Home The Ambassador Canada's chief representatives to the U.S. Michael Kergin Ambassador Kergin's Speeches October 25, 2002

Energy, innovation and a more secure future

Remarks given by Michael Kergin, Ambassador of Canada to the United States to the New England-Canada Business Council at the 10th annual Energy Trade & Technology Conference

Boston, Massachusetts
October 25, 2002

Mr. Lucy, thank you for your kind introduction.

It is a real pleasure to be in Boston for the 10th annual Energy Trade and Technology Conference.

I would like to thank the New England-Canada Business Council for inviting me to speak with you about the Canada-U.S. relationship, and more specifically, about our cooperation in the field of energy.

Organizations like yours, that bring Canadians and Americans together to exchange ideas, to conduct business and, most importantly, to become friends in the process, speak to the depth of our cross-border ties.

Aristotle wrote that "Friendship is essentially a partnership". I would add that, with respect to Canada's ties with New England, the reverse is also true. This regional cross-border partnership is based on friendship, and in many cases, rooted in family inter-connections.

When it comes to its own security, the U.S. has no greater partner than Canada. We saw this on September 11 last year when 247 international flights bound for the U.S. were diverted to Canada, and Canadian communities took in over 33,000 stranded American travellers.

We saw this when Canadian forces fought shoulder-to shoulder with U.S. troops against the Taliban and al Qaeda in Afghanistan. Canada's military provided the fourth largest contribution to the Afghanistan campaign.

And a brigade from the Princess Patricia's out of Alberta (everybody here has heard of Alberta, I suppose) fought within the command of the 101st Airborne.

Canadian and U.S. officials have also worked together to improve public security.

Key measures in defence of our shared North American space include:

• mutual recognition of more rigorous aviation security standards;
• cross-stationing of U.S. and Canadian customs officers at each other's ports to identify and screen higher-risk container cargo before it arrives in either country;
• increased cooperation on refugee and visa issues to control more effectively irregular migration to either country; and
• tightened control over the sending of funds via international charities to suspected terrorist organizations.

This year has also seen unprecedented cooperation at our joint border, involving a myriad of agencies, regional and federal governments, and private-sector stakeholders.

The result is a visionary, 30-point Smart Border Accord signed last December by Homeland Security Director Tom Ridge, and Canada's Deputy Prime Minister, John Manley. The Smart Border Accord makes use of new technologies and common sense measures to improve security while assuring a more efficient passage of goods and individuals across the border.

More recently, Prime Minister Chrétien and President Bush unveiled two new smart border programs in Detroit several weeks ago.

First, Free and Secure Trade (or FAST) lanes allow regular shipments to pre-clear customs before they get to the border, thereby improving legitimate access and allowing Customs officials at the border to focus on higher risk cases.

Second, the NEXUS programme allows low-risk, frequent border users to access each country more rapidly by displaying a digitally imprinted smart card. The genius of the programme is that the same card is issued to citizens of either country, pre-screened and pre-cleared by both countries' security services.

Now there's real partnership for you!

But let me now turn from goods and people to a commodity essential to our economies, without which goods and people would be unable to move either very far or very fast across our friendly common border.

And that commodity, of course, is energy.

With increasing instability in the Middle East and the prospect of war with Iraq looming, the importance of having a friendly, dependable and secure source of energy next door cannot be overstated.

When President Bush unveiled his national energy plan in May 2001, months before the terrorist attacks in New York and Washington, he recognized Canada's energy potential and the need to "make it easier for buyers and sellers of energy to do business across national borders."

This is even more important today.

Our energy trade is more extensive than many people might think.

What began with a lonely power transmission line across the border at Niagara Falls in the early 1900s has become, a century later, an interconnected network of transmission grids and pipelines which powers two of the world's strongest and most vital economies.

With apologies to the advertising jingle of General Electric: this energy interdependence "brings good things to life", at least to our trading partnership. And to our two societies.

Our energy trade is based on the principles of free trade, covered under a set of clear, transparent and predictable rules in the NAFTA which work to ensure an unfettered flow of energy, without political interference or cartel economics.

Canada is the largest energy supplier to the U.S., accounting for:

• 94% of natural gas imports;
• close to 100% of U.S. electricity imports, and
• more crude and refined oil products than any other foreign supplier.

Our oil sands alone contain over 315 billion barrels of recoverable oil, more than Saudi Arabia's total conventional reserves of 265 billion barrels.

And our markets are highly interdependent. If you live in New England, chances are you use Canadian energy every day.

Let me provide you with some quick facts about energy in your neighbourhood.

According to the Canadian Association of Petroleum Producers, or CAPP for short, the Maritimes and Northeast Pipeline delivers four hundred million cubic feet of natural gas per day to Boston from the Sable Island project off Nova Scotia. An additional 400 million cubic feet is expected to come into service by 2005.

A recent assessment by the Canada-Nova Scotia Offshore Petroleum Board estimates that Nova Scotia gas reserves are as high as 41 trillion cubic feet. By way of comparison, this is approximately the equivalent to U.S. offshore gas reserves in the lower 48. Harvey Klingensmith, president of El Paso Canada, recently noted that the region is still "underexplored".

Current and projected energy development off the coast of Newfoundland is also promising. The Hibernia field is producing 150,000 barrels per day; the terra nova field over 80,000 barrels per day; and the white rose development, with reserves estimated at over 260 million barrels of oil, is expected to come into production in late 2005.

On the electricity front, Canadian electricity imports into the U.S. northeast amounted to 18 million megawatt hours in 2001, according to the Canadian National Energy Board. Did you know that some U.S. border regions are not on the U.S. power grid and receive their electricity exclusively from Canada?

Scary eh?

But it really is a two-way street: U.S. electrical exports to the Canadian Atlantic provinces and Quebec totalled 3.5 million megawatt hours, again demonstrating the high degree of interdependence in this market.

Canada's huge hydropower potential represents a clean, reliable and renewable source of power in an uncertain world. And it offers one part of a solution to longer-term North American energy security.

According to the Canadian Hydropower Association, hydro potential is about 118,000 megawatts — the equivalent of 56 new Hoover Dams. In Quebec, Newfoundland and Nova Scotia alone, there are over 47000 mw of hydropower potential that has yet to be developed.

These are but a few examples of Canada's future energy development potential in the region. Of course, not all of this will be developed, but it serves to demonstrate Canada's essential role in the North American energy market.

So that Americans can benefit in a significant way from this clean, secure and renewable source of energy, a compatible regulatory framework which bridges the capabilities of the producers and the rights of the consumers should be developed.

Unfortunately, sometimes decisions are taken which work against that interdependence and against the development of energy potential. For example, state and federal-level proposals to encourage renewable energy production can discriminate against non-domestic sources and against certain types of renewable energy sources.

As another example, while there is wide consensus in the industry that electricity transmission infrastructure requires improvements and upgrades to allow electricity transmission across regions, access to transmission facilities can be impeded by old-style rules or even protectionism.

This impediment delays investment decisions which could lead to energy efficient inter regional grids responsive to national economic needs.

Mind you, Canada also needs to put our house in order.

Currently, Canada is following the evolution of the U.S. energy bill as it makes its way through the legislative process. The Congressional energy conference committee recently mandated a route to bring Alaskan natural gas through Canada to southern markets.

We share Alaska's desire for energy development, and we are by necessity partners in its pipeline since at least two-thirds of any pipeline running from Alaska to the lower 48 must go through Canada.

But Canada would like to see the private sector, not government, decide where to construct a pipeline, subject of course to regulatory and environmental review.

The energy bill also includes a gas price subsidy to Alaska in the tens of billions of dollars, even though the Administration and most industry stakeholders are against it. They rightly believe that a subsidy will distort market prices and, in turn, will hurt North American production.

Before concluding, allow me to suggest what governments can do to encourage energy development in a manner that provides increased business certainty and enhances North American energy security.

To this end, I offer several elements of a prescription for healthy growth in energy development so essential to North American economic security:

First, we should avoid legislative interference that hampers the efficiency of the market. We have all seen what happened in the 1970s and the 1980s when our governments restricted trade and set prices.

I am sure that no one in this room wants to return to the days of Canada's National Energy Policy, the dreaded NEP.

By the same token, we do not want to see the Congress of the United States legislate prices for large quantities of Alaskan natural gas, thereby distorting markets, introducing budget uncertainties and delaying gas development in other promising sites — many of which lie in the United States itself.

Second, we need smart and cooperative regulation that recognizes the interdependence of our energy markets and our shared North American economic space.

Decisions we make at home can inadvertently affect our neighbours.

Canada is committed to accelerated regulatory reform in oil, gas and electricity to eliminate impediments to cross-border trade in energy. We can broaden and deepen regulatory cooperation between our countries by cutting red tape and regulatory hurdles.

A more cooperative and more compatible regulatory framework is necessary for business certainty and could facilitate the development of a single North American energy market.

Third, all development must include sound environmental assessment with consideration for social impacts. By "sound", of course, I mean assessments based on the principles of sustainable development — where economic goals are advanced in step with protecting the environment.

These are mutually supportive objectives.

Streamlining regulatory frameworks does not mean weakening environmental requirements. In fact, I am confident that industry will welcome a clearer, more efficient, less burdensome set of rules, especially when accompanied with more assured predictability for investment decisions.

Canada also realizes that it must provide industry with certainty regarding the Kyoto Protocol.

Yesterday, the federal government released details on a draft plan for achieving Canada's climate change goals. Next Monday, in Halifax, federal, provincial and territorial ministers will be meeting to discuss how to ensure that all regions of the country are working together to achieve our commitments in the most efficient, effective and equitable manner.

The purpose of Canada's implementation plan is to encourage innovation and economic growth, while taking into account environmental implications. Through grading schemes it will enable industry to contribute to reducing emissions, while maintaining a competitive edge.

Canadian industry will be able to participate in the international market for carbon credits, which could provide flexibility and lower costs.

I have been watching with interest the efforts of the New England Governors and eastern Canadian premiers to address climate change, including the possible development of a regional standardised greenhouse gas emissions inventory, registry and trading mechanism.

I hope that Canada and the U.S. will continue to find innovative ways of working together on this important global issue.

Many see risks to Canada's economic growth over the short term through the ratification of Kyoto. Our extensive territory, our harsh climate and our large energy production all conspire to make compliance with Kyoto targets a significant challenge.

Accordingly, forward-looking recommendations are met with skepticism and criticism.

But in this connection, we might be wise to listen to the words of Albert Einstein when he said: "If at first the idea is not absurd, then there is no hope for it".

The hope which accompanies kyoto is the inevitability of exciting, innovative technologies which can only lead to more intelligent consumption of energy.

In Canada, one of the most promising developments lies in the area of fuel cell technology.

Companies like Ford in the United States and Ballard, a Vancouver-based leader in fuel cell technology, are working together to take us beyond the concept of the internal combustion engine.

There is also great potential in the cooperative development of clean-burning coal technologies — a resource which both countries have in super abundance.

Surely joint projects like these hold the promise of a Canada U.S. energy partnership of which we can be proud and which should extend far into the future.

And this leads me to the fourth and final component of my prescription: satisfying many of our energy needs through shared research and development, increased energy efficiencies and intelligent energy consumption.

By following this simple four part prescription:

• avoid legislative interference,
• implement clear, consistent and smart regulations;
• commit to responsible environmental assessment; and
• cooperate on energy efficiency and develop new and cleaner fuel technologies.

We should be better equipped to pursue our common North American objectives of energy security, economic growth and environmental protection.

Thank you.