STUCK IN TRAFFIC FOR 10,000 YEARS

CANADIAN PROBLEMS THAT INFRASTRUCTURE INVESTMENT CAN SOLVE July 2017 EMBARGOED COPY

2 Cyber2 Security in Canada | The Canadian Chamber of Commerce This reort as made ossible b the generous suort of our sonsors

Title

Premier

Associate

Canadian Construction Association

CPCS Transcom Limited

Ontario Poer eneration TABLE OF CONTENTS

Introduction 5

Road Congestion in Large Cities 6

Facilitating Trade Through the Asia Pacific Gateway and Corridor 13

Positioning Canada to Excel in the Information Age 20

Realizing the Potential of Canada’s North 25

Enhancing the Quebec-Ontario Continental Trade Corridor 30

Getting Canada’s Oil and Gas to Global Markets 36

Green Electrification and Transmission 43 INTRODUCTION

Ten thousand years is how much additional This funding will be accompanied by time commuters in Toronto, Montreal and hundreds of billions of infrastructure dollars Vancouver spend stuck in traffic every single from provincial, territorial and municipal year as a result of road congestion from governments. key bottlenecks in those cities. This severe congestion is an issue not just for businesses At the same time, the private sector and residents of those cities, but for the continues to bring forward significant entire Canadian economy. Highly focused investments in Canada’ non-publicly infrastructure investments can help solve owned infrastructure, including Canada’s this problem and other major economic telecommunications, pipeline and rail challenges that Canada faces. networks. While most of these projects do not seek public funding, they do require In 2013’s The Foundations of a Competitive various government approvals through Canada, the Canadian Chamber of regulatory and other permitting processes. Commerce identified key principles of sound public infrastructure investment. There is an opportunity for the next decade The Chamber’s 2016 report, The of infrastructure investment in Canada to Infrastructure That Matters Most, made be truly nation changing by unleashing the case for increased trade infrastructure the private sector and targeting specific investment to drive Canada’s international economic problems through public competitiveness. investment. The problems identified in this report are not the only problems in What follows is an outline of seven problems Canada that infrastructure investments in Canada that strategic public-private should target, nor is infrastructure the sole infrastructure investment can help solve. means of solving them. However, they are important economic issues that demand Public infrastructure investment has been federal focus to better prepare Canada placed at the centre of the federal for the economic, environmental and government’s economic plan through technological changes that lie ahead. its commitment of $180 billion in new infrastructure funding over the next decade.

5 ROAD CONGESTION IN LARGE CITIES

The problem: Eighty-two per cent of cities has put pressure Canadians live in urban on their basic systems of Annually, areas of more than 90,000 infrastructure. commuters in residents, and this share is Toronto, Montreal expected to increase to Transportation systems have 1 especially struggled to keep and Vancouver 88% by 2050. Canada’s pace with growth, creating are spending urban growth is particularly concentrated in its largest challenges with how people more than cities, with over one-third of and goods move around 10,000 years of all Canadians, 12.5 million these regions. Gridlock extra time stuck total, living in Toronto, and crowded public transit in traffic due Montreal and Vancouver.2 has become an everyday to congestion Inconsistent public reality for businesses and their employees. This created by key infrastructure investment reality has economic and bottlenecks. over extended periods of double-digit population environmental costs. It growth rates in these increases greenhouse gas emissions, lowers employee

1 United Nations, Department of Economic and Social Affairs, World Urbanization Prospects (2014) 2 Statistics Canada, Census Metropolitan Areas, (2016)

6 productivity, increases the time to move congested throughout the course of a goods and services to customers and lowers weekday. CAA found that of the top 10 the quality of life of those experiencing it. It bottlenecks in Canada, five are located in affects everyone from large manufacturers Toronto, three are in Montreal and two are in transporting products to a self-employed Vancouver. Grinding to a Halt also provides handyman trying to get to another job. It region-wide measures of congestion by makes dynamic cities less livable and more examining how long an average weekday frustrating. trip takes on area highways versus how long it would take under free-flow conditions as Grinding to a Halt: Evaluating Canada’s a result of these bottlenecks. It found that Worst Bottlenecks, a Canadian Automobile congestion in Toronto, Vancouver and Association (CAA) study developed by Montreal is responsible for adding nearly CPCS Transcom, provides insight into road 88 million hours annually to Canadians’ congestion in Canada by identifying the commutes. That is over 10,000 years’ worth worst highway bottlenecks in the country. of extra time every year that drivers in those It defines bottlenecks as the stretches of cities are stuck in their vehicles. highway that are routinely and consistently

Additional Annual Hours of Travel Time Compared to Free-Flow Traffic

City Millions of Hours City Millions of Hours Toronto 51.6 Ottawa-Gatineau 5.2 Montreal 26.3 Oshawa 2.3 Vancouver 10 St Catharines 1.5 Calgary 7.8 Regina 1.1 Edmonton 6.2 Winnipeg 1.1 Quebec 5.3 Halifax 0.9 Hamilton 5.2 Total 124.4

Source: Grinding to a Halt: Evaluating Canada’s Worst Bottlenecks. CPCS analysis of data provided by HERE and provincial/local departments of transportation.

7 Toronto

The Greater Toronto and Hamilton Area (GTHA) is the most congested region of the country. Grinding to a Halt found that Toronto has 10 of the top 20 bottlenecks in Canada, with the three worst being Highway 401 between Highway 400 and Yonge Street, the Don Valley Parkway and a stretch of the Gardiner Expressway. It also found that region-wide congestion due to these bottlenecks results in 52 million hours of additional travel time per year.

In 2006, the regional transportation authority Metrolinx pegged the annual costs of congestion in the region at $6 billion and estimated that, without significant transportation improvements, the annual costs would increase to $15 billion by 2030.3 In 2013, the C.D. Howe Institute assessed that the costs of congestion in the region were underestimated by $1.5-$5 billion Source: CPCS analysis of data provided by HERE and by not including unrealized provincial/local departments of transportation. Results first published in the CAA’s paper: “Grinding to a Halt: Evaluating income when congestion deters Canada’s Worst Bottlenecks” people from visiting faraway businesses, sharing ideas face-to-face and taking on better paying jobs that require a longer commute.4

3 Metrolinx, The Big Move: Transforming Transportation in the Greater Toronto and Hamilton Area (November 2008) 4 Benjamin Dachis, C.D. Howe Institute, Cars, Congestion and Costs: A New Approach to Evaluating Government Infrastructure Investment (July 2013)

8 Expanded road and mass transit cost of $3.2 billion. In the face of these infrastructure are crucial to meeting kinds of costs, Toronto and Canada’s other the needs of the region’s economy. In large cities will need a renewed focus November 2008, Metrolinx unveiled its on improving the productivity of existing long-term regional transportation plan, The transportation infrastructure. Incentives to Big Move: Transforming Transportation in the encourage off-peak travel and Greater Toronto and Hamilton Area. The ride-sharing platforms can help cities use plan calls for $34 billion in new transit and existing transportation assets more efficiently. transportation projects including 1,200 km of Looking ahead, emerging technologies, new rapid transit and resolving bottlenecks such as autonomous vehicles, hold in the road network. To date, $16 billion in enormous potential to ease congestion. projects have been funded. Identifying continuous, ongoing funding Adding capacity to major transportation for upgrades to the region’s transportation systems in densely populated areas is costly. infrastructure is critical to ensuring Look no further than Toronto’s planned congestion in Canada’s largest city does Scarborough Subway Extension that will not become a bigger economic problem add 6 km and one additional stop on the than it already is. Bloor-Danforth subway line at an estimated

9 Montreal Montreal’s Light Rail Mega Project Grinding to a Halt found that Montreal had five of the top 20 bottlenecks in Canada, Major changes could be and as a result, Montreal-area residents coming to the face of public spend 26 million additional hours in traffic transit in Montreal. A new every year. project proposed by the Caisse de dépôt et placement du In addition to needing greater capacity, Québec will connect several Montreal is grappling with existing road suburbs and the Pierre Elliott infrastructure that is crumbling due to Trudeau International Airport to decades of inadequate maintenance. downtown Montreal through The mayor of Montreal recently stated 67 km of new light rail that would that 45% of the 4050 km of roads in the city be operational in the early 2020s. need either urgent or immediate repair.5 In Montreal’s current maintenance plan, The $5.9-billion project is unique the city will be working on 676 km of road in that the Caisse will build, own per year over the next several years, a and operate the system. The significant increase over the 2015 total of Caisse has pledged to commit 295 km.6 $3.1 billion to the project and is looking to the provincial and While this repair work is long overdue, federal governments to finance businesses and employees in Montreal the remaining $2.8 billion. To will suffer the consequences through earn a return on the project, construction-disrupted commutes. A recent the Caisse has proposed study in Quebec showed that 78% of to receive a share of the businesses surveyed said road repairs have enhanced property tax revenues had a significant impact on employee generated by real estate management and one-third of companies developments along the light rail said construction-related delays have route. resulted in employees quitting or turning down jobs.7 For Montrealers already tired of Projects such as this will construction delays, it is going to get worse become more common as before it gets better. governments seek to leverage private sector expertise and risk management for large, complex projects through Public Private Partnerships and other alternative financing mechanisms.

5 Denis Coderre, “Montréal Infrastructures: a pragmatic, coherent, and responsible approach” (speech, October 26, 2016 to the Chamber of Commerce of Metropolitan Montreal) 6 Andy Riga, Montreal Gazette, “Montreal’s 10-year plan: Go big with road, sewer and water-main work” (October 26, 2016) 7 Ordre des conseillers en ressources humaines (CRHA), Impact des travaux routiers la gestion des ressources humaines (2016)

10 Vancouver

Grinding to a Halt found that Vancouver has four of the top 20 bottlenecks in Canada, which result in an additional 10 million hours of extra travel time each year. Unlike Toronto and Montreal, Vancouver has no expressways serving its downtown core, which also means vehicles are jammed onto smaller streets and move at slower speeds.

The economic impacts of congestion in the Lower Mainland extend far beyond those living and working in the Metro Vancouver area. With an increasing amount of Canada’s trade destined for Asian- Pacific countries moving through the Port of Vancouver, congestion in the Lower Mainland impacts the competitiveness of businesses that rely on the efficiency Canada’s Asia-Pacific Gateway to export their goods. Previously, the federal Asia-Pacific Gateway and Corridor Initiative (APGCI) provided strategic infrastructure investments to improve the flow of goods through the Lower Mainland. Many stakeholders in Metro Vancouver and others outside the city that depend on the Gateway are asking the government to re-establish this Source: CPCS analysis of data provided by HERE and provincial/local departments of transportation. Results first collaborative infrastructure program published in the CAA’s paper: “Grinding to a Halt: Evaluating to better ensure regional goods and Canada’s Worst Bottlenecks” commuter movement strategies and investments are aligned.

11 Translink is the authority responsible for to help finance transit projects. Following regional transit, cycling and commuting a heated campaign, the measure was in Metro Vancouver while sharing rejected by residents, and in November of responsibility for the major road network 2016, the Mayors Council had to approve with municipalities in the region. In 2014, the increases to property taxes and transit fares Metro Vancouver Mayors Council released to finance the municipal share of projects. It a 10-year transportation and transit plan was instructive of the challenges Canada’s that included an estimated $7.5 billion in large cities face trying to balance their new capital spending projects for Translink. increasing transportation demands and The plan led to a plebiscite in 2015 on residents’ willingness to finance them. whether to increase regional sales taxes

Three Good Ideas…

Prioritize investments in transportation and consistent municipal capacity will capacity where it is needed most. The help communities improve infrastructure federal government has committed to add investment decisions and ensure new capacity to transit systems through an projects are maintained as long-term 11-year, $25-billion public transit fund investments. that will be coupled with provincial and municipal transit funding. Considering the Foster transportation innovation to reduce high costs of congestion, federal allocations congestion on existing infrastructure. The should be determined through a needs- federal government should use infrastructure based approach that focuses on large cities investments and other policy levers with the greatest congestion challenges. to improve the productivity of existing transportation assets. This could include Improve the management and maintenance creating incentives under new infrastructure of transportation assets. Approximately funding programs to encourage congestion 80% of the public roadways in Canada pricing or similar mechanisms can spread are owned by municipal governments out demand on transportation infrastructure. and the maturity of transportation asset The government should also start management systems of these governments developing flexible regulatory frameworks varies significantly.8 Through its infrastructure that encourage private sector investment in programs the federal government should technologies that have significant potential require better asset management practices, to reduce congestion, including carpooling including full lifecycle cost accounting for platforms and autonomous vehicles. municipal transportation projects. Improved

8 Transportation Association of Canada, Transportation Asset Management Best Practices for Canada (April 2016)

12 FACILITATING TRADE THROUGH THE ASIA PACIFIC GATEWAY AND CORRIDOR

The problem: Twenty per cent of region. Containerized and Canada’s trade by value bulk commodity exports There is travels through the move to the ports through a insufficient Asia-Pacific Gateway along multi-modal trade corridor the coast of British Columbia, coordination of comprised of thousands primarily through the Ports of kilometres of highways public-private of Vancouver and Prince and Class 1 and short-line trade-enabling Rupert, which are crucial railways that extend through infrastructure entry and exit points for British Columbia, the Prairies Canadian goods moving to and the U.S. investment in and from the Asian-Pacific Canada’s vital Asia-Pacific transportation networks.

13 Western Canadian Transportation Infrastructure

Source: CPCS analysis of internal list of Canadian transportation assets (CPCS GIS database)

The efficiency and reliability of these (APGCI), a program designed to provide transportation networks are critical to funding for critical trade infrastructure Canadian companies’ ability to integrate projects that reduce supply chain into global supply chains. For a trading bottlenecks and other barriers to trade nation like Canada, the strength of its through Canada’s west coast. economy is closely linked to the strength Through the program, Transport Canada of its trade corridors. This importance was and other federal departments negotiated recognized at the federal level in the infrastructure investments that included mid-2000s through the creation of the Asia the private sector and other levels of Pacific Gateway and Corridor Initiative government to fund multiple projects along

14 supply chains. The convening nature of Although lower export volumes as a result of the program was a powerful catalyst for the recent economic slowdown eased some investment. According to Transport Canada, pressure on the Gateway and Corridor, federal funds of $1.4 billion leveraged $3.5 long-term forecasts point to the need for a billion in total project funding, and the significant capacity expansion. Major investments had a spinoff effect in private Asian-Pacific economies will be the fastest investments exceeding $14 billion.9 growing export markets for Canadian goods in the decade ahead. Canada’s Despite strong industry support for the goods exports to China, already Canada’s initiative and the dozens of strategic second largest trading partner, are multi-modal projects that were funded forecasted to grow at 12% per year across the corridor as far east as Winnipeg, between 2021-2030. Goods exports to India no additional funding was provided for are expected to grow at 11% per year over APGCI when a new a federal infrastructure the same period.10 As a result of this strong framework was announced in 2013-14. pull for Canadian goods, containerized Following its expiry, APGCI was endorsed shipments through the Gateway are in the 2016 report of the Canadian expected to grow 4.8% annually through Transportation Act Review that found “the 2025.11 gateway approach of linking trade and transportation together in an integrated, The Canadian Transportation Act Review multi-modal and public-private strategy drew particular attention to global demand was widely recognized as a Canadian best for Canadian commodities. In addition to practice.” recommending the renewal of the overall initiative, it pointed out that APGCI had a prominent focus on containerized goods and that a renewed initiative should also include a focus on bulk commodities.

9 Marc Garneau, “Speaking Notes for the Honourable Marc Garneau, Minister of Transport to the Economic Club of Canada” (speech, April 27, 2016) 10 HSBC, Canada Trade Report (December 2016) 11 Ocean Shipping Consultants, Container Traffic Forecast Study – Port of Vancouver (2016)

15 Canada’s Top Six Bulk Commodity Exports via Rail for 2013 and 2045

Petroleum, iron ore, coal, grain/oilseeds, wood products, potash volume in tonnes.

Source: CPCS analysis of HIS World Trade Service Data

A CPCS Transcom forecast of Canada’s top six bulk exports (representing over 60% of the traffic currently carried by Canadian railways) projects that rail in Western Canada will need to nearly triple its capacity from 74 to 217 million tonnes of cargo between 2013 and 2045. British Columbia ports will see their demand for movement of these commodities triple from 89 to 259 million tonnes between 2013 and 2045.

16 There is no shortage of investment underway Seven hundred fifty kilometres north of to expand the capacity of the Gateway Vancouver is the Port of Prince Rupert, and Corridor. Port of Vancouver is already Canada’s fifth largest and fastest growing the busiest and largest port in Canada and port, which moved 20 million tonnes third largest port in North America, moving of cargo in 2015. Prince Rupert has an 136 million tonnes of cargo worth over advantageous location, being the closest $200 billion in 2016. There are a number port to China in North America. The port is of container terminal expansion projects also unobstructed by urban development being considered or already underway and has excess land available for that will add to the port’s existing three development, which positions it well to million twenty-foot equivalent units (TEUs) accommodate future expansion. Prince capacity. Global Container Terminals Rupert Port Authority is in the process of (GCT), which operates the Vanterm and adding to its annual capacity of 775,000 Deltaport container terminals, has started TEUs through an expansion of its Fairview a $300-million project to reconfigure the Terminal, which is expected to bring the Deltaport intermodal yard that will add port’s capacity to over 1.3 million TEUs 600,000 TEUs of annual capacity in 2017. A in 2017. planned expansion to the Dubai Ports World-operated Centerm would also There are also new projects being add 600,000 of additional TEUs by 2020. proposed to add capacity and resiliency Vancouver Fraser Port Authority is also on the west coast. The Port Alberni Port seeking private sector investors/operators Authority has proposed to develop a new and environmental approvals for its Roberts large-container trans-shipment hub (the Bank Terminal 2 project that would add Port Alberni Transshipment Hub or PATH) in another 2.4 million TEUs of annual capacity the Alberni Inlet on Vancouver Island. The by 2024. On the bulk side, G3 is moving proposal suggests that barging containers forward on a new grain terminal, the first to distribution centres along the Fraser River in the port in decades. As these projects from a Vancouver Island hub to the Lower move forward, they are accompanied by Mainland could help address capacity concern about the shortage of available needs and ease road congestion in the industrial land in the lower mainland and Lower Mainland. It is driven by the idea that how congestion in the region will impact the the waterways, which follow many of the port’s continued growth. local roadway routes in the Lower Mainland, could be better used to more efficiently move goods in the region.

17 As seaports add capacity, there is a need for Canada to expand other cost-effective and sustainable locations to support improving supply chain efficiency. Improving marine port throughput with the use of an inland port is one strategy being employed by major ports around the globe to reduce congestion, pollution and land costs. One such opportunity for Canada is the established Ashcroft Terminal, the closest inland port to Vancouver. Roughly 340 km away, Ashcroft is positioned to serve as a bulk, break-bulk and intermodal transportation hub for the Gateway given its proximity to CP and CN main lines and major British Columbia highways. By processing shipments inland, closer to British Columbia and Canada’s natural resource Source: CPCS analysis of internal list of Canadian transportation producers, Ashcroft is in a strategic position assets (CPCS GIS database) to stage goods away from the congested Lower Mainland so that shipments can move through Metro Vancouver for export logistics networks can be best enhanced as seamlessly as possible. As the Lower when infrastructure and policy decisions Mainland grapples with increased demand are made within the context of the and congestion, shippers may look more entire network rather than any individual at the inland containerization of export component. products to help ease the flow of goods, reduce truck traffic and convert truck to In the absence of federal coordination rail shipments closer to source. Further in that was previously provided under APGCI, the interior, other inland ports, such as there are several working groups and CenterPort in Winnipeg, can serve as a organizations contributing to collaborative supply chain connection points between analysis and decision-making. The Gateway Canada’s Asia-Pacific, Continental and Transportation and Collaboration Forum Atlantic trade corridors. (GTCF)12, has worked to identify priority projects for federal infrastructure funds, but With so many moving pieces, Canada’s is looking only at Lower Mainland projects. international trade competitiveness is Other organizations, many sharing common dependent on bringing together a diverse members that are working on gateway and set of public and private supply chain corridor analysis, include the Van Horne participants. Complex transportation and Institute, the Western Transportation Advisory

12 GTCF includes representatives from Translink, Greater Vancouver Gateway Council, Vancouver Fraser Port Authority, Transport Canada and the British Columbia Minister of Transportation and Infrastructure

18 Council (WESTAC), The Pacific Gateway integral parts of the orchestra, but there is Alliance, and the Greater Vancouver no conductor up front.” Some stakeholders Gateway Council. are also concerned that, without the APGCI structure, some public infrastructure projects Many of these supply chain participants that will unlock follow-on private sector agree the federal government should investments are being delayed. Surmised resume a leadership role, informing and one CEO, “international trade through incenting investments across the entire the Asia Pacific Gateway and Corridor is Gateway and Corridor. As one west coast a federal issue that needs to be federally executive put it, “these organizations are all driven.”

Three Good Ideas…

Increase strategic trade gateway will help identify bottlenecks, support supply and corridor investments. The federal chain innovation and prepare for future government recently announced a $2 growth. The new Canada Infrastructure billion, 11-year National Trade Corridors Bank holds potential to help fulfil this role Fund. While the funding is welcome, more as does the new Trade and Transportation federal dollars should be allocated to Information System that is being set up by strategic infrastructure investments across Transport Canada. Joint public-private Canada’s Asia-Pacific, Continental and advisory boards or similar structures Atlantic trade corridors. Building on the will encourage greater private sector experience from APGCI, priorities for the collaboration in data collection and help new fund should be determined through shape decision-making by depoliticizing collaboration with the private sector and investment decisions. by using merit-based project selection to attract increased domestic and foreign Increase federal leadership in identifying investment and achieve the maximum yield and tackling policy and regulatory barriers from public dollars. The government should to goods movement. A renewed federal support these decisions by re-establishing focus on trade gateways and corridors must gateway and corridor analytical capacity take comprehensive approach to goods within Transport Canada. movement and tackle issues that impact the efficient movement of goods to global Improve supply chain data collection markets. This includes issues such as overall and sharing to support trade infrastructure supply chain performance, transportation investments. Public and private information system policies and regulations, silos can lead to an inconsistent labour issues, international marketing, understanding of the “full picture” of how interprovincial trade barriers and the role goods move. Transportation infrastructure of private sector and institutional investors investment at all levels of government and in infrastructure investments. A systematic within the private sector would be better effort to quantify and address these issues informed through a collaborative Canadian will help drive measurable improvements in effort to collect, analyze and share data Canadian supply chains.

19 POSITIONING CANADA TO EXCEL IN THE INFORMATION AGE

The problem: Amongst the continuing puts it, land was the raw change and uncertainty material of the agricultural Canada’s in the global economy, age, iron was the raw telecommunications one certainty is the role material of the industrial age of digitization, big data and data is the raw material infrastructure and rapid technological of the information age. requires significant change will continue to ongoing capital permeate all aspects of how The ability of Canadian companies to use and investments business is conducted. The McKinsey Global Institute benefit from these global for Canadian found that in 2014, global data flows depends on companies to take digital flows, primarily the quality of Canada’s digital infrastructure and full advantage of consisting of information, searches, communications, the regulatory environment the expanding transactions, video and that governs it. Canadian digital economy. intracompany traffic exerted companies have largely a larger impact on the benefited from Canada’s world’s GDP than trade in robust digital networks, goods.13 As Alec Ross, author attributable to good of The Industries of the Future wireless and wire line

13 McKinsey&Company, McKinsey Global Institute Report, Digital Globalization: The New Era of Global Flows (March, 2016)

20 Canada Projected Growth networks because of billions of dollars of Between 2015-2020 private sector capital investments. As a result, over 96% of Canadians have access Overall Internet to broadband download speeds of at Traffic least five megabits per second.14 Unlike +270% some countries, Canada’s digital and telecommunications infrastructure has not Business Internet required large public sector investments. Traffic +240% However, not all Canadians and Overall Mobile companies have benefitted equally from Traffic connectedness. Canada’s geography +600% results in coverage gaps, particularly in rural and northern areas where it is not Business Mobile economical for telecommunications Traffic +500% companies to make large investments to serve small numbers of Canadians. Source: Cisco Mobile Visual Networking Index Notwithstanding advances in satellite and Service Adoption Forecast Tool, http://www. cisco.com/c/m/en_us/solutions/service-provider/ cellular technology, businesses in many rural vni-forecast-highlights.html# and remote communities rely on internet and cellular connections with much slower speeds and higher costs than those in urban centres.

Low or no bandwidth results not only in lost productivity but stifles data innovation and prevents businesses from taking advantage of all the new opportunities of economic activity migrating online. Market forces are not sufficient to bring reliable, high-speed connectivity to these communities, and there is a need for public investments and incentives to continue improving the reach In addition to bringing more connectivity of Canada’s digital infrastructure. Without to rural and remote areas, the ability of bridging this digital divide, businesses in rural Canadian companies to take advantage and remote communities will become even of global data flows will be driven by the more economically isolated from the rest of ability of the private sector to continue the country. modernizing its existing infrastructure.

14 Canadian Radio-television and Telecommunications Commission, Communications Monitoring Report (October, 2015)

21 Availability of Broadband Internet Service above 5 Mbps Download

Source: Canadian Radio-television and Telecommunications Commission, Broadband Internet Service Coverage in Canada (accessed February 2017)

This map shows the availability of broadband internet access in Canada at or above speeds of 5 Mbps at the end of 2014. Green areas are served with fixed wireless, DSL/fibre and cable connectivity. Yellow areas are primarily non-urban where 4G cellular service is being used to achieve 5 Mbps, although it is not always as reliable as fixed wire connectivity.

In December of 2016, the Canadian Radio-Television and Telecommunications Commission (CRTC) established a new universal service objective of 50 Mbps download and 10 Mbps upload speeds, which the Commission views as the level of service Canadians require to participate in the digital economy. The CRTC found that 2.4 million Canadians do not have access to these speeds and announced that a new fund of $750 million will be established to support projects where that level of service is not available.

22 Shortening technology cycles and used to. Adjusting this federal tax measure exponential growth in bandwidth demand to reflect the useful life of this infrastructure have necessitated substantive capital would spur increased network investments. investments to keep Canadians as full The Conference Board of Canada participants in the digital economy. This is estimates that a permanent change to a evidenced by the more than $14 billion in CCA depreciation of 50% for data network capital investments made by Canadian infrastructure would increase real capital telecommunication companies in 2015.15 investment by the telecommunications industry by approximately $225 million Furthermore, the lines between computing per year.17 and telecommunications is blurring as telecommunications companies are The next major development in network cultivating new digital offerings in the areas technology will be the deployment of of cloud services, the Internet of Things and fifth-generation cellular services (5G). 2G, data analytics. A global survey of major 3G and 4G were primarily directed at the telecommunications firms found that over consumer market, allowing Canadians to a third of companies expect digital services connect to the internet from their mobile will account for more than one-fifth of their devices at increasing speeds. 5G, which is revenues by 2020.16 expected to be deployed in the early 2020s, will be exponentially faster than One instance where public policy has not 4G (estimates range between 10 and 100 kept pace with the rate of change in the times faster). Many consumers may not sector is the Capital Cost Allowance (CCA) need the ultra-high speed that 5G provides. for telecommunications assets. The CCA is However, the speed and low latency will the extent to which a company can claim help usher in an ultra-connected future depreciation expense when calculating through new business and public sector taxable income meant to reflect the useful applications that will invade every industrial economic life of an asset. The current and social sector across developed CCA rate for some telecommunications economies. Real-time data transfer and equipment is 30%, whereas computer increased cloud computing capacity will equipment and systems depreciate at a drive improved efficiency and innovation rate of 55%, reflecting their high rate of through various new applications. technological obsolescence. In reality, some of today’s data network infrastructure has Many advanced economies are looking a lifespan more comparable to computing at 5G as an opportunity to drive increased devices, and companies can no longer use productivity. Although the private telecommunications assets as long as they sector is leading the development of

15 Canadian Radio-television and Telecommunications Commission, Communications Monitoring Report (October, 2015) 16 Ernst & Young Global Limited, Global telecommunications study: navigating the road to 2020 (2015) 17 Elise Martin, Conference Board of Canada, From Landline to Mobile Broadband: Tax Drivers of Investments for Canada’s Telecom Industry (December 2015)

23 the technologies needed to deliver 5G, providers and that the cost of that spectrum governments will play a key role through is in line with the cost in similar jurisdictions. the provision of wireless spectrum ( the This includes the more than $170 million airwaves wireless signals travel on). annually the federal government currently Its regulation and distribution is tightly requires telecommunications service controlled by government and auctioned providers to pay in spectrum licence fees. to telecommunications providers. For If the government-imposed costs of this Canada to capitalize on the opportunities ”invisible infrastructure” is excessively high, it provided by 5G, the federal government will impact the amount of capital available should ensure there is enough mobile radio for providers to invest in the rest of their spectrum available to telecommunications networks.

Three Good Ideas…

Increase public infrastructure investments in Update tax incentives for private investments rural and remote connectivity. The federal in telecommunications infrastructure. The government should prioritize and accelerate federal government should increase the public investment in digital connectivity Capital Cost Allowance (CCA) rate for for rural and remote communities as telecommunications equipment to 50%, part of its infrastructure agenda. These reflecting the reality of rapid changes in the investments should be done in consultation technology. Updating the CCA will stimulate with telecommunications providers and hundreds of millions of dollars in new private in a manner that limits the distortion of sector investments in Canada’s digital competitive markets as much as possible. infrastructure. Governments can also facilitate greater private sector investment in remote areas Ensure Canadian companies can benefit by providing updated mapping of existing opportunities presented by 5G. To ensure telephone and utility infrastructure in rural Canadian companies are at the forefront areas. of 5G innovation, the federal government should ensure enough spectrum is available to telecommunications providers to support 5G traffic. The federal government should also ensure that the cost of that spectrum is not prohibitive.

24 REALIZING THE POTENTIAL OF CANADA’S NORTH

The problem: Canada’s territories occupy populations. Decades 40% of the country’s of insufficient investment Many northern landmass while being home has resulted in severe Communities in to roughly 110,000 residents, infrastructure needs that only 0.03% of Canada’s are much greater than Canada still lack population. North of the the funding available some of the basic 60th parallel has some of through existing per-capita infrastructure that the most beautiful and infrastructure programs. makes it possible for unforgiving geography in the These infrastructure deficits world, making it a complex impact every facet of daily business to succeed and costly environment in life for residents. It limits and thrive. which to build and maintain investment in the North the most basic infrastructure. and prevents Canada from realizing the full economic For the federal government, and social benefits of it can be difficult to justify the North’s resource expensive projects that development potential. benefit small, spread out

25 Air Transportation Pangnirtung Air Access

Climate, large distances and small Pangnirtung is a community populations conspire to limit road of 1,425 in Nunavut that is infrastructure in the North. Where there are accessible only by a short, roads, many are unpaved or are temporary 900-metre runway that runs ice roads. As a result, air travel is a vital link through the middle of town. The for moving to, from and around the North. runway length restricts the size of Some northerners describe air transportation aircraft and payloads that can as the “trans-Canada highway of the land at the community. North.” As one northern air carrier has been upgrading its fleet, The reliance on air can be appreciated performance limitations of by examining the difference in aviation its newer model aircraft do trips per capita between northern and not permit operations on the southern communities. In 2006, Iqaluit, with short runway. While the carrier a population of 6,000 had over 110,000 air continues to maintain older travel passengers enplane and deplane, aircraft to fly into Pangnirtung, averaging nearly 18 aviation trips per soon it will need to retire those capita, the highest ratio in the country. aircraft for maintenance cost Yellowknife was second highest, at 15 and safety reasons. aviation trips per capita. In comparison, Toronto and Vancouver averaged 5.8 and Without a new or extended 18 7.7 aviation trips per capita respectively. runway that can accommodate newer planes, businesses and Despite the reliance on air travel in the residents will lose flights from North, many northern airports lack the the carrier, increasing the cost basic infrastructure that would make air of moving people and cargo transportation safer and more affordable. to Pangnirtung and limiting One major cost driver for northern carriers the economic development is that flights are often diverted or turned potential of the local fishery around due to bad weather before landing and tourism to nearby Auyuittuq because carriers do not have accurate National Park. weather information for destination airports. In addition, many northern runways are only

18 Statistics Canada, Transportation in the North, Propensity to travel by airplane, 2006 (2009)

26 equipped with the most basic approach more efficient. Liquefied Natural Gas lighting systems which limits pilots’ ability (LNG), which is cleaner and less expensive to land in what would otherwise be safe than diesel, is emerging as an alternative conditions. The extra expense of flights that for some communities. Since 2013, the are turned away from their destination community of Inuvik, Northwest Territories is built into cargo and ticket costs and has been trucking in LNG over 3,600 km ultimately borne by the economies of (further than Thunder Bay to Vancouver) northern communities. Relatively inexpensive from a FortisBC Liquefied Natural Gas plant investments to improve weather and runway in Delta, British Columbia to provide cleaner guidance systems at airports across the and cheaper electricity to the community. North would lower costs and increase the Whitehorse has also recently built new gas safety and reliability of northern air travel. generators to provide backup and peaking power to the city.

Renewable sources of energy are also becoming more practical for isolated Clean Electrification communities. Smart micro-grid technology can optimize the use of renewable power Many remote and northern communities with existing diesel generation. Several across Canada are not connected to major northern communities are close to potential electricity grids and, instead, rely on diesel hydropower sites, and other renewable generation. Diesel-generated power is not sources will become more attractive only harmful to the environment through as storage technology improves in the local air pollution and GHG emissions coming years. Looking further ahead, the but also through emissions related to development of small nuclear reactor transporting the fuel long distances and technology may be an option for reliable, ground pollution due to spills and leaks. It cleaner electricity in some communities. is also expensive. Electricity costs in some northern communities have been over 10 Capital investments in many of these new, times higher than the Canadian average cleaner energy sources will be costly. on a per kilowatt-hour basis while per capita The federal, provincial and territorial energy use in the North is almost twice the governments have shown an increased Canadian average.19 interest in tackling this challenge through the December 2016 Pan-Canadian Framework There are short- and long-term solutions on on Clean Growth and Climate Change, the horizon. Opportunities exist to upgrade which committed to “…accelerate and existing diesel generators to make them

19 National Energy Board, Energy Use in Canada’s North: An Overview of Yukon, Northwest Territories and Nunavut – Energy Facts (March 2011)

27 intensify efforts to improve the energy internet packages cost hundreds of dollars efficiency of diesel-generating units, per month for 3-5 Mbps download speeds demonstrate and install hybrid or renewable and 30-50 gigabyte download caps. energy systems and connect communities Comparable packages in other parts of to electricity grids.”20 In addition to the the country cost $40-$50 per month. While environmental and economic benefits to service providers continue to improve their businesses and northerners, more affordable offerings, the costs and market size do not and reliable electricity sources can help support large-scale private sector capital reduce one barrier to new resource investment. projects in the North. Northern communities will be watching closely to see if capital In December 2016, the Canadian commitments follow the intentions expressed Radio-Television and Telecommunications by governments. Commission (CRTC) ruled that broadband service with download speeds of at least 50 Mbps would be considered a basic telecom service. The CRTC also announced it would start a public/private investment fund of Digital Connectivity up to $750 million over five years to fund projects in areas that do not meet these For the same reasons it is difficult to connect targets. This funding follows previous and northerners physically to the south, it is current federal funding programs that have difficult to connect them digitally. The high committed hundreds of millions of dollars cost of telecommunications infrastructure and made incremental, but still insufficient, results in internet and cellular service that is improvements to northern connectivity. significantly slower, more expensive and less reliable than in the rest of Canada. In the absence of significant capital investments, northern connectivity will In addition to higher costs to businesses, remain caught in a perpetual state of northerners must grapple with lost “catch-up” that will leave northerners productivity as a result of slow speeds. The digitally isolated and unable to fully quality of a community’s broadband service participate in the economic opportunities of also affects businesses’ ability to attract the information age. and retain skilled workers.21 In Nunavut,

20 Federal, provincial and territorial governments of Canada, Pan-Canadian Framework on Clean Growth and Climate Change (2016) 21 Canadian Chamber of Commerce, Developing the Economic Potential of Canada’s Territories (December 2012)

28 Three Good Ideas…

Increase federal infrastructure funding for collaboration through a formal mechanism the North. Per capita-based federal funding to ensure limited infrastructure dollars have programs are not sufficient to meet the the greatest economic and social impacts infrastructure needs of the businesses and across the entire region. For example, residents in the North. In 2016, the federal upgrading airport weather information government announced it would allocate systems and runway guidance lights for $2 billion over 11 years for rural and northern all northern airports could be done at less infrastructure. While this commitment is cost than a single large-scale infrastructure welcome, more funding should be set aside project and would provide economic to meet the unique needs of the North in the benefits across the territories. context of a $180-billion infrastructure plan. Incentivize investment in the North Better coordinate infrastructure investments through the Canada Infrastructure Bank. As in the North. There are many proposed port, the federal government stands up the airport, road, pipeline, rail, fibre Canada Infrastructure Bank it should optic, electrical transmission and other ensure that the bank’s mandate includes a infrastructure projects that are all competing specific focus on facilitating public-private for funding across the territories. Rather investment in strategic infrastructure than being considered as one-off decisions, projects that could help unlock new investment proposals for northern projects economic opportunities in the North. would benefit from greater cross-territorial

29 ENHANCING THE QUEBEC-ONTARIO CONTINENTAL TRADE CORRIDOR

The problem: Ontario and Quebec a part of highly integrated, generate over 70% just-in-time supply chains Canada’s of Canada’s total clustered in the Great Lakes transportation manufacturing revenue.22 region. Although manufacturers networks from in these provinces have Goods move to and from Ontario and Quebec customers around the world, manufacturers in the into the U.S. require the sector largely serves Montreal area and southern Ontario through a multi- increased capacity the U.S. market with over three-quarters of Canadian modal transportation system to support the manufacturing exports linked into the U.S. heartland. long-term global destined to Canada’s largest While these transportation competitiveness trading partner. A significant networks to the U.S. support freight movement by of North American portion of that trade is intermediate production water, rail and air, truck manufacturers. and intracompany trade as is the dominant form of

22 Statistics Canada, Manufacturing sales, by province and territory (February 2017)

30 transportation. This reliance on trucking transportation networks into the U.S. to leaves regional trade vulnerable to highway help drive increased trade through a congestion and processing and security comprehensive infrastructure, policy and delays at the Canada-U.S. border. While regulatory plan. While the MOU led to manufacturing in Canada has faced a cross-jurisdictional analysis in a number of long-term decline as a share of Canada’s areas, a strategy never materialized. overall economic output, improving the efficiency of Canada-U.S. supply chains The challenges that led to the need for can help ensure Canada’s remaining a strategic approach in 2007 still exist. manufacturers remain competitive. In its 2015 submission to the Canadian Transportation Act Review, the Government In 2007, following the example set by of Quebec expressed support for an the Asia-Pacific Gateway and Corridor integrated plan, recommending that “the Initiative (APGCI), the governments of federal government should recognize Canada, Ontario and Quebec signed a the importance of the Ontario-Québec memorandum of understanding (MOU) to Continental Gateway and Trade Corridor develop an Ontario-Quebec Continental in international exchange and… [resume] Gateway and Trade Corridor Strategy. the work and update the analyses and the Its objective was to support upgrading Strategy… to ensure its implementation.”23

23 Ministere des Transports du Quebec, Examen de la Loi sur les transports au Canada (July, 2015)

31 Ontario/Quebec Land Capacity Constraints – Road and Rail Capacity Constraints

Source: CPCS analysis of FHWA, Statistics Canada-Transport Canada ICORRIDOR traffic information utilizing FHWA Greenbook parameters for Capacity. Results first published in the TRB’s Report: “Multimodal Freight Transportation Within The Great Lakes – Saint Lawrence Basin”.

Canada’s manufacturing trade will continue to generate new long-term demand on the transportation systems in these regions. By one measure, volume capacity ratio (VCR), several major highways in Quebec and Ontario are currently experiencing capacity constraints. VCR is an index used that assesses the volume of traffic on a highway against its capacity. A highway operating at 100% VCR is operating at full capacity, and one operating at greater than 100% is operating above capacity and experiencing congestion. Current capacity problems are most acute around the Greater Toronto and Hamilton Area (GTHA) and Montreal, the two most congested regions in Canada. These constraints disrupt commuter and freight movement, problems sorely familiar to businesses moving goods through these regions. They point to a pressing need for transportation system upgrades to deal with congestion issues that are affecting many companies close to their manufacturing and distribution facilities.

32 Ontario/Quebec Gateway Land Capacity Constraints – Road and Rail Capacity Constraints

Source: CPCS analysis of FHWA, Statistics Canada-Transport Canada ICORRIDOR traffic information utilizing FHWA Greenbook parameters for Capacity. Results first published in the TRB’s Report: “Multimodal Freight Transportation Within The Great Lakes – Saint Lawrence Basin”.

Forecasting capacity constraints by 2040 on current regional networks paints a daunting picture of how existing infrastructure will be unable to accommodate transportation demand over the next 15 years. Many of the major highways on both sides of the border will be operating at excess capacity. While freight railroads will make appropriate investments to ensure appropriate capacity, protecting corridors and land for future rail capacity expansion will be required.24 Without enhanced capacity, the additional time and cost to move goods anywhere in the region and between countries will make North American manufactured goods more expensive and less competitive in global markets.

24 CPCS Transcom for the Council of the Great Lakes Region, Great Lakes and St. Lawrence Region Transportation Trends, Issues and Opportunities (March 2017)

33 Increasing capacity for bi-national of the bridge (to be repaid through tolls) transportation and border infrastructure to accelerate its construction. The formal includes an additional layer of political procurement process for the Gordie Howe complexity. Canada’s busiest border Bridge was launched in 2015 with a target crossings are located in Ontario completion date of 2020. Procurement and Quebec with truck traffic most setbacks have further delayed the concentrated in a few key crossings around completion to 2021 or 2022. With 25% of Lake Ontario, including the Detroit-Windsor all Canada-U.S. trade moving across the Crossing. Detroit-Windsor, the busiest Ambassador Bridge, construction of the land border crossing in North America is Gordie Howe Bridge is widely considered anchored by the Ambassador Bridge, which the single most important infrastructure has more than $250 million in commodities in project in Canada. Despite its economic roughly 8,000 trucks travelling across it each importance, it will have taken nearly 20 day.25 Trucks face significant congestion years to complete the project by the time and delays at the crossing due to the high it opens. volume of traffic, limited capacity and the bridge’s location in downtown Windsor with Canada and the U.S. is the only major no highway access. trading bloc in the world that does not have an infrastructure bank or similar agency to In the early 2000s, governments on both help plan, finance and build cross-border sides of the border started working on a infrastructure. In their paper Some Assembly strategy to meet the region’s transportation Required, the Canada West Foundation and demands, resulting in a proposal to the George W. Bush Institute recommend construct a new six-lane, publicly owned the creation of a North American Border span between Detroit and Windsor, later Infrastructure Bank to support the building of named the Gordie Howe Bridge. Since it border infrastructure between Canada and was first proposed, the estimated $4.5-billion the U.S. Given the challenges with project has been beset by numerous delays. bi-national projects, such as the Gordie Following environmental approvals in 2009, Howe Bridge, a new approach to planning in 2010 the Government of Canada had and financing border infrastructure projects to agree to finance Michigan’s portion is worth exploring.

25 Ontario Ministry of Transportation, Ontario Border Crossings (accessed January 2017)

34 Three Good Ideas…

Reinvigorate a coordinated approach to Avoid further delays in the construction the Continental Trade Corridor The federal of the Gordie Howe Bridge. The federal government recently announced a new government should use all means available $2 billion, 11-year National Trade Corridors to advance and complete construction Fund which can help fund collaborative of the largest and most important border infrastructure projects along the Continental infrastructure project between Canada and Trade Corridor. The federal government the U.S. Once completed, the new bridge should also help inform public-private will help create new jobs and improve investments through the collection and competitiveness of businesses on both sides analysis of more Canada-U.S. supply chain of the border. data through federal instruments such as the Canada Infrastructure Bank and the Trade Consider new approaches to financing and Transportation Information System. border infrastructure. The federal government should ensure that the new Canada Infrastructure Bank can be utilized to support the efficient planning and financing of integrated Canada-U.S. supply chains and cross-border infrastructure.

35 GETTING CANADA’S OIL AND GAS TO GLOBAL MARKETS

The problem: Canada is an exporting Most of Canada’s oil and nation. It has always produced gas exports move through Delays in regulatory more than it consumes to the pipelines, the safest and most approval processes betterment of the country efficient way to transport and to other nations that them. On average each year, are limiting the benefit from these goods and 99.999% of the oil transported private sector’s services. Canada’s ability to on federally regulated ability to build bring its oil and natural gas pipelines moves safely.26 new pipeline resources to the U.S. and However, in recent years, other parts of the world has a troubling trend of project infrastructure and helped generate wealth and approval delays have set and move Canada’s oil an enviable standard of living hindered the private sector’s and gas resources for Canadians by creating ability to expand Canada’s to domestic and hundreds of thousands of pipeline infrastructure so these good paying jobs and billions resources can be brought to global customers. of dollars in tax revenues and new markets. royalties for governments.

26 Natural Resources Canada, Canada’s Pipeline Safety System (accessed December, 2016)

36 Natural Gas U.S. markets, and low-priced natural gas from the northeast U.S. is starting to displace The U.S. shale boom, which started in Canadian gas in eastern Canada. In 2006 and reached its peak in 2012, has addition to increasing the sale of gas to transformed North American natural gas Canada, the U.S. is exporting more abroad, markets and the competitive landscape supported by the 2016 opening of its first for Canadian producers. Canadian liquefied natural gas (LNG) export terminal exports have been driven out of several in the contiguous U.S.

United States Natural Gas Trade – Annual Energy Outlook 2017

Trillion cubic feet 2016 8 History Projections 6 Liquefied natural gas (LNG) exports 4 Pipeline exports to 2 Canada Mexico 0 Pipeline imports from -2 Canada LNG imports -4

-6 -6 1980 1990 2000 2010 2020 2030 2040

Source: U.S. Energy Administration, Annual Energy Outlook 2017

37 In the face of significantly increased North multiple new LNG projects in the U.S., American supply and U.S. competition, it is Australia and other countries came online critical for Canadian producers to access or started construction, providing those new international markets. Unfortunately, countries with new jobs, economic growth Canada’s landlocked natural gas does not and government revenues. yet have the pipeline infrastructure and LNG facilities to export to Asia and other parts of It took LNG Canada two years, from the world. May 2013 to May 2015, to receive approvals under the Canadian In 2011, LNG Canada (a consortium of Shell Environmental Assessment Act (CEAA). Canada and affiliates Mitsubishi Corporation Jurisdictions that were able to move of Japan, Korea Gas Corporation and faster are now meeting high demand from PetroChina) conceived of an export project Asian-Pacific countries. The price of natural to construct and operate a natural gas gas has since declined, and LNG Canada liquefaction facility and marine terminal in and other projects have put final investment Kitmat, British Columbia, one of several LNG decisions on hold. Inefficient regulatory projects that have been proposed in the decision-making impeded Canada’s sector province. In a 2012 interview, Peter Voser, to take advantage of new economic President of Royal Dutch Shell PLC, noted opportunities. Canada had a ”narrow window” to take advantage of the lucrative global market for If Canada can get its natural gas to new LNG. He added that an efficient, effective markets, it will lead to more than just and time-bound regulatory process is vitally economic benefits for Canadians. Exporting important from a competitive perspective.27 Canadian LNG to coal-dependent countries will have an added environmental benefit of Voser’s analysis of a narrow window was displacing coal power and lowering global correct. In the following months, lengthy greenhouse gas emissions. Looking forward, approval processes delayed LNG Canada it is speculated that the next ”narrow and other LNG proposals. As a result, the window” for long-term LNG export projects missed their narrow window to sign contracts could open up sometime the first generation of long-term contracts between 2020-2025. with Asian utilities. While Canada watched,

27 Bill Graveland, Canadian Press “President of Royal Dutch Shell says BC LNG could be ‘pilot’ for federal streamlining” (May 29, 2012)

38 Crude Oil infrastructure is also reaching points of constraint, particularly that which connects Most of Canada’s crude oil export to the Western Canada basin. In 2012, pipelines run north-south to Canada’s exporters started moving crude by rail. largest customer. While access to the Without new pipeline capacity, Canadian U.S. is an advantage for Canadian crude, exporters will need to rely more on rail well it also means Canadian oil is captive to into the future. the U.S. market and sold at a discount relative to world prices. Canada’s pipeline

Canadian Oil Export Pipeline Capacity and Oil Exports to 2040

Source: Canada’s Energy Future 2016: Energy Supply and Demand Projections to 2040, National Energy Board

39 Forecasts point to the largest increases Indigenous communities affected by in demand for crude oil coming from projects have also become more active emerging economies over the next 15-20 in review processes. Project proponents years. Canadian companies are keen to have faced challenges adequately build new pipeline infrastructure eastward fulfilling the duty to consult based on the and westward from the Western Canada evolving legal status of Indigenous peoples. basin to tidewater so oil can be sold to Governments must consult Indigenous non-U.S. markets at higher prices. This is peoples and accommodate them when reflected in the billions of dollars of new proposed projects could adversely pipeline projects that have been proposed affect their constitutionally protected in the last decade, including Keystone XL, rights. Governments often delegate the the Alberta Clipper Expansion, Northern procedural aspects of this duty to business, Gateway, Trans Mountain Expansion and usually by mandating project proponents to Energy East. These proposals have faced an consult during the regulatory process. This increasing number of challenges. can be a positive way for industry and the Indigenous communities to work together, Canadian and international environmental however, the lack of a clear framework from organizations have made Canada’s the Crown on how to do this can undermine pipeline infrastructure the focal point of all parties’ interests. Often, projects that their efforts to limit the growth of Canada’s have the potential to provide long-term energy industry. More specifically, they economic and social benefits to Indigenous have concentrated on shaping pipeline communities and all Canadians are delayed regulatory review processes and, what used or cancelled. to be, largely technocratic processes have become a proxy for debate about how Governments have struggled to respond Canada should respond to climate change. to these new realities, which has led to At the same time, some communities significant delays and uncertainty in the concerned about the impacts of pipelines consideration of projects. This includes have become more active in trying to stop delays in the time it takes for regulators pipelines from passing near their jurisdictions. to make recommendations and delays in This has been bolstered by the emerging final decisions by governments based on concept of social licence, an undefined those recommendations. This uncertainty threshold of local support that projects must makes it more difficult to attract capital to apparently meet. The challenge of social Canada as investors look to markets with licence is not limited to oil and gas projects less investment risk. From an environmental as many large renewable energy projects perspective, stalled pipeline projects means face some amount of local opposition. that potential customers of Canadian oil and gas (including eastern Canada) will

40 continue to meet their needs by importing extend well beyond Western Canada. An these products from countries subject to independent study of the project found that less stringent environmental controls and it would create thousands of jobs in Quebec regulations than those in Canada. and Ontario, along with $6.3 billion in additional GDP activity in Quebec and $13 There is still an opportunity for Canada to get billion in additional GDP activity in Ontario. this critical infrastructure built. In November It is also expected to generate $2 billion in 2016, 36 months after Kinder Morgan applied additional tax revenue for Quebec and $3.6 to the National Energy Board, the federal billion in additional tax revenue in Ontario.29 Cabinet approved the environmental assessment for the construction of the Trans In June 2016, the federal government Mountain Expansion pipeline, subject to 157 announced it would be reviewing federal conditions. The Trans Mountain Expansion environmental review processes, including will twin an existing crude pipeline and the mandate of the National Energy nearly triple capacity of the line between Board and the Canadian Environmental Edmonton and Burnaby.28 Assessment Agency. This review provides an opportunity for the federal government to The National Energy Board is also reviewing re-establish environmental reviews of private the Energy East pipeline proposal, which sector energy projects as non-political, will use an existing natural gas pipeline with predictable evidenced-based processes. At additional new infrastructure to transport a time when the U.S. is preparing to reduce oil from Alberta and Saskatchewan 4,500 taxes, regulatory burden and environmental km to refineries in eastern Canada and standards on the American energy industry, a marine terminal in New Brunswick. If it is more important than ever for the federal built, the pipeline would reduce much of government to create the conditions for Quebec’s and Atlantic Canada’s reliance energy projects in Canada to succeed. on imported oil and would allow for more overseas exports. The benefits of Energy East

28 Kinder Morgan, Trans Mountain Expansion Project (accessed January, 2017) 29 Deloitte, Energy East: The economic benefits of TransCanada’s Canadian Mainline conversion project (September, 2013)

41 Three Good Ideas…

Make federal environmental assessment Provide greater clarity to business and processes more timely and predictable. Indigenous peoples regarding the duty The outcome of the reviews of the to consult. Problems will continue to arise National Energy Board and the Canadian as long as there is a lack of clarity around Environmental Assessment Agency will when, how and to what degree the federal have significant impacts on the future of government can delegate its duty to consult Canada’s energy industry. The government with Indigenous communities. The federal should increase public trust in these government should lead the development processes by giving them clear jurisdictional of a consistent consultation framework so boundaries and mandates and ensuring all that governments, business and Indigenous voices can be heard while making science peoples all know what is expected of them and evidenced-based decisions in a in fulfilling their respective duties. reasonable set amount of time.

The federal government should be a champion of regulatory outcomes. The federal government must defend the outcomes of Canada’s environmental reviews to help build and maintain public and investor confidence in those reviews. This is especially important as there are some organizations and individuals who seek to undermine public trust in Canada’s environmental review processes.

42 GREEN ELECTRIFICATION AND TRANSMISSION

The problem: Although Canada has one been expanding as the of the cleanest electricity federal government has Without improved systems in the world, with strengthened national efforts electrical grid 80% of production from non- to reduce Canada’s GHG emitting sources, electricity emissions. These efforts have connectivity generation is still Canada’s been supported through between fourth-largest source of renewed engagement with provinces, it will greenhouse gas (GHG) the provinces and territories 30 be more difficult emissions. on a climate change agenda. This federal- to meet Canada’s Generation and transmission provincial cooperation led to climate change primarily falls under provincial the March 2016 Vancouver commitments. jurisdiction in Canada, save Declaration in which for federal responsibilities First Ministers agreed to related to interprovincial and implement GHG mitigation international transmission policies to meet or exceed and environmental Canada’s 2030 target of protection. Although the a 30% reduction below sector is divided among 2005 levels of emissions, provincial and territorial including specific provincial lines, Ottawa’s involvement and territorial targets and in electricity issues has objectives.

30 Federal, provincial and territorial governments of Canada, Pan-Canadian Frame- work on Clean Growth and Climate Change (2016)

43 Electricity Generation in Canada, 1972-2014

To help meet these targets, the federal New Brunswick has one remaining government has announced regulations coal-generating station that the under the Canadian Environmental government is considering converting to Protection Act to accelerate the phase-out natural gas or biofuel. Nova Scotia has of coal-fired electrical generation. Under signed an equivalency agreement with the plan, existing federal regulations to the federal government that will allow the phase-out coal power plants will be brought province to keep using coal electricity forward to 2030, affecting the four provinces provided it finds equivalent reductions in still relying on coal: Alberta, Saskatchewan, other areas of its electricity sector. Nova Nova Scotia and New Brunswick. While the Scotia also intends to import hydro electricity accelerated phase-out will contribute to from Newfoundland and Labrador’s massive Canada’s climate goals, replacing a low- Muskrat Falls hydroelectric project through cost source of energy in these provinces will the Maritime Link, a new high-voltage increase electricity costs for Canadians and transmission line being constructed between Canadian companies. Newfoundland and Nova Scotia that includes 170 km in subsea cables.

44 Ontario’s experience phasing out coal Saskatchewan currently generate 51% and illustrates the challenge facing Alberta and 42% of their electricity from conventional Saskatchewan. In 2003, Ontario committed coal. Neither has nuclear, and at present, to phase-out coal by 2007. In 2005, the hydro is only a small part of the mix in both target was pushed back to 2009, and in provinces (2% and 14% respectively).32 33 2007, the date was further extended to the end of 2014, which Ontario successfully Even with its significant hydro and nuclear met.31 However, the starting point for Ontario generation, the transition to cleaner energy in 2003 was much different than what it is in Ontario has not been without cost. today for Alberta and Saskatchewan. In Procurement decisions to increase the 2003, coal accounted for 25% of Ontario’s non-hydro renewable composition of its grid power supply, with a baseload of 63% of (from 1% in 2003 to 9% in 2015) is one factor power from hydro and nuclear sources. that has contributed to significant electricity By 2015, following the phase-out of coal, rate increases in the province, imposing hydro and nuclear accounted for 81% of higher costs on consumers and businesses. the province’s generation. Alberta and

Electricity Generation by Fuel Share

Ontario Ontario Saskatchewan Fuel Alberta (2015) (2003) (2015) (2015) Coal 29% 0% 51% 42% Natural Gas 8% 10% 39% 34% Hydro 24% 23% 2% 14% Wind, Biomass, Solar and 1% 9% 8% 6%* Others Coal with Carbon Capture Storage 0% 0% 0% 4% Nuclear 39% 58% 0% 0% Total 100% 100% 100% 100%

* includes imports

Sources Albert Energy, SaskPower, Ontario Energy Board

31 Ontario Ministry of Energy, The End of Coal: An Ontario Primer on Modernizing Electricity Supply 32 Alberta Energy, Electricity Statistics, Electricity Supply (2015) 33 Sask Power, Our Electricity (2015)

45 Alberta and Saskatchewan are both Canada: A Nuclear Leader planning significant investments in new renewable energy capacity, including wind In 2015, Canada was the sixth-largest and solar. Even with adding new renewable producer of nuclear electricity in the capacity to their grids, both provinces will world through four active nuclear still require a significant natural gas baseload facilities: three in Ontario and one in to replace coal. A recent analysis by the New Brunswick. All four facilities use Canada West Foundation, Power Up: The Canadian-developed CANDU nuclear Hydro Option, suggests that for Alberta and technology. In addition to developing Saskatchewan, interprovincial hydro imports and exporting CANDU technology, from British Columbia and Manitoba may be Canada is the world’s second largest best way to bring clean, reliable power onto producer of uranium and possesses their grids by 2030.34 The study argues that the world’s largest deposits of importing hydro through improved provincial high-grade uranium.* grid connectivity may be a more cost-and time-effective than other options available. In Ontario, nuclear accounts for Canada already has strong connectivity nearly 60% of electricity generated. with the U.S., with more than 30 major Ontario Power Generation (OPG) has transmission to U.S. states facilitating net started an eight-year refurbishment exports of approximately 9% of Canada’s of the Darlington Nuclear Generating electricity.35 East-west connectivity is Station, the second-largest nuclear much more limited, preventing significant facility in the country and responsible electricity trade between provinces. for 20% of Ontario’s generation. The refurbishment is the largest green Federal climate change policies can also energy project in the country, will take encourage more interprovincial green until 2024 to complete and will keep energy collaboration. Under the Pan- Darlington operational until 2055. Canadian Framework on Clean Growth Despite Canada’s nuclear success, and Climate Change, provinces do not there is no serious momentum for receive any credits to their GHG targets nuclear generation to help replace for exporting clean energy to one another coal in Alberta and Saskatchewan. In and helping other provinces lower their 2008, Bruce Power applied for a permit emissions. Under the Framework, it makes to build a reactor 480 km northwest no difference to Manitoba’s GHG reduction of Edmonton. Plans were abandoned targets if the province exports hydro to the in 2011 due to a lack of support in U.S. or to Saskatchewan. However, selling to the region. SaskPower, the provincial Saskatchewan will displace coal and natural electric utility, has continued to gas generation, lowering Canada’s overall study the feasibility of nuclear power in Saskatchewan but has no plans to proceed with a nuclear facility anytime soon. Realistically, the length of time needed to gain a reasonable level of social acceptance, plan, build and licence a nuclear facility makes it 34 Naomi Christensen and Trevor McLeod, Canada West an unlikely source of power in either of Foundation, Power Up: The Hydro Option (June, 2016) the two provinces by 2030. 35 Government of Canada, Canada and the United States, Electricity (accessed January 2016) *Natural Resources Canada, Uranium in Canada, www.nrcan.gc.ca/energy/uranium-nuclear/7695

46 emissions. If the Pan-Canadian Framework Wataynikaneyap Transmission Project credited Manitoba’s targets with some of those reductions, it could help incentivize There are 25 communities in hydro-producing provinces to connect and Ontario that are not connected export that energy within Canada rather to the province’s electrical grid. than to the U.S. In the absence of a more The Wataynikaneyap Transmission national approach to green electrification Project proposes to connect 17 and transmission, provinces will replace most of these communities, home to coal power with another fossil fuel, natural 10,000 Ontarians, to the province’s gas, over available green options. transmission system. The project is 51% owned by a partnership of 22 Recent federal-provincial climate First Nations with the remaining share cooperation and new federal infrastructure owned by FortisOntario. The estimated commitments could lead to new capital cost of the project is $1.35 interprovincial transmission investment. In billion, and based on diesel rates, 2016, the federal government expressed it is expected the project will break support for connectivity between Canada’s even in two decades. The project will balkanized electricity markets on multiple also allow future renewable energy occasions. The 2016 federal budget projects in the region to connect to committed $2.5 million over two years the provincial grid and sell power. The to “…facilitate regional dialogues and project is currently seeking a federal studies that identify the most promising and provincial funding arrangement electricity infrastructure projects with the and hopes to start construction in 2018 potential to achieve significant greenhouse with an initial phase completed by gas reductions...” The 2016 fall economic 2020 and a second phase completed statement noted that eligible projects for by 2024. the $22 billion federal green infrastructure fund include “…interprovincial transmission lines that reduce reliance on coal-fired power generation...”36 When announcing the accelerated coal phase-out, the Minister of the Environment stated the government governments agreed to “…work together to will support the transition away from coal help build new and enhanced transmission “…by using the Canada Infrastructure Bank lines between and within provinces and to finance projects, such as commercially territories.” viable clean energy and modern electricity systems between provinces and territories.” The new federal interest in financing Finally, in the December 2016 interprovincial transmission infrastructure Pan-Canadian Framework on Clean Growth will be confronted with the current and Climate Change, federal and provincial challenges of building energy infrastructure

36 Government of Canada, Fall Economic Statement 2016, A Transformational Infrastructure Plan Fact Sheet (2016)

47 in Canada. Large-scale private sector diesel generation is a relatively small source and utility collaboration in clean energy of Canada’s overall GHG emissions, it is an generation and transmission projects would expensive fuel source and is harmful to local be bolstered by ensuring their regulatory environments. Advancements in renewable processes are transparent and efficient. energy, micro grids and energy storage are creating new sustainable electricity options Efforts to lower emissions from Canada’s for communities currently dependent on electricity system must also include bringing diesel generation to meet their energy cleaner energy to the 292 rural and remote needs. Many of these communities will off grid-communities, most of which are require help with the up-front capital costs powered by diesel generation. Although to transition to cleaner energy sources.

Three Good Ideas…

Support interprovincial grid connectivity decision-making should weigh how these where it makes sense. The federal costs will impact Canadian competitiveness government has signaled that it wants and consider ways to lower other to support investments in interprovincial government-imposed costs of doing business transmission infrastructure. Any new public in Canada. Adding more renewable power investment should take into account the should also be phased in in a way that does differences between provincial energy not endanger grid reliability. markets and limit harm to private investors in deregulated, open markets. The Provide capital investments to help Pan-Canadian Framework on Clean remote communities transition away from Growth and Climate Change can further diesel power. While electricity will remain enhance regional electricity collaboration principally a provincial jurisdiction, there is a by incentivizing provinces to export green role for the federal government in helping energy to other provinces. rural and remote communities, particularly northern First Nations communities, to Ensure the shift to more renewable electricity move to cleaner, more sustainable energy protects consumers, businesses and overall sources. The federal government can help reliability. The costs of moving away from isolated communities fund the significant cheaper and higher polluting sources up-front capital costs of new generation of energy will be borne by Canadians infrastructure. and Canadian companies. Government

For more information, please contact: Ryan Greer, Director, Transportation & Infrastructure Policy | 613.238.4000 (250) | [email protected]

48 Chamber.ca | CanadianChamberofCommerce | @CdnChamberofCom