STATEMENT OF ROBERT PAGE OF

TRANSALTA CORPORATION BEFORE THE

ENVIRONMENT AND PUBLIC WORKS COMMITTEE

OF THE UNITED STATES SENATE

June 12, 2002

Thank you, Mr. Chairman.

My name is Robert Page. I am Vice President, Sustainable Development, for TransAlta Corporation, which is headquartered in Calgary, Canada. I have with me Paul Vickers, who heads up our offsets and emissions trading efforts.

We very much appreciate your kind invitation to provide testimony to the Committee today. As a Canadian, I feel privileged to share our thoughts on environmental protection with members of the United States Senate, a body that we in Canada hold in the highest regard. I am pleased to note that several Committee members represent states that are our immediate neighbors, including Montana, Idaho, Ohio, New Hampshire, Vermont and New York.

Who is TransAlta?

Before discussing TransAlta’s climate change strategy, some background on our company is in order.

TransAlta is Canada’s largest non-regulated electric generation and marketing company, with more than $7 billion in assets and 9,000 megawatts (MW) of generating capacity either in operation or under construction. We recently established a presence in the United States by purchasing a coal-fired power plant in Centralia, Washington. We also have generating units in Mexico and Australia.

Our company has an aggressive growth strategy in North America. We plan to increase our generation capacity to 15,000 MW by 2005 by building or acquiring additional power plants. We therefore favor government policies that accommodate growth in our economy and power supply while protecting the environment.

Our generation mix includes coal, hydro, gas, and wind. In our home province of Alberta, we operate three large coal-fired units and have a 50 percent interest in a fourth. We believe that coal is an essential resource for power generation in North America and are committed to operating coal-fired units on a long-term basis even as we further diversify our generation portfolio.

Environmental stewardship is one of TransAlta’s core values. We were recently one of four companies worldwide recognized by the World Business Council for Sustainable Development for voluntary approaches to climate change. We were also chosen in 1998 and 2002 as the top electric utility in Canada for leadership on voluntary greenhouse gas (GHG) reductions. In 2002, we received a national award for the best environmental reporting in Canada and Wall Street again chose us for the Dow Jones Sustainability Index.

Principles in Our Climate Change Strategy

As a company, we accept that climate change is a significant public concern that must be addressed. This means stabilizing and ultimately reducing emissions of CO₂ and other greenhouse gases into the atmosphere. Because society is heading for a carbon-constrained future, our company believes we must seek out cost-effective means to manage carbon in the interests of our shareholders and our customers. We take this responsibility very seriously knowing that TransAlta is currently the second largest single emitter of greenhouse gases in Canada.

Based on this philosophy, TransAlta has developed a Blueprint for Sustainable Thermal Power Generation. Our Blueprint identifies steps that would enable TransAlta to achieve zero net emissions of greenhouse gases in our Canadian operations by 2024. We know that this is a very ambitious goal. Our success in reaching it is not a given but will depend on both the existence of the right government policies and programs and development and application of breakthrough, commercially viable technology that is not in use today.

Our Blueprint envisions two integrated strategies – one for the near- and medium-term and the second for the long-term. Under the first strategy, we will maintain emissions at current levels at existing units and any new units we build or acquire through a combination of offset projects, renewable energy, improved plant efficiency, and emissions trading. Under the second strategy, we will work toward developing and testing new technologies for combustion and for sequestering CO₂ emissions and then deploying these technologies through the normal process of capital stock turnover and renewal.

We are committed to implementing these two strategies through voluntary actions, market mechanisms, and negotiated sectoral agreements. Our company does not support mandatory carbon controls. However, we do believe that government should provide clear market signals for new technology developers and policies and procedures that ensure the orderly development and functioning of emissions trading markets.

Components of Our Program

Two aspects of our program merit special comment.

Offsets and Credits. The first is the importance we attach to offsets and credits in achieving emission reductions. Short of premature plant retirements or costly repowerings, we can only lower emissions at plants using existing technology by improving fuel utilization or replacing equipment to increase efficiency. While we are committed to continuous improvement in plant efficiency, we can expect at best modest gains in emissions performance by this route. Therefore, it becomes important to look outside our system for emission reduction or avoidance measures that we can apply against emissions from our plants. Since CO₂ is not a toxic chemical and its environmental impacts are long-term and global in nature, we believe government policies should officially recognize these "offsets" regardless of where they are generated. Carbon reduction activities conducted anywhere in Canada or the world should receive the same credit since they will achieve the same environmental benefit regardless of location.

One of TransAlta’s highest priorities is to create workable mechanisms for generating and trading CO₂ offsets. Since 1996 we have assembled a portfolio of emission reduction projects that will deliver approximately 60 million tonnes of reductions over 25 years. We are currently assessing further additions. The reductions come from a variety of projects undertaken in Canada, the US and around the world. A major focus has been methane emission reduction since methane is considered to be a very potent greenhouse gas and there are cost-effective reduction opportunities. Projects in this area include landfill and coal mine methane recovery and use and ruminant methane reductions. Other offset projects we have pursued include fuel switching, forests and soils sequestration, and renewable energy generation.

We were also an early pioneer in domestic and international emissions trading and have executed groundbreaking trades with partners in North America, Europe and Japan. Amongst our many trades are transactions in the US with Murphy Oil (El Dorado, Ark.) and Entergy Corp. (Louisiana and Texas).

Technology. I also want to comment on the importance we attach to the design, demonstration, and application of new clean coal combustion systems and the permanent sequestration underground of CO₂ and other emissions.

Our objective is to have a commercial scale retrofit unit in operation by 2007 and a Greenfield facility operational by 2010. Several technologies are being evaluated in development programs: coal gasification and power generation from hydrogen, advanced emission capture technologies and oxy-fuels technologies. Our objective is to reduce the production cost of electricity to levels comparable to today’s technologies while dramatically reducing atmospheric emissions of not just CO₂ but conventional pollutants as well. To reach this goal, CO₂, or exhaust gases, would be sequestered underground in oil reservoirs (EOR), deep coal seams (CBM) or in aquifers.

We are exploring these approaches in a number of ways. TransAlta is participating in a Canadian-based program managed by the Clean Power Coalition (see Appendix 1), whose members include coal and power companies, the Canadian Federal and several Provincial Governments as well as EPRI. Since 1997, TransAlta has participated in a number of research and development efforts targeted at developing commercial opportunities for sequestering power plant exhaust and/or CO₂ in underground oil and gas reservoirs. These programs have focused on developing understanding of reservoir characteristics that affect economic application of CO₂ stimulation; developing a ranking of potential reservoir stimulation opportunities; and field testing of injection techniques and reservoir responses. Starting with a one-well trial in 2000, we expanded to a five well program in 2001. In 2002, the program is being further expanded to include a detailed, Province-wide study of CO₂ supply sources, pipelining economics and routing and reservoir stimulation.

While we are hopeful that these technologies will be ready for deployment in the next two decades, we have no assurance that this will occur. The initial results of our work are promising and appear to confirm our commitment but many uncertainties need to be addressed before we can be confident that carbon capture and sequestration techniques can be incorporated in new (or retrofitted) coal plants at a reasonable cost. A concerted effort by government and industry will be essential for the substantial progress that we know will be required.

Lessons from Our Canadian Experience

Generalizing from TransAlta’s experience in Canada is risky because our two countries – while sharing a common language and border – have different cultures, laws and political institutions. One obvious difference is that Canada intends to ratify the Kyoto Protocol while the US will not. In all candor, the prospect of Kyoto implementation in Canada has been a major factor in designing TransAlta’s carbon management strategies. Clearly, a different set of considerations applies to US-based power producers.

We do believe, however, that we can offer some observations that are useful to this Committee as it considers proposals for multi-pollutant legislation:

• Since we need time and capital to develop new technologies, near-term requirements, which cap CO₂ emissions at levels substantially below current emissions, are counterproductive. Our province – Alberta – currently advocates flexible approaches that the Kyoto timeframe (2008-2012) does not allow. We agree with our Provincial Government that pursuing aggressive reductions in this timeframe will punish industry economically by forcing investments in available technology which will quickly become obsolete – and result in stranded costs – when new clean coal technology is available.

• The concept of an integrated multi-pollutant framework – under which targets, incentives, and emissions trading for greenhouse gases are coordinated with government policies for pollutants such as NO_x and sulfur dioxide – is one we support. We have seen some piecemeal approaches in Canada which have hindered long term technology development. To avoid this problem, we have begun discussions in Canada about an electricity sector agreement. We are trying to shape this agreement to provide more flexibility on near-term emission reductions in return for the opportunity to develop technologies that achieve more substantial reductions over the long term. Depending on their outcome, these discussions could have useful policy implications for the US.

• As we design programs to reduce emissions of greenhouse gases and conventional pollutants, we need to align our timetables and targets with normal cycles of capital stock turnover and renewal. Premature retirement of assets will reduce return on investment and weaken the financial position of asset owners. This in turn will make it tougher to invest in new plants that use the latest technology. Since the buildup of GHG emissions is a long-term problem and not an immediate threat, allowing existing plants to complete their useful lives without large economic penalties should not be unacceptable environmentally. We would urge this Committee to avoid fixed "anniversary" dates (e.g. 30 years) for applying new technology to old plants. The optimal date for plant renewal needs flexibility to adapt to individual plant conditions and to local electricity economics.

• While one response to a CO₂ cap could be repowering of coal units with natural gas, this approach has major problems. Existing supplies of low-cost natural gas are constrained; price volatility is common; and there are better uses for natural gas than as fuel for electricity generation. Moreover, reserves of coal greatly exceed those of natural gas. Alberta has a 900-year supply of coal versus a 10-year supply of light conventional crude or a 20-year supply of natural gas. This comparison highlights the importance of investing in clean coal technology and not relying on natural gas repowering.

• In financing this technology change, government support and incentives for design and demonstration of new technologies are essential. We are strongly advocating government assistance in Canada and would welcome cooperative programs between our two nations. Government funding for new technologies will need to be substantial and sustained. We believe the long term environmental and social benefits of technology renewal will be large. The approach we are recommending would limit economic distortions and job losses for many communities in the coal sector both in Canada and the US and would offer the added benefit of a more secure, North American, supply of energy.

• Equally important for sending the correct market signals is a well- functioning emissions trading market. We feel that access to least cost verifiable offset credits and emission trading is essential during and even after the transition to new technologies. The availability of offsets from outside our system and outside our sector is critical to our ability to stabilize or reduce emissions in the early years without constraining us from increasing generating capacity. As part of any system of offsets and trading, there must be credit for all current and future reduction measures so that early actors receive real recognition and benefits. To preserve our competitive position in light of Kyoto requirements, we in Canada must also have access to cost-effective international credits; we could start with a NAFTA emissions trading scheme that would make credits available from the US and Mexico. A robust, liquid trading market that accommodates cross-border transactions within and ultimately beyond North America will be essential so TransAlta can meet increasingly stringent State and Provincial targets for emission reductions. Knowing that cost-effective trading opportunities exist will set the stage for making commitments to meet these targets under Federal voluntary or covenant-based programs.

• Credible and reliable programs for reporting GHG emissions, recording and verifying measures to reduce, avoid or sequester these emissions, and tracking credit transactions are all critical for effective carbon management strategies. Industry participation in these programs must be broad-based for them to function successfully. We are pleased that the US Senate has responded to this need by creating a comprehensive GHG reporting and registry system in recently enacted energy legislation.

• We recognize the value of integrated sector-based strategies for addressing emissions challenges facing power generators and understand the Committee's interest in legislation for the electricity sector (similar to sectoral initiatives underway in Canada). However, we wish to see the timely application of similar policies and regimes to other industrial sectors, reflecting principles of equitable burden sharing and the need for large, liquid emissions markets

Because of our Centralia, Washington operations, we are participating in a group of US power producers – Energy for a Clean Air Future – that developed a multi-pollutant proposal last fall for review by Congress and the Administration. Many of the concepts I’ve discussed in my testimony are reflected in the portion of the ECAF proposal addressing GHG emissions. I’m attaching relevant sections of the ECAF proposal (Appendix III) so they're available to the Committee.

In conclusion, I appreciate the Committee’s consideration of my testimony and welcome any questions.

Appendix 1

Overview of Clean Power Coalition ‘s (CPC) Clean Coal Research and Development Program

PURPOSE and OBJECTIVES:

To develop a proposal for a retrofit of an existing coal fired electricity-generating plant to low or zero emission technology such that a commercial installation could be commissioned no later than 2007.

To develop a proposal for a new zero or low emission coal fired electricity-generating plant such that a commercial installation could be commissioned no later than 2010

FUNDING and PARTNERS

Funding of up to $ 5,000,000 (Canadian) is in place now. This is sufficient to allow the development of the feasibility study of the alternative technologies under consideration. This phase of the work will be completed one year from now (mid summer 2003).

Participants in the CPC to date are:

Nova Scotia Power

Ontario Power Generation

Saskatchewan Power

ATCO Electric

EPCOR

TransAlta

Luscar Coal

EPRI

Federal Government (Natural Resources Canada)

Government of Alberta through the Alberta Energy Research Institute

Saskatchewan Government (Industry and Resources)

Nova Scotia Government (Department of Natural Resources)

TECHNOLOGIES and DEVELOPMENT TARGETS

. Coal Gasification

. Syngas production

. CO2 capture and separation (amine extraction)

. Hydrogen fueled combined cycle power plant integrated with gasification and syngas

. Air separation

. Combined air / oxygen firing steam boilers

Target is to develop a design for a retrofit and a design for a new power plant such that the costs (capital and operating) are within the costs of a conventional pulverized coal steam plant with equivalent air emissions control technologies and CO2 capture.

The research efforts will be directed at developing dramatic improvements in the following areas:

. Reduction of auxiliary power requirements

. Dramatic improvement in the capacity, reliability and flexibility of amine systems for CO2 capture

. Elimination of the air separation plant or dramatic reductions in energy consumption

. Improvement of the reliability of the integrated systems to the levels achievable today

Appendix II

Brief Biographies

Robert J.D. Page

Vice President, Sustainable Development, TransAlta Corporation

Calgary, Alberta, Canada (1997- present)

Former Dean, Faculty of Environmental Design, University of Calgary (1990-1997)

Currently Adjunct Professor, Environmental Science

Chair, Board of Directors, International Emissions Trading Association (Geneva)

Chair, Board of Directors, BIOCAP Canada Foundation (National Climate Change Sinks Research Program)

Member, Board of Directors, International Institute for Sustainable Development

Member, Business Environmental Leadership Council, Pew Center for Climate Change (Washington DC)

Paul A. Vickers

Director, Offsets and Strategy, Sustainable Development, TransAlta Corporation

Calgary, Alberta, Canada (1996-present)

Prior to 1996; Shell Canada Ltd; varied assignments in refinery and chemical plant management, business development, research, chemicals marketing and environment and safety

Board of Director, Emissions Marketing Association (Washington and Milwaukee)

Member, Public Advisory Panel of the Vinyl Manufacturers Association of Canada