline.
In eastern Ontario, which is typically supplied from Quebec refineries, we have been forced to truck supply from our Toronto terminal. To date, the high cost of investment in terminal infrastructure and the lack of supply of blend stock have prevented us from increasing our delivery efficiency. We do not extensively market in northwestern Ontario, up around Thunder Bay, but you'd have a similar problem in that that area is supplied by a product from Alberta refineries. Again, you'd have a problem getting the appropriate blend stock.
In summary, although Sunoco is an active marketer of ethanol-blended gasolines in Ontario, we cannot support the proposed legislation because we do not favour government mandating specific gasoline components.
Thank you for your time. I would be pleased to answer any questions.
The Chair: We begin with questions from the NDP caucus.
Mr Christopherson: Thank you for your presentation. Is there any intent at all on your part to question the findings and results of Dr Boadway and his colleagues in what he submitted before you?
Mr MacLean: I have not reviewed his submission in any detail, so it's very difficult for me to comment on that.
Mr Christopherson: There's a bigger example of a product where the health findings were questioned for decades, and I wondered whether we were into that same sort of scenario or whether you agreed with their findings.
Mr MacLean: I can't remember all the details of his submission. If you have a specific example you'd like me to talk to, I can do that.
Mr Christopherson: That's fair. I can see where you're going.
Let me shift over to the issue of what the oil industry would and wouldn't have done over the decades had there not been legislation forcing it to take certain measures. Mr MacKenzie outlines that clearly on page 18 of his document that was presented earlier, where he states, "The oil industry will not voluntarily accept this change nor have they voluntarily accepted any of the fundamental changes to gasoline, witness lead, MMT, sulphur in diesel, sulphur in gasoline etc." How do you respond to those kinds of charges?
Mr MacLean: I can't speak for the total industry, but in my submission I highlighted that at Sunoco we've taken initiatives on the alternative fuels front for various reasons. We tried methanol in gasoline in the early 1980s, as I said, and found there was not a market for it and exited that. We've been using propane for automotive vehicles for an extended period of time. From our perspective, we pride ourselves on taking initiatives such as those to improve the offering we supply to our customers.
Mr Preston: I've got two questions. I'm going to put them all in one so I don't get cut off. If we're going to use 2.7% and 3.7% as the parameters so we don't go over and we get the maximum, we must name ethanol in the bill and we must name the way we put the ethanol in. If you use splash mixing, you could go up from 1% to 25% more emissions, from the literature I've seen. Is that about right? We have to name ethanol, as against anything else, if we're going to use those mixtures?
Mr MacLean: I think you're referring to the discussion with the car manufacturers. That's correct. If you're using other than ethanol and you go -- I think the point there was you can't go above 2.7% with some of those other oxygenates. With ethanol you can go up to 3.7%. Prior to entering this market, we did some research on what the vehicle manufacturers would accept. Every single one of them will accept oxygenates up to 10% by volume. With ethanol, that 10% max is 3.7% by weight. With some of the other oxygenates it's 2.7% by weight. They were concerned with the fact that -- maybe I shouldn't speak for them either; I'm not speaking for anybody else. The 2% minimum was troublesome to them, because does that say you can go to 5% on MTBE, or something like that? That would cause them problems. I believe that's what they were getting at.
Mr Hoy: Thank you for your presentation. Do you provide ethanol in all of your fuels, or is it just specifically one fuel? When someone drives up to the pump, must they request ethanol, or do you use it in all your blends?
Mr MacLean: We use it in all Sunoco blended gasolines. At our particular facilities we provide each station with an 87 octane and a 94 octane, and then customers also have the choice of going to a 89.5 and a 92 blend as well. They will get ethanol in each one of those blends.
Mr Hoy: Excellent.
The petroleum institute was speaking first today, or at least at the beginning of our time. They mentioned some of their membership being Imperial Oil, Petro-Canada, Shell, Sunoco, Canadian Tire, Nova, Safety Kleen and Ultramar. Do you know if any of those companies also provide ethanol gasoline now, other than UPI -- although they weren't mentioned here?
Mr MacLean: I'm not familiar with whether any of the other companies do. I don't believe they do in Ontario, but I can't say they don't in other parts of the country. As a matter of fact, I believe some of them do. From time to time, I believe, some of the other companies have used ethanol, have used MTBE in Ontario as well. At this point in time it would be tough for me to say one way or the other, whether they did or not.
Mr Hoy: When ethanol fuel was delivered to my farmstead, the company that delivered it -- which was not represented here today -- said we had to change the hose, we had to change the filter. It was recommended that the tank be tipped and on a different grade. Apparently ethanol fuel is a cleansing type of fuel as well and they were worried about this manner of things that I just mentioned. Is this something that would occur widespread, do you think, that people would have to change the hose that delivers the gas to the car, change filters, just because they went from regular gasoline to ethanol?
Mr MacLean: Prior to going into ethanol, we went through an extensive housekeeping process, I'll call it, and we continue to have very high standards at our stations that supply ethanol-blended gasolines. Ethanol is a polar solvent. It attracts water very quickly and that can cause problems in a vehicle. So you have to have an extremely clean system in order to deal with ethanol. It's part of the reason why we blend at our terminal locations instead of blending it right at the refinery and shipping by pipeline, because of picking up water or dirt within the pipeline system. That's why we're blending it at terminals.
The Chair: Thank you very much. On behalf of all the members of the committee, we appreciate your time this afternoon.
ONTARIO CORN PRODUCERS' ASSOCIATION
The Chair: I am now calling representatives from the Ontario Corn Producers' Association, please. Good afternoon, gentlemen. Welcome. Please begin by introducing yourselves for the Hansard record.
Mr Doug Eadie: I'm Doug Eadie. I'm a cash crop farmer and a director with the Ontario Corn Producers' Association, and I'm the chairman of the market development committee there.
Mr Terry Boland: My name is Terry Boland. I'm the director of communications and public affairs for the Ontario Corn Producers' Association.
Mr Eadie: Madam Chair, on behalf of the Ontario Corn Producers' Association, I would like to thank you and your colleagues on the standing committee on resources development for the opportunity to appear before you today to make a presentation on Bill 34, An Act to amend the Environmental Protection Act.
The Ontario Corn Producers' Association represents 21,000 corn farmers in Ontario. In 1998, corn producers harvested their largest crop ever, 237 million bushels, with an average yield of 128.8 bushels per acre. Corn is the largest crop produced in this province, with a value of over $700 million and a value-added revenue of over $1 billion.
Agriculture is the second-largest industrial producer in the province. Adding value to the Ontario corn crop through products such as ethanol results in a significant contribution to overall provincial economic performance. Ethanol production is a major contributor to the economic and social wellbeing of rural Ontario, creating new jobs and expanding rural development.
The legislation before us, presented by the member for Chatham-Kent, is about the environment and the addition of oxygenates to unleaded gasoline to improve Ontario's air quality. Renewable ethanol is an oxygenate and octane source and is already playing a role in reducing carbon monoxide, carbon dioxide, ground-level ozone and particulates. It can also displace other potentially dangerous components of gasoline, such as benzene. Oxygenates allow for a more complete burn of the fuel. Ethanol is already playing an important role in our fight against global warming through reductions in greenhouse gas emissions.
One important factor with the introduction of any new fuel is consumer confidence. Consumers want a fuel that is available and priced competitively. Low-level ethanol-blended fuels provide consumers with the ability to contribute to cleaner air without any modification of the vehicle and they have warranty coverage by all major automobile manufacturers. Therefore consumers can switch to straight unleaded gasoline if a retailer selling ethanol-blended or enhanced fuels is not nearby. Auto manufacturers are also producing flex-fuelled vehicles which can utilize straight unleaded gasoline or up to 85% ethanol.
Over the past six years since ethanol-blended fuels were introduced in Ontario by UPI Inc, the number of retail outlets selling ethanol blends has grown to 519 outlets, out of 929 nationally. This has been good news for farmers, rural development and the environment.
As I mentioned, Ontario corn producers had the largest crop on record in 1998 and our strategy has been to develop domestic value-added markets. This has provided increased market security. The OCPA has been working on the development of the ethanol industry in Ontario for almost 20 years.
Canada's largest ethanol producer, whom you've already heard from today, is in Ontario, and Doug MacKenzie is representing them. Commercial Alcohols produces 150 million litres of ethanol per year, utilizing 15 million bushels of corn. An expected expansion to 300 million litres, combined with ethanol production in Tiverton, Ontario, and efforts by 2,000 eastern Ontario farmers to construct a 55-million-litre-per-year plant in Cornwall will mean a market for almost 38 million bushels of corn. The resulting bushel price and secure market helps to reduce the chances of financial farm program payouts.
Corn farmers work day in and day out on a free-market system. Lately that has not been as profitable, but it is the North American system of price-setting for corn. We would like to see our American and European counterparts reduce their support programs, but until that time we must maintain our safety nets, including market revenue insurance.
We would like to see ethanol accepted in a free market. This means that many of our friends in the oil industry would need to accept ethanol on its merits, its benefit for the environment, its value as an octane source; not as a negative, cutting into refining capacity, but as a market opportunity which will help them to meet global warming commitments. I would like to recognize UPI Inc, Sunoco, MacEwen Petroleum, Mr Gas and many others who have accepted ethanol's environmental and performance qualities. I know we can work together for a stronger Ontario economy and improved air quality.
What this committee must decide is whether that will happen. Do you require oxygenates in gasoline to help meet the government's environmental commitments or do you hope that change will take place on its own? That is a tough decision.
I'd like to take this opportunity to thank Jack Carroll, Pat Hoy, Howard Hampton and other members of the Legislature for their efforts over the years and most recently in helping the ethanol industry get off to a good start in Ontario.
Right now we'd like to address some issues that have arisen today, and I'll turn that over to Terry Boland.
Mr Boland: I thought we were going to have a pretty straightforward session today, but maybe it's time to put a little fire underneath things.
I was a little concerned and disappointed by the presentation by CPPI and Imperial Oil over some of their comments regarding ethanol directly, not the bill. The suggestion that there are no environmental benefits or it's a wash is just not so. The EcoLogo in 1999 was presented by Environment Canada based on specific standards. Ethanol-blended fuels are the only fuels that received the EcoLogo licensing standard. Other fuels have not. The EPA has been very supportive of ethanol in the United States. So its suggestions that ethanol doesn't carry any environmental benefits is just hogwash.
Money going to farmers? Definitely. When you can sell 38 million bushels of corn, corn farmers will receive a higher price for a bushel of corn not just locally here where we have industrial plants or where we have an ethanol plant in Chatham but across the province. Therefore, all corn producers are benefiting from some of the advantages that are being produced by an ethanol industry in Ontario.
I want to also point out that this is money that's staying in Canada, it's staying in Ontario, unlike Imperial Oil where 70% of the profits are going back to the US. We're looking at domestic markets here. We're looking at money that's staying here. So the ethanol industry has been very positive for Ontario. Actually, Ontario is the leader of ethanol production in the country.
Those are just a couple of the comments I have to make, because when you sit back and listen to others who are criticizing a specific product or a specific industry while not addressing the bill, it does get us a little angry. We certainly feel that corn producers in this province have benefited remarkably, as well as rural communities, rural development in this province, from the ethanol industry.
The Chair: Have you completed or do you want to add a little more?
Mr Eadie: Yes. We can take questions now.
The Chair: We'll have time just for questions, and next up for questions only would be the NDP caucus.
Mr Christopherson: What do you ask of a group that makes a product that's renewable, that everybody eats, that every animal eats, that we make booze out of and that helps run our cars? Probably the biggest shock of my life would have been if you had walked in here and said, "We oppose this bill." For the life of me, I'm trying to rack my brain thinking of a question to ask you, but it all seems very straightforward from your perspective and I just can't come up with a question that would be of any value here. I'll offer the time to anybody who's got one.
The Chair: As Chair, I will give the question to Mr Hastings.
Mr Eadie: It's quite obvious we didn't plant one.
Mr Hastings: Thank you very much, gentlemen, for coming in. There seems to be some political will to do something here but the industry is against any kind of mandating, even though it's in Mr Carroll's bill, I believe.
Dr Boadway talks about the health care costs, and it's quite evident when you look at just the transportation industry, $9 billion out of health care. How can we create some holistic thinking to loop you folks all together to do some kind of greater policy analysis so that you would all come back here and say, "We need to get at this on a voluntary, free basis," instead of the government, whatever level, always specifying "You must do this by a certain time frame"?
There seem to be tons of economic benefits here, not only from the health care side if we could reduce -- I'm an urban member and I see the costs from the hospital side. I've been there and I've talked to some of the allergists. All we're doing is hitting and missing on this thing. We need an econometric model of some sort that could create a win-win for everybody to drive this thing faster.
Mr Eadie: Looking at government in all areas, I would say you have to have a set of standards, whether it's today or in the future, by the year 2005 or whatever target date you want to set, and set some air quality standards, set some emission standards that are acceptable in this province, realizing that a lot of these fall into the national area of responsibility also.
The economic benefits are proven. We know that in rural Ontario. I know that as a cash crop farmer. Pat knows it. Anybody associated with the rural economy knows it. Then we'll get away from some of this nitpicking and using references out of outdated studies. We see them all the time and they still hit the press. That's where the government's role has to come in. You have to police that type of thing and react only to the most current and effectual research that's been going on. We've already heard from one person today who had some pretty up-to-date health concerns, I thought.
Mr Boland: I have to temper a little bit what I said earlier, primarily because we want to work together with the fuel industry, and so do you, I'm sure. You can set regulation, you can set components, but we've seen also where things like MMT federally was left out and forced back out of the situation. They're our customers. We would like to work with them. They are the ones who are going to be using the ethanol and blended fuel and I think there is a good market opportunity for the oil industry to utilize ethanol in their fuel.
The Chair: On that note, thank you very much. We appreciate you taking the time to come before the committee today.
The Chair: I'm now calling on representatives from Shell Canada Products Ltd, please. Good afternoon and welcome. Please introduce yourself for the Hansard record before you begin.
Ms Lesley Taylor: I'm Lesley Taylor and I'm the public affairs manager for Ontario for Shell Canada. I'd like to thank you for the opportunity to speak here today about an issue that's very important to our industry. I must tell you, as one of the last presenters, I feel tremendous pressure to come up with a position that would solve the problem but I don't know if I'm going to be able to do that.
Shell Canada has investigated oxygenate use very thoroughly in terms of MTBE, ethanol, other alcohols and ethers. We do this as part of our marketing strategy.
Our presentation will augment what has already been presented by CPPI. We will identify some key bullets but we won't be able to go into the details given the time constraints. We would be very pleased to make some experts in this field available to the committee if they should desire.
Shell Canada wants to go on record as clearly supporting the CPPI submission which was tabled, the key elements being:
From an environmental perspective, there are pros and cons to ethanol use. It should be considered neutral with respect to today's gasoline, which I think was stated today and is important.
Ethanol is dependent on a high level of subsidies. The economic effectiveness of these subsidies is highly questionable. I think we talked about $250 million annually that the government was losing in taxes on ethanol subsidies. Mandatory oxygenates could have a highly negative impact for Ontario taxpayers and consumers, with virtually no improvement in air quality.
A mandate on oxygenates is opposite to the policy position gaining momentum in the USA. They are considering removing the oxygenate mandate for reformulated gasoline. We think this is perhaps one of the most important things that you must consider in your decision. We've heard people who are for, people who are against, but I think the United States has some extensive experience in this already and we need to take a good, hard look at what's happening there and what the trends are. I will be talking about that a little bit.
We support that it's the government's job to set the air quality standards and it is the companies' job to meet those standards. We think those are strategic business decisions that each company must make on its strengths and weaknesses. It's those kinds of decisions that allow a company to be competitive and to remain competitive in the marketplace. That is really how Ontario people, consumers, get the best benefit, when they are faced with choices and when they are faced with competitive, efficient companies that are offering those choices.
I'd like to talk a little bit about the experience, some of the current developments. Much of the discussion today has focused on ethanol as the predominant oxygenate, but the predominant oxygenate in use today is MTBE. We estimate that in the USA MTBE is used three times more than ethanol as a gasoline oxygenate.
Since the proposed bill is for mandatory oxygenates, the impact of MTBE use in Ontario is probably more relevant than ethanol.
California has removed the requirement for oxygenates in gasoline. As Peter Rooney, secretary for the California Environmental Protection Agency said, "We think California can have clean gasoline without MTBE or any other oxygenate."
California ENGOs and the oil industry in the USA are pressing the federal US EPA to reconsider their mandate of oxygenate in reformulated gasoline. That is currently under review. We should get the results of that.
A number of areas in the USA that were originally mandated to have oxygenated fuels have been designated as attainment areas and are no longer requiring wintertime addition of oxygenates.
Maine recently opted out of the US reformulated gasoline program because they did not want the mandatory oxygenates that come with reformulated gasoline. They are instead going with a low RVP gasoline. Other states, for example, New Hampshire, with sensitive groundwater supplies are considering similar moves.
The University of California has issued a report to the governor of California that the use of MTBE be phased out over the next six years. Groundwater contamination and toxicity concerns are the reasons cited for this recommendation. The report also recommended that ethanol not be considered as a widespread replacement for MTBE until its impact can be studied.
In terms of the environment, oxygenate use for reduction of vehicle carbon monoxide emission is quickly diminishing in importance. The Minnesota legislative auditor's report says:
"The net environment benefits of ethanol use are minimal or non-existent in the summer.
"While atmospheric carbon monoxide has declined dramatically over the last 25 years much of the decline occurred prior to the start of the oxygenated fuel program."
From the June 1998 air and waste management meeting in San Francisco: "Current results of the analysis of the 1996 inspection maintenance 240 data suggest a small increase in carbon monoxide emissions in real-world testing.... Probably the most disturbing results of this study (of real-world emissions) is the larger increase of NOx emissions.... NOx increase ranged from 15% to 37% with oxygenated fuels as determined by inspection maintenance 240 tests."
NOx emissions are associated with smog and fine particulate, an issue that we've already talked about today as a problem in Ontario.
Although oxygenates can, through dilution, reduce benzene emissions, both ethanol and MTBE cause large increases in aldehyde emissions, including acetaldehyde and formaldehyde. Both are considered toxic by the US EPA.
Minnesota auditor's report quotes, "Ethanol's potential to contribute to the problem of atmospheric C02 is extremely limited." Depending on the power source and the by-product use, its impact ranges from plus 20% to minus 20% for greenhouse gases.
California recently studied the impact of MTBE versus ethanol and found lower CO emissions for ethanol but higher NOx, hydrocarbon and toxic emissions. That's from the July 1998 CARB ethanol working group.
New study indicates ethanol use may have negative impact on groundwater quality. Indications are that ethanol in gasoline tends to cause the gasoline hydrocarbon contamination to spread considerably farther from the spill source than for gasoline without ethanol. This issue merits further study.
As I said, overall Shell considers ethanol use to be environmentally neutral at best.
In terms of the economics, as per the note from the US General Office of Accounting on ethanol, without the incentives ethanol fuel production would largely discontinue. Again, we talked about $250 million in lost revenue for the government.
If corn prices do increase as the result of ethanol production, the General Office of Accounting points out that the farmers who raise livestock would likely pay higher prices and consumers would pay higher prices for food as a result of ethanol use as a gasoline oxygenate.
The distribution cost, displaced production from refineries and higher unit costs would have negative impacts on the refining sector and that could impact jobs negatively. It's very important to consider the net job impact when looking at ethanol.
In California, replacement of MTBE with ethanol was considered the most expensive option. That's quoted from a report that is put out from the Ontario Ministry of Energy.
Numerous studies have pegged the fuel economy loss associated with ethanol use at 2.5% to 3.5%. This can vary quite significantly vehicle to vehicle. Ethanol can also have a marginally negative impact on vehicle drivability, as was discussed here today by the CVMA.
Ethanol, if consumed in large quantities, could probably be produced cheaper in the USA and other countries than in Ontario. In this case, Ontario tax dollars would be subsidizing an industry based outside Ontario or even Canada. I think this comes back to the basic laws of supply and demand. If there is a larger market for Ontario here, clearly farmers from across the border who have easy access to Ontario will be looking to bring their product into Ontario.
In summary, Shell Canada's position is that from an economic or environmental perspective, there are pluses and minuses associated with ethanol addition to gasoline. There's no compelling reason to use or not use ethanol. Shell opposes the mandatory use of ethanol as an oxygenate. If a business case can support ethanol addition, refiners or marketers will use that. I think, again, it is up to the companies to decide how best they can meet the government-set standards of air quality.
The Chair: Regrettably, there is not time for questions. I know my colleagues are annoyed with that, but we do thank you for taking the time to bring your proposals and your suggestions before us.
INDEPENDENT RETAIL GASOLINE MARKETERS ASSOCIATION OF CANADA
The Chair: Our final presenter this afternoon is a representative from the Independent Retail Gasoline Marketers Association of Canada. Welcome. Please begin by introducing yourself.
Mr Colin Robbins: My name is Colin Robbins. I am the president of Robbins fuels and I also represent the Independent Retail Gasoline Marketers Association of Canada.
To begin with, the retail marketers who I represent in Ontario certainly do support oxygenated fuel. We have a number of concerns specifically dealing with the specifications and logistics of moving blend stock and the finished product throughout the province to our members. When ethanol or any oxygenate is added to gasoline, generally speaking there is a Reid vapour pressure increase. Ethanol produces a Reid vapour pressure increase, and for that reason our association would like to see Ontario regulation 271/91 contain a waiver of 7 kpa so that any independent distributor in the province will be able to produce this product from any source outside the province, including Quebec, United States and Europe.
Currently, there's a tax exemption for ethanol. We would like to see that extended to minimize any price increases if this bill is mandated. Without the tax exemption, I'm sure there will be a substantial increase in the cost of the product.
Having said that, a separate fund should be set up for the small retailers in that a lot of ethanol or oxygenated gasoline is not compatible in small engines which are used in the recreation and tourist business, especially in the northern part of the province. They will have to install smaller tanks and provide a conventional fuel for the small engines. I've experienced a number of examples where engines have failed when ethanol was added to the gasoline, particularly two-stroke engines.
If this bill is mandated and we have oxygenates, the preferable choice obviously that everyone has been talking about here is ethanol. We feel that a special tax credit or special financing should be available to producers of ethanol in this province so that jobs are kept here instead of importing a lot of the product in from another jurisdiction.
That's about all I have to say.
The Chair: Time for questions. We begin, then, with the government caucus.
Mr Carroll: Thank you, sir. The comment about the tax thing: My case on the tax thing is that it's about one cent a litre at an 8% blend of ethanol. It's about a cent a litre with the tax in and with the tax out. I think that's what it would amount to.
I left my home in Chatham last night and gas was 54 cents a litre. At London on the highway it was 47 cents a litre. In Toronto it's 52 cents a litre. Crude oil is at its all-time low price. I don't see any relationship between what the price of gas is at the pump and what it costs to produce it, so surely a one-cent-a-litre change, up or down, because of the addition of an 8% blend of ethanol is not going to have any impact on the market, is it?
Mr Robbins: I feel it will, sir, yes. On our cost of product it will have a significant effect.
Mr Carroll: The same retailers are buying the product from the same source; 10 cents or eight cents different from 200 kilometres along the 401. What does the cost of the product have to do with the retail price of the product? I don't understand how the system even works, how a mere penny-a-litre change because of the tax on an 8% blend of ethanol would have any impact on the marketplace. There must be some other factors that impact the marketplace rather than a penny a litre as far as an 8% blend of ethanol is concerned.
Mr Robbins: I think the position our organization would take is that the tax-exempt portion of the ethanol should remain in place. If that is not going to remain in place, I think you'll see more like a two-and-a-half-cent-a-litre increase in the cost of the product.
Mr Carroll: At an 8% blend?
Mr Robbins: Yes -- in a 10% blend. Roughly 24.7 cents a litre; 10% of that is 2.47 cents, not a penny.
The Chair: I'm going to move on to Mr Hoy.
Mr Hoy: Thank you for your presentation. This amends the motor vehicles part of the Environmental Protection Act. It's amending that. Through the discussions we've had today -- we've had maybe too short a time -- but I would hope that those persons who have antique vehicles and choose not to use ethanol would be able to find a fuel that they could use. I know there was consideration about that some time ago in another situation. There are people who have a number of antique vehicles.
You talked about small engines. Are we talking about --
Mr Robbins: Chainsaws, older snowmobiles, small recreational vehicles, outboard motors.
Mr Hoy: All-terrain vehicles?
Mr Robbins: All-terrain vehicles to some extent, yes, sir.
Mr Hoy: There would need to be a pool of gasoline available for those users that did not have ethanol.
Mr Robbins: It would be recommended, yes.
Mr Hoy: Do you know what share of the market they have in the industry at all?
Mr Robbins: No, I would not have that information.
Mr Hoy: You talked about credits to the producer etc. Are you in favour of the mandatory aspect of this? I must have missed whether you said yes or no, that you did or did not like the mandatory aspect.
Mr Robbins: Yes.
Mr Hoy: You favour it?
Mr Robbins: Yes.
Mr Hoy: Have you discussed the impact of this bill with the ministers of energy and the environment?
Mr Robbins: Not as yet, sir.
Mr Hoy: Today we were talking about the cost of gasoline etc. Earlier this morning I found that on the Chicago market the May futures for corn in US dollars was $2.30. I've never tracked it myself, the fluctuation in corn prices over time with the fluctuation in gasoline prices over time, but I think a lot of farmers today would tell you that US$2.30 -- and I'm talking about a May future -- is very low. That too, as an input into the creation of ethanol, plays a large part in the production. I just wanted to mention that to you. As you were talking about tax exemptions, I did want to put on the record that the current price of corn to the primary producer, that being the farmer, is at a very low rate.
Mr Robbins: Yes, as crude oil prices are.
Mr Christopherson: Thank you, Mr Robbins, for your presentation. Point 1 on your handout says, "There must be a 7 kpa waiver for Reid vapour pressure for both Ontario regulation 271/91 and the Canadian General Standards Board." Can you break that down for me into plainer language as to what that means?
Mr Robbins: Currently, the Ontario regulation regulates the maximum Reid vapour pressure of gas --
Mr Christopherson: Sorry. What's a "Reid vapour pressure?"
Mr Robbins: "Reid vapour pressure" is defined as the dry vapour pressure equivalent of the total vapour pressure of the product at 100 degrees Fahrenheit. It's a technical term.
Mr Christopherson: It sure sounds like it.
Mr Robbins: When you add ethanol, you experience an increase in Reid vapour pressure. How much you add determines how much vapour pressure will increase.
Mr Christopherson: How does that affect then the issue of importing petroleum from Quebec, the United States and Europe?
Mr Robbins: Currently the other jurisdictions that we would import product from would have the same Reid vapour pressure regulation or limits that we have. I assume that ethanol-blended gasoline will not be available in these jurisdictions if we go ahead with this bill. For one of our members to bring in gasoline from another jurisdiction for competitive reasons, economic reasons or whatever -- they would be unable to do that to meet the Reid vapour pressure requirement.
Mr Christopherson: If I can go back again to Mr MacKenzie's most helpful presentation, we see that Minnesota is already there, as has come up earlier, and California's looking at it. Are you telling me that Minnesota can't use any of the petroleum produced in the United States?
Mr Robbins: To my knowledge, they have a waiver.
Mr Christopherson: They have a waiver. Is this an environmental issue? Is it an economic issue?
Mr Robbins: It's an environmental issue.
Mr Christopherson: How does this Reid vapour pressure affect the environment?
Mr Robbins: It's basically a measure of the volatile organic compounds in the gasoline, which recently has certainly come under scrutiny and Reid vapour pressures have been regulated lower in all jurisdictions.
Mr Christopherson: Does it add something to the environment that's bad? Is that what it does?
Mr Robbins: Yes.
Mr Christopherson: It does. We would need to change it here to use this product? I'm having a great deal of difficulty understanding exactly what you mean by all this. There's an environmental issue around the Reid vapour pressure as it's now set at 7 kpa. Is that what you're saying?
Mr Robbins: No, a 7 kpa increase.
The Chair: If I may interject, perhaps our research assistant could help us here.
Mr Christopherson: The researcher, yes, please.
Mr Lewis Yeager: The vapour pressure describes the volatility of the fuel and they've arbitrarily set a number to prevent the volatile organic compounds from escaping into the atmosphere when you're handling fuel, whatever. Alcohol is a different type of material than the other materials in gasoline, so it artificially changes the number without changing necessarily the volatility of the bad components in the fuel. What they want is a waiver so that it doesn't skew the volatility figures to artificially make them look worse than they are from the air quality protection standpoint.
Mr Christopherson: I see. Then would you expect that would be controversial at all from what you can imagine?
Mr Yeager: No, because that's not what the figure is intended to protect. I'm sure there are technical ways of meeting that requirement that would satisfy everybody.
Mr Christopherson: OK, that helps.
The Chair: Sorry. We are out of time.
Mr Doug Galt (Northumberland): Chair, if I may comment just for the record, we have just recently reduced the level of volatility allowable for gasoline sold in the summertime from 72 kilopascals to 62 kilopascals to reduce its volatile organics coming off and creating the ozone problem. A very definitive step has been taken. What I'm recognizing here is, he's asking for it to go back up by seven to acknowledge the addition of the alcohol to the fuel.
Mr Christopherson: We have increase in volatility in our education and health care systems, but we won't get into that.
The Chair: No, we won't get into that.
May I thank you on behalf of all the members of the committee for taking the time to come before us this afternoon, and to compliment all of the presenters. As you could tell by the attentive demeanour of all colleagues around the table, this is a topic that everyone was very interested in and I thank you all for bringing your best advice to us.
Colleagues, that's our last presenter today. We will reconvene tomorrow afternoon to hear another bill. I would remind you, if you have amendments, it's suggested that they be presented before the committee on Wednesday two hours before we meet. They will be accepted during the clause-by-clause, but it's helpful if everyone has a chance to look at them ahead of time.
We are now adjourned for the day, to reconvene tomorrow.
The committee adjourned at 1756.