OR\G\NAL

Running a Green Business:
A Balance of Environmental and Economic Priorities

Douglas D. Baldwin
Presidentand Chief ExecutiveOfficer
Esso ResourcesCanada Limited

presentedto
Canadian Gas Association MarketingConference
Calgary, Alberta
October 22, 1990

Check against delivery

 Running a Green· Business:
A Balance of Environmental and Economic Priorities

As Chairman of the Canadian PetroleumAssociation, I'm all too familiarwith the
challenges Steve Bellringerfaces leading an industry associationlike the CGA in
the nineteen-nineties.
And yet, in some ways, leadingthe CPA seems almost straightforwardwhen
compared with Steve's task. The CPA's efforts are focused on the upstreamend
of the petroleum business: finding oil and gas and producingit.
The Canadian Gas Association,in contrast, is not neartyso single-minded. The
CGA represents the interestsof natural gas production,transmission,
distribution, and manufacturingcompanies. It must take determinationand
patience to develop a consensus among such a broad cross-sectionof the
industry. At the same time, the diversity of your membershipgives the CGA a
special influence. Becausewhen you do reach a consensus,you can speak for
the whole industry, not just one segment.
And I see that diversity in the line-up of speakers this morning... a leading
Canadian manufacturer, a major American utility, and an interest group
spokesperson advocating the benefits of conservation and renewableenergy.
Over the next day-and-a-half, you'll hear from industry, government,
environmental and consumer advocates, and educators. By tomorrow
afternoon, I'll wager, you'll have heard as many viewpoints as there are
speakers.
This morning, my challenge is to give this conference a 'kick-start'. I hope my
remarks will help energize you, and provide some focus for what must be one of
the toughest and most important issues of the nineties.

The Prospectsfor NaturalGas
But before I do, I can't pass up this opportunity to talk for a moment about
natural gas marketing.... even though I'm far from an expert on the subject.
Some of you already know the Essa expert: our vice-presidentof Natural Gas
Marketing, Jim Park, who served as CGA's Chairman last year.

 I kn~w Jim would agree with me when I say that the marketing future for natural
gas Is tremendously promising.
Without a doubt, the years following deregulation gave a whole new meaning to
the words, 'growing pains'. When the supply of any commodity is long,
produ~ers' netbacks are usually in the ditch, and that's currently the case for
Cana~1an nat~ral gas. And our outlook tells us that prices in Canada will be soft
for quit~ a while yet. The good news is that we expect some significant and
early pnce strengthening in the U.S. market.
The excellent market potential for our product will inevitably-- and I hope sooner
rather than later - bring back reasonable prices in Canada, too, and we
anticipate that all sectors of the industry will be enjoying profitable growth by the
mid-1990s.
That's my very short gaze into the natural gas crystal ball. Let me move on to
address "The Environmental Challenge".

The Environmental Challenge
To me, there are two challenges facing all segments of the Canadian petroleum
industry:
Our first challenge is to claim a seat at the policy development table as
governments take steps to legislate a greener future. And when I say
'governments', I mean all levels of decision-makers, from the United Nations to
community associations.
And our second challenge is to prove we can run greener businesses by building
environmental considerations into every aspect of our industry.

Challenge11: ctafma Seatat the Po/feyQevefopmentTsbfe
If we want to be effective and credible participants in the development of
environmental policy, we must first gain an understanding of the explosion of
environmental legislation, from international accords to city by-laws. Let me
paint a quick picture of today's landscape of environmental legislation.

lntsrnat/onal Environmental Accords
At the international level, protocols now restrict emissions of CFC's, sulfur
dioxide and nitrogen oxides. Discussions are underway that could lead to
emission reductions for volatile organic compounds and carbon dioxide.

 ~~~~ia 1has play~

an active role in many of these protocols-- going back to the
t . oabml
convention on 'Limits to Growth', the BruncttlandCommissionon
5 us am e Development and the Montreal Protocolon CFC's.

Federal EnvironmentalInitiatives
On the federal playing field, three policy initiativesdemonstratethe Mulroney
government's determination to address Canadians'demandsfor action.
The C~nadian Environmental Protection Act -- one of the world's toughest pieces
of environmental legislation -- was passed in 1987.
Another piece of legislation -- with an almost-identicalname -- was introduced in
the House of Commons in June, and has gone to a special committee for review.
It's called The Canadian EnvironmentalAssessment
Act. Once in place, this
legislation will ensure that all projects involvingthe federal government- or
areas of federal jurisdiction -- will have to pass a thoroughenvironmentalimpact
assessment.
Depending on how this legislation is interpretedand implemented,these
guidelines could be applied to ~ industrial project of significance. This could
add years to industrial planning schedules and hundredsof thousands of dollars
to development costs.
The third piece of federal policy -- and the one that's causing the most
speculation -- is Environment Canada's 'Green Plan'.
The final document should be published by year-end. The plan is expected to
contain over 100 recommendations for improvingand enhancing Canada's
environment. And Environment Minister Bob deCotret has already hinted that
the Green Plan is going to cost Canadian industry and consumers real
greenbacks: he's talking about spending commitmentsworth billions of dollarsl

Provincial EnvironmentalInitiatives
Provincial environment departments are, in general, no less aggressive in their
policy initiatives. Some provinces are worried that their jurisdiction over natural
resources may be threatened by the federal initiatives we just reviewed.
Here in Alberta, for example, the government has tabled a draft version of the
Alberta Environmental Protection and EnhancementAct. This act consolidates
and updates a number of existing environmental laws into one framework piece
of legislation. It's partly intended to keep Alberta Environment one step ahead of
the feds, with comprehensive legislation, strict emission standards, and tough
enforcement procedures.

 Another environmental d

•

ResourcesCo
. eve 1opment m Alberta is the plan to create a Natural
Conserva .
nservatton80 tJn!,
modeled after the existing Energy Resources
808rd

together :~~.
• ~nd Env1ro~mentMinister Ralph Klein is busy putting
a s ca11ed A Clean Air Strategy for Alberta".
I'd rk
I
b
e to note that the process being used to create the 'Clean Air Strategy' has
ee~ a r~al breakthrough - at least from my perspective. In approaching the
provm_ces goal of reducing air-borne emissions, Minister Klein has redefined the
way his department relates with the people and organizations they govern. The
~esearch ~~d study team tackling this issue includes all stakeholders: regulators,
mdustry, c1t1zens,communities and interest groups.
I'm proud to represent my employer and my industry in another provincial
environmental initiative, the Alberta Round Table on Environment and the
Economy. Other provinces have their round tables, too. I hope this style of
collaborative forum becomes the norm as we tackle the environmental
challenges facing us all.
As Minister Klein can tell you, it's a short trip from the legislature to city halls and
municipal councils across Canada. Here, recycling, water quality and energy
~-conservation have become Main Street issues.
Politicians at all levels are being pressured to produce tangible evidence of
progress towards a greener future. As the Honourable Jake Epp said in a talk to
my association in January: "If this government does not move forward with its
environmental action plan, a~
government will develop one of its own. Of
that there is no doubt."
And it's not just politicians that are feeling the heat. We've got reason to look in
the mirror and see how green a reflection we're casting. One thing we might see
would be a survey where 52 per cent of Canadians said they think the oil and
gas industry does a poor job of protecting the environment.
That's why it's so urgent for us to understand the green agenda that's driving the
public sector. And once we have a sense of that agenda, we have to add our
voices to the debate.

Associationsan Ideal Vehiclefor Contributingto Polley Development
How? Industry associations like the CGA are an ideal vehicle for contributing to
the discussion. Your information ca-mpaign, with the theme, "Natural Gas: The
Natural Choice", is a positive step. You're educating governments, customers
and consumers about the environmental impacts of gas production and
consumption.

 I might raise a few eyebrow h
.
aspect of your 'Nat
~ ,ere wit~ my n~xt statement, but I do find one
you'repositioningur;11
croice ca~pa1gn a httle short-sighted.
That's theway
hydrocarbon
na ura _gasas a clean' form of energy and other
s as, well, a little grubby.
I'm concerned _about_
the spectre of one segment of our industry sniping at
th
ano er. My ~1ewpomt would be that Canadians in every province and territory
need to examme the full spectrum of energy options and make rational choices,
not emotional ones.
I will concede that any success you achieve in demonstrating the environmental
advantages of natural gas will almost certainly benefit every segment of the
petroleum industry, and the environment we all share.
So let's say we've responded to our first challenge: through the good work of
our employers and associations, we've earned a seat at the policy development
table. What should we be saying when we get there?
Government Should be Responsible tor Establishing Environmental Goals;
Industry Should Have Flexibility in Means to Achieve Goals
J

I believe we should be advocating a policy development process where
government is responsible for setting environmental goals and industry is
responsible for developing the means to achieve them.
Let me give you an example of how such an approach might work. Earlier, I
referred to the Alberta Clean Air Strategy. Under this program, government,
industry and environmental experts are using a two-phase approach.
First, the task force will define what we know and what we don't know about
energy-related emissions. Then, having clearly defined the technological~ quality
of life and cost implications, Alberta will be in a good position to achieve its
second goal, which is to manage these emissions. The ball will then be in
industry's court to develop strategy options and solutions.
I welcome this kind of consultative process. It gives us the opportunity to 12Yi1Q
our future, rather than reacting to it when it shows up on our doorstep. It helps
government, industry and the public understand the challenges, estimate the
costs, and define the expected benefits. This kind of a process gives all
stakeholders a say in how we prioritize the many environmental issues we face.
It's my belief that this approach will unleash the full power of innovation,
imagination and economic drives of the marketplace. This will lead to solutions
that will be more efficient and effective than the current 'command and control'
approach.

 One example of marketplace

. .

.

1

.

emission rights in the United ~;9:tlVity .s the )ncreasingpracticeof trading

~;5·
Air quality goals are met, but at a lower net
an an across-the-board emission-reduction

cost to industry and consum
program.
ers

But all our innovations a d
d.
.
they're printed
.
.n .g~o intentions won't be worth the recycled paper
b .
on I1our I ndrv1dualcompanies don't change the way they do
usmess on a day-to-day basis.

Challenge
#2i 8 u/ldEnvfronmentst
eonslderatfons
tntoEveryASRfJCf
ot

ourBusta@§§-

I'm cert~n all of the companies represented at this conference are now
conducting their business in ways that are more environmentally responsible. If
you'll allow me, I'll illustrate some of the things our industry is doing differently by
drawing some examples from the two organizations I know best: the CPA and
Imperial Oil.

CPA Environmental Leadership
The CPA has spearheaded environmental protection efforts in the upstream
-'petroleum industry in three ways. First, we've supported research programs, like
the Task Force on Oil Spill Preparedness. Since 1970, CPA members have
contributed $300 million toward environmental research.
Second, we've led all industries in Canada with our environmental codes of
practice and guidelines. And finally, we're always looking for opportunities to
participate in government/industry environmental efforts, such as the National
Task Force on Environment and Economy.

Imperial Oil Initiatives
At Imperial Oil, we've built environmental accountability into the highest
management levels of the corporation. Imperial is one of many Canadian
businesses that has appointed a vice president responsible for environmental
issues. Ours is Jim McFarland. Some of you may know Jim from his many
years with Esso here in Calgary.
Jim works with a special committee of the board of directors to oversee our
environmental protection practices. This top-management commitment is
backed up by our cross-Canada network of 166 environmental specialists.
Over the last five years, we've spent almost a quarter of a billion dollars on
environmental protection and facility upgrades. This year, another $85 million in
capital expenditures is directed at protecting the environment.

 Dolla~_likethese have allowed us to overhaul our spill preventionand response
capabll1ties,and to complete a thorough inventoryof our environmentalpractices
at all our plants and facilities.
Across Imperial, we're introducing a comprehensiveprogramwe call 'Operations
Exc~llence'. It's a program we believe will help us simultaneouslyachievetwo
~lusavegoals:_superiorhealth, safety and environmentalperformance,and
1mproved profitability.
Thes~ are just s~me of the efforts of but one company. The size and profile of
lmpenal 011reqU1resthat we take a pro-active approachto environmentalissues.
However, _Ibelie~e it's safe to say that Canadianshavethe same expectationsof
~veryone m our mdustry,from the smallest gas appliancemanufacturerto the
integrated petroleum giants.
Whether you perceive your company-or associationas more or less green than
the competition is pretty much beside the point. The point is, no matter what
we've done in the past, governments and society expect all of us to change our
stripes .
.,-Clearly, any responsible business person in Canada realizesthat our planet
cannot survive another two centuries of developmentthat in any way resembles
the last 200 years.

Protecting the EnvironmentMust BecomeSecondNatureto Industry
At a European conference on sustainable developmentearlier this year, Bjorn
Stigson -- the head of AB Flakt, the Swedish engineeringfirm -- gave a telling
example:
"We treat nature like we did workers a hundred years ago," he says. "We
included then no cost for the health and social security of workers in our
calculations, and today we include no cost for the health and security of nature."
It's time to include these costs in our calculations, and they can be staggering.
Cleaning up the Valdez spill will cost some $3 billion U.S. And that mane~isn't
coming from government coffers: it's coming right off Exxon's pre-tax earnings.
The Wall Street Journal says it will cost the Soviet Union some 280 billion rubles
to clean up the Chernobyl nuclear disaster. Even with the recent?~ percent .
devaluation of the ruble, that translates into a little less than_200 b1lllonCanadian
dollars. In other words, responding to that single disaster w1_11
cost_more than the
Gross National Product of all but a few of the world's industnal nations.

 Thankful_ly,t~~se tragic incidents are the exception. And while it's no
consola~1on!its also true that industry isni the sole environmental culprit. The
cumulative impact of our modem lifestyles has the potential to pose ecological
threats that are just as serious.

There's a Gap Betweenthe World CanadiansWantand WhatThey're
Willing to Pay tor It
The ~ources of environmental degradation are widespread; that's why the
solutions must be sought in every sector of society. And let's face it: in this
country today, there's a gap between the world Canadians want to live in and
what they're willing to pay for it.
Consu.~ers want low-cost energy and petroleum products. Communities are
less walling to accept any environmental risk: the 'Not In My Back Yard'
syndrome. Shareholders and other investors quite rightly expect that our
companies should make a fair profit, so that dividends and increased share
values are possible.
And outside our comfortable corner of the planet, the developing world wants the
quality of life we take for granted -- and they're not fussy how they get there.
"
With
all these conflicting demands, environmental expectations seem sure to
crash headlong into economic realities. From where I stand, trade-offs are
inevitable.

Tradeoffs are Inevitable; Must Balance EnvironmentalConservationwith
Economic Development
Yet I'm an optimist at heart. I'm an optimist because I know that public
expectations and the operating standards which govern the energy industry have
been rising steadily for years. And I also know that we've proven we can meet
those expectations by balancing
environmental quality with our industry's basic
economics. Because it truly§ a balancing act.
Dr. Donald Chant, President of the Ontario Waste Management Corporation,
says, "Environmental conservation and economic development not only~
coexist, they must co-exist, tor one is a conditio~ of the ot~er." And former federal
Environment Minister Tom McMillan says, "It 1snot possible to have a sound
economy without a healthy environment."
The history of this country and its p8oples reinforces the d~licate b_alance
between the environment and the economy. From the earhest nat~ve~unters to
today's farmers, fishers, miners, foresters and roughnecks'. Canadians
livelihoods have been tied to the development and harvesting of our natural
resources.

 ~ few statistics from the Green Plan discussion paper quantify this
mterde_Pendence. Morethan four million people -- one in everythree working
Canadians -- are employed in Canada's resource-based industries.
Ene~gy, in particular, is a major export industry and the basis of substantial
foreign exchange. I understand some of you in this room are determined to
make energy exports even more substantial in the years aheadl
Wh~~ concerns me is that some Canadians don't seem to grasp these basic
realities of our economy and our way of life. Scientist Dr. Carl Sagan describes
modem society as one which is "exquisitely dependent on science and
technology, yet hardly anyone knows anything about science and technology."
I'd like to paraphrase Dr. Sagan a little, and describe Canada as a society
"exquisitely dependent on energy, but hardly anyone knows anything about
energy."
That, as they say, is our cue. We know something about energy, and our
knowledge is needed as Canada develops its environmental strategy for the next
century.

/t's Not Easy Being Green
As I said at the outset, the energy industry has got to claim a seat at the policy
development table, and we've got to visibly demonstrate how we're going to run
our businesses differently to prove our commitment to the environment.
It won't be easy. Our motives will be challenged. Our best efforts will be
dismissed as window-dressing. Kermit the Frog got it right when he said, "It's
not easy being greenl*"
We're walking a tight rope with a balance pole ... and there's no safety net. If the
environmental end of the pole becomes too heavy, we risk losing our
international competitiveness and the economic means to achieve our
environmental goals. If the economic end of the pole dominates, we risk
squandering an unparalleled natural legacy.
Yet when we find that balance -- and we mustl -- then this industry and this
country will truly continue to be the envy of the world.

*

"Bein' Green". Music & Lyrics by Joe Raposo. Copyright1970,Jonico Music,Inc.

Reprintedwith permission.