Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue No. 11 - Evidence - June 9, 2016


OTTAWA, Thursday, June 9, 2016

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:07 a.m., in camera, for the consideration of a draft agenda; and, in public, to study the effects of transitioning to a low carbon economy; and for the consideration of a draft budget.

Senator Paul J. Massicotte (Deputy Chair) in the chair.

[English]

The Deputy Chair: Colleagues, we have before us a budget for our proposed travel on our low-carbon economy study. The budget encompasses three trips: one week-long trip to Saskatchewan, Alberta and B.C; and two shorter trips, one to southern Ontario and the other to Montreal, Quebec.

If you are in agreement, I would need a motion to say that the special study budget application of $154,983 for fact- finding in the West, Ontario and Montreal as part of the committee's study on transition to a low-carbon economy for the fiscal year ending March 31, 2017, be approved for submission to the Standing Committee on Internal Economy, Budgets and Administration.

Is this motion moved? Is it your pleasure, honourable senators, to adopt the motion?

Hon. Senators: Agreed.

The Deputy Chair: The motion carries.

[Translation]

Welcome, everyone, to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Paul Massicotte, and I represent Quebec on the Senate. I am the deputy chair of the committee.

Welcome to the members of the public who are in the room and those watching on television. The committee hearings are open to the public and are available via webcast on the sen.parl.gc.ca website. You can also find more information on the schedule of witnesses under "Senate Committees.''

I will now ask the senators around the table to introduce themselves, starting with my colleague to my right.

[English]

Senator MacDonald: Michael MacDonald, Nova Scotia.

[Translation]

Senator Ringuette: Pierrette Ringuette from New Brunswick.

[English]

Senator Patterson: Dennis Patterson, Nunavut.

Senator Mockler: Percy Mockler, New Brunswick.

[Translation]

The Deputy Chair: I would also like to introduce our staff, starting with our clerk, Marcy Zlotnick, and our two analysts from the Library of Parliament, Sam Banks and Marc LeBlanc.

This is our fourteenth meeting to study the effects of transitioning to a low carbon economy. The transition is necessary to achieve the Government of Canada's targets for reducing greenhouse gas emissions.

I am pleased to welcome our witnesses for today's meeting: Eric Denhoff, President and Chief Executive Officer of the Canadian Hydrogen and Fuel Cell Association; Andrea Kent, President of the Canadian Renewable Fuels Association; and Barrie Kirk, Executive Director of the Canadian Automated Vehicles Centre of Excellence.

Thank you all for agreeing to speak with us today. I would like to invite each of you to make your opening statement, and then we'll move on to questions and answers. The floor is yours.

[English]

Eric Denhoff, President and Chief Executive Officer, Canadian Hydrogen and Fuel Cell Association: We have provided all the materials in advance. I won't read every word as I think they're available to the senators.

The major thrust of our presentation is twofold. One is to make the point that Canada is, unusually, a world leader in this technology in the same sense as we are in some areas like aerospace and some other high-tech sectors. Canada has about 2,000 people working in this small industry, and it produces about $200 million a year of revenue, almost all of it export revenue.

We produce fuel cells for automotive applications, stationary power, buses, backup power and for an intriguing new approach called power-to-gas where surplus wind or solar energy is taken at virtually no cost. Hydrogen is produced and then can be injected into the gas lines as storage and put back into the power grid that way, or it can be injected into the electrical grid through fuel cells. Canadian companies have sold this technology to Germany's largest utility, E.ON, and it's been used with amazing success in the North in a mine in the Arctic called the Raglan Mine, which has saved more than 2 million litres of diesel fuel already this year using this kind of zero-emission technology.

Where we are struggling is to find increased domestic use of opportunities for zero-emission fuel cell vehicles and other applications of fuel cells. They reduce emissions effectively to near zero when using renewable hydrogen, and renewable hydrogen is increasing in availability extensively through the use of surplus solar and wind and through biomass.

While battery electric vehicles also reduce emissions — and we have no contest or complaint about battery electric vehicles, we think they have terrific applications as well — only fuel cell cars meet the extended range and quick refueling demands — they can be refuelled in two or three minutes — that consumers want at this time, and they have the efficiency of three times an internal combustion engine.

For example, if we had 5,000 fuel cell vehicles on the road by 2020, yearly greenhouse gas emissions would be reduced by 14,750 tonnes; 20,000 vehicles by 2025 and 100,000 by 2035 would reduce it, at the end, by 290,000 tonnes of GHGs.

Interestingly, in Canada, we make the fuel cells for everybody else in the world, but we don't use them much ourselves. In Vancouver, Daimler/Mercedes has invested more than $70 million to build the world's first automated fuel cell plant. They have more than 50 employees working there to rapidly commercialize large-scale, multi-thousand per year production of fuel cells that will be shipped back to Germany and placed in Mercedes cars for sale there.

We have 225 employees in a joint venture between Daimler and Ford in Vancouver who are doing research and development on commercialization of fuel cells. Ballard has a five-year engineering services deal with Volkswagen for about $100 million.

We are selling fuel cells like hot cakes suddenly this year all over the world, except Canada.

Hydrogenics, a company in Toronto, has sold more than $100 million worth of fuel cell orders for buses and trams to China. They've sold more than 100 fuel cell sets for trains to France.

Ballard has sold 300 buses this year alone to China and has concluded their bids on, I think, a 25-bus order to the United States, and they will be bidding on a 142-bus order for zero emission fuel cell buses to Europe shortly. They have, of course, 50 or 100 buses on the road already.

Hyundai is offering fuel cell vehicles for lease in Canada. Now you can lease them in Vancouver. There are 15 or 20 of them driving around now, and they leased the first one in Toronto a few weeks ago.

Companies like Greenlight Innovation have expanded into Europe, opening an office in Germany, and they have been selling fuel cell testing equipment around the world.

Only British Columbia has incentives of $6,000 per car if you buy a fuel cell, as opposed to Ontario that has probably a combined subsidy of about $14,000 for battery electric vehicles.

The difference with fuel cell vehicles is that virtually nothing of the battery electric component of a battery electric vehicle is built in Canada. Wind turbines aren't built in Canada, and solar generators generally aren't built in Canada, but the fuel cells are all built in either Vancouver or Toronto for these items I'm talking about.

A fuel cell bus is two or three times more efficient than a regular bus and saves more than 1,100 pounds of CO2 a year. The efficiency is 200 per cent that of a diesel bus. It's like running an electric trolley bus without the wires. If we had a fleet of 5,000 fuel cell buses in Canada, we'd be saving 450,000 tonnes of GHGs a year.

There are a variety of Canadian firms that are building fuelling stations which, of course, is the old chicken-and-egg scenario. You won't get a lot of fuel cell cars until you have fuelling stations. We build great fuelling stations. We build them all over the world — all over the world, except in Canada. We are building some of the new fuelling stations in California for the 100 fuelling station rollout in California that is under way there now; they'll have 50 stations done over the next year and 100 over the next two years. We're building fuelling stations in Germany as well. We just build them for other people, but we don't make many for Canada.

We have designed and constructed these stations for people like Shell, for their hydrogen project in California, and we have been awarded stations for many years around the world. Vancouver, at one point, did have, I think, up to five fuelling stations, but we have one right now because of the lack of availability of cars.

The global projected hydrogen fuel cell market by the end of this year will be $8.5 billion, so Canada really does have a chance to build on what we have and establish a high-value, high-tech market that contributes to GDP, tax revenues and national pride. We could be creating thousands of new jobs and we could be finding new automotive industry supply chain opportunities for companies in Ontario who want to build components for fuel cells to go into new fuel cell cars and for integration.

I mentioned some of the international work we've done. What we don't have that other people have is the equivalent government funding level. Canada contributes probably, oh, I don't know, $10 or $20 million a year to fuel cell research and development, the United States Department of Energy alone more than $100 million, and then other departments, like defence and various other groups, probably almost match that. Canada produces products for the Americans, for example, in defence. We make fuel cells as personal power for a platoon-level troop because they are so technology laden now that otherwise they have to carry very heavy battery operations around.

Other places have incentives for vehicles that we don't have on a national basis, and every country that's involved in this business except Canada has a national strategy for fuel cells. Korea, Japan, U.S. and Europe all have national strategies on how they intend to integrate hydrogen fuel cells into their economy and what they intend to do about it.

Europe will spend $1 billion over the next few years on hydrogen fuel cell deployment, and as I said, the United States is well over $120 million, while Japan and Korea are well over $100 million a year.

As an association, we've begun lobbying the federal government for a national strategy. I'll just be candid: The Tories hated fuel cells. They viewed it as something the Liberals started, which wasn't actually true: Mulroney was the first investor in fuel cell technology. It was actually initially a Tory thing, but the federal bureaucracy viewed it as something funny going on over the mountains there in British Columbia and couldn't quite understand it.

Even though we were the inventors and the people who commercialized fuel cell technology and we created the passion for it around the world, our own national government, after a while, decided that they were bored and they would move on to other strategies.

This is a real tragedy for Canada, because we do have tremendous opportunities here. We have a wonderful product. It works. It's commercialized now, and it does need the incentives that are similar to those offered by other governments, particularly around a national strategy.

I won't go through all of the presentation in detail; I think that's sufficient. It's just to say as the national cradle for fuel cells and hydrogen commercialization, Canada has an opportunity and really should pay more attention to the technology and make modest investments.

We're very happy the new government has put out an RFP for new fuelling stations for Canada where they are offering to pay 50-cent dollars and that they are looking at additional opportunities on how the technology can be deployed. We look forward to working with the new government in this positive fashion to exploit our creativity and our industry in the future.

I really want to thank the Senate for this opportunity. It doesn't happen too often that we have the opportunity to speak to senators directly on this topic, and it's much appreciated. Being from British Columbia, we'd prefer afternoon sittings, of course — it's about 4 in the morning when we get up to come here — but I think the Senate has been a great friend of our industry over the last decade or so. We've had a lot of interest from individual senators and have appeared a few times before committees. I think it has really helped to keep the public interest alive on a topic that otherwise might have faded from view, so thank you very much.

Andrea Kent, President, Renewable Industries Canada: Good morning to everyone, Mr. Chair, and, of course, members of the committee. I want to echo Mr. Denhoff's comments in thanking you for this opportunity to appear here before you today.

We have been long-standing supporters of any initiative by the government, in either place, to look at how we can remove GHG levels from all sectors, really, a sector-by-sector approach. Looking at the ambitious targets that have been set by the new government, we certainly do have a very sizeable challenge and a lot of work before us. We're very grateful for the opportunity to bring our perspective and contribute to that conversation and that ongoing policy dialogue.

I'm Andrea Kent. As mentioned, I'm the President of Renewable Industries Canada. I suspect some of you may be much more familiar with our association under its previous name, which was, of course, the Canadian Renewable Fuels Association. Our association has been representing biofuels producers, distributors and retailers in Canada for over 30 years. It's a pretty proud history that we have. The rebrand happened actually two weeks ago today. It is really intended to reflect the upward trajectory and the movement and evolution of the renewable fuels industry in Canada and the diversity of the companies that are now operating, not just in the biofuel space but truly in the bio-based economy space where we can displace an ever-growing amount of petroleum and fossil fuel products through bio- based materials, substitutes and, of course, liquid transportation fuels.

Our members have been working really hard in this area to grow their businesses and diversify their products beyond fuels for some time. I'd be happy to come back and talk about that in more detail at a future sitting, but for today, we think that we can share our expertise and make some contributions in looking at the challenge before us, looking at how biofuels policy in Canada has contributed to GHG emission reductions so far and looking for opportunities to expand that potential and grow out those benefits, both from an environmental and an economic standpoint.

As you know, 195 signatories to the Paris agreement have indicated that their target is to ensure the increased global average temperature stays below 2 degrees Celsius above pre-industrial levels and also to meet COP21 commitments to make meaningful reductions in greenhouse gas emissions. Looking at those targets and contrasting them to the current state of play, the results can be fairly sobering.

GHG emissions in Canada have never declined. In fact, they have been rising exorbitantly for decades. That's the trend we are up against here. According to Government of Canada data, total GHG emissions in 2014 were about 730 megatonnes of carbon dioxide. If Canada were to hit our 2020 emissions targets of 622 megatonnes, we would need to find a way to reduce annual emissions by at least 110 megatonnes. That's about 15 per cent of 2014 emissions. I know that we've provided some simple slides that visualize this stat in a pretty effective way.

There's a lot of room to make up for. We are here to take an honest and pragmatic view of that challenge and say that it is possible, but, in order to get there, we really need to leave no stone unturned when it comes to searching for ways to reduce greenhouse gas emissions.

In 2014, Canada's transportation sector accounted for 171 megatonnes of total GHG emissions. That's about 23 per cent of total emissions. It's second only to the oil and gas sector. If we are going to win the fight against climate change, we need to remove transportation sector GHG emissions — it's really that simple — and biofuels can continue to play a vital role in achieving that objective.

The way we see it, producers of renewable fuels really are some of the first low carbon pioneers. Biofuels have continued to be proven one of the lowest cost, most effective pathways to taking GHGs out of the transportation sector. Looking at ethanol, it can reduce emissions by as much as 62 per cent on a life-cycle basis. That is from the very beginning of the process, so from well to wheel, to where it's burned in the tailpipe. Looking at biodiesel, those GHG emissions, on a life-cycle basis, it can be as high as 99 per cent compared to petroleum diesel.

Canada has regulations under the Environmental Protection Act that require a blend of 5 per cent ethanol in gasoline and 2 per cent biodiesel. These renewable strategies have proven to be very effective. The mandated requirements have proven to remove 4.2 megatonnes a year of GHG carbon from the environment every year. To put it another way, that is the equivalent environmental benefit of removing 1 million cars from the road every single year.

What we're proposing is a simple regulatory change that would expand these requirements in the federal renewable fuel standards so that it would be up to a 10 per cent blend of ethanol and gasoline and raise the biodiesel requirements from 2 per cent to 5 per cent. Doing so on a staged-in, incremental basis would allow obligated parties enough time to ensure that there are no technical barriers to implementing the change.

It's worth noting that these are already established, integrated fuels that are in the marketplace today. There really is no infrastructure cost associated with increasing the mandates. There's no change in consumer behaviour that's required. All you really are getting is an additional GHG benefit and reduction out of the transportation sector. Expanding the mandates in the ways that I just described would be the equivalent of an additional 1 million cars coming off the road from a carbon intensity standpoint.

We have a lot more ideas. Obviously, this is a very complex issue. Like my colleagues here, we have ideas for ways that infrastructure can be enhanced and ways that government support can be broadened for innovation generally speaking, but I think that the simplest, most immediate way to get some short-term and achievable GHG reductions is the expanding of the known, reliable and existing platform for biofuels. Doing so sooner rather than later means that we will be ever closer to reaching those 2020 and 2030 targets as well.

Thanks for the opportunity, again, to appear before you today. I very much look forward to our discussion and answering your questions.

Barrie Kirk, Executive Director, Canadian Automated Vehicles Centre of Excellence: Good morning, senators. Again, my thanks for the invitation to be here.

The Canadian Automated Vehicles Centre of Excellence — that's a mouthful, so we say CAVCOE — was formed three years ago to help the public and private sectors get ready for the arrival of self-driving cars. We are not working for any of the companies actually making or developing self-driving cars; we're more involved with the opportunities and challenges for the rest of the world.

My first message is that the first generation of self-driving cars is already here. You can go into a showroom today and buy partially self-driving vehicles that have intelligent cruise control, lane centering, pedestrian avoidance and automatic braking, self-parking. Those are some of the features. Also, in Europe, there are fully automated, self- driving shuttle buses.

In the oil sands, Suncor has ordered 175 self-driving heavy haulers, these monster dump trucks. That's a great step forward. Suncor tested one of these for about a year and found that computers really are better drivers than humans. No surprise there. One of the downsides is that Suncor will be laying off about 800 people. Every technology advance has a downside, and, with self-driving cars, one of those is job displacement.

Ford, Toyota and others predict that they will have commercially available, self-driving cars by about 2020.

General Motors has already invested over $1 billion in self-driving cars, and they're moving rapidly into the area of self-driving taxis. In fact, there's a report in yesterday's Globe and Mail that, tomorrow, General Motors will announce that it is hiring 1,000 engineers and other research and development people in Oshawa and Markham to work on autonomous and connected vehicles. Even though Prime Minister Trudeau and Premier Wynne will be at the announcement, that hiring of a thousand people is being entirely funded by General Motors, which shows the level of interest and the level of investment.

There are a bunch of different levels to this whole space. I prefer to talk not just about autonomous vehicles; I talk about an ACE vehicle. An ACE vehicle is autonomous, connected and electric. They have a huge range of benefits. The biggest single benefit will be safety. Everybody involved in this realizes that computers will be safer than silly, stupid human drivers. My hope and my prayer is that we can save about 80 per cent of the collisions, fatalities and injuries each year.

A second but equally important benefit will be the environment and energy, because most of the driving we do is in urban areas. Electric vehicles are going to be very green, help the environment and produce a lot of downstream benefits. A lot of the early work with autonomous vehicles is being done with electric vehicles. The Google car, for example, is electric. The shuttle buses I mentioned, which are operational in Europe now, second-generation, fully autonomous shuttle buses, are electric.

The trend towards shared use of autonomous vehicles means driverless taxis. There will be a trend away from personal car ownership to shared electric, autonomous taxis. This is going to permit cities to harness the power of this technology to completely redefine how we plan cities.

The City of Toronto is one of our clients, and they understand that the opportunities with autonomous vehicles give them a way downstream to completely redesign Toronto. They don't have all the detailed answers, but they have a big vision.

I like the vision that Helsinki has, which is to have an integrated mobility system — cars, bikes, transit — that is so integrated, convenient and affordable that nobody wants to own their vehicle. It's a wonderful vision.

We and the Government of Canada have two broad options: to take a step back and let the technology and industry roll this out by themselves, or to actually manage that. Our feeling and recommendation, and that of other people as well, is that it's important to get behind the technology, to guide it forward and to stimulate it.

Of the G7 countries, Canada is not only dead last in its preparations for the benefits of AVs, but way behind the other six countries. I'd like to see to us not only catch up but move ahead. One of the ways we can do is to create what we call a Canadian Automated Vehicle Initiative. The Netherlands has done this; Australia has done this; Singapore has done this; and the U.K. has done this; but we have not.

There's a real opportunity there to guide the technology, the deployment and the policy work. Among other things, this will really help us to move forward, reduce our carbon footprint and harness the power of electric vehicles, especially for urban travel.

A U.K. parliamentary committee has recognized that this is not just a transit or transportation issue; it's government wide. The U.K. parliamentary transportation committee has recommended the establishment of a minister for driverless vehicles to coordinate across all of government. If I had a lot more time, I could explain a lot of other impacts.

We also need to become a lot more attractive to the industry. It's well known that the Ontario government, since January 1, has permitted testing of AVs on public roads in Ontario. They have a regulatory framework for that. The reality, which is less well known, is that so far not one single company has applied for that permit. We do not appear on the radar screens of the car manufacturers, with the possible exception of GM. We need to improve on that. We need to be a lot friendlier towards the AV ecosystem.

We need to work with other levels of government on transportation master plans.

In the U.S. government, Anthony Foxx, Secretary of the U.S. Department of Transportation, wrote a wonderful article last year in which he said that with connected and autonomous vehicle technologies, we can increase the traffic- carrying capacity of our roads by a factor of five. By having vehicles that can safely travel closer together, you can get far more vehicles on each kilometre.

To be frank, senators, I don't believe that, but if we can use technology to increase the capacity of roads by even a factor of two or three, it would be wonderful. I wonder why we're thinking about spending tens of billions of dollars on new infrastructure when we could spend much less on technology and achieve the same result. I agree that we need to repair existing infrastructure, but in terms of new infrastructure, I've been advocating that any request for federal funding for new infrastructure, transit or transportation should include an assessment of the impact of autonomous and connected vehicles.

One other thing: The Organisation for Economic Cooperation and Development in Paris, OECD, has a report from last year. It's free and on their website. Their amazing conclusion is that with driverless taxis, which they call taxibots, and traditional transit in major cities, we can take 9 out of 10 privately owned vehicles off the roads — 9 out of 10. Now, that's a lot more bullish. Compared to the OECD, I'm a moderate. Even if we can take 4 or 5 out of 10 private vehicles off the roads in our major cities, it would be a huge step forward.

I'm urging everybody who will listen to me that we need not only to invest in infrastructure but to dedicate part of it to smart infrastructure and technology to achieve the same overall goals.

The bottom line: I look back on the 20th century — well, maybe the last half of the 20th century, but I read my history books. We know that cars had a huge impact on our personal lives in the 20th century. They have a huge impact on society, on our cities' urban planning and the world. I'm predicting that, in the 21st century, the arrival of self-driving cars will have an impact of equal magnitude. One of the beneficiaries of all of that will be energy and the environment — our carbon footprint.

Thank you again for your attention. Like the other speakers, I look forward to your questions.

The Deputy Chair: Thank you, Mr. Kirk. I must add that if anybody doubts automated driving can be safer than personal driving, they have never seen Senator Ringuette drive a car.

Senator MacDonald: I thank all of you for being here. There's so much we can discuss here. There's so much on the table.

Mr. Kirk, you would be pleased to know that I'm the Deputy Chair of the Senate Transportation Committee, and automated vehicles are in the queue. We're going to be studying them next. We will be going to Edmonton soon. I won't be asking you questions on that today. I'll wait until we get our committee up and running.

I'll start with Mr. Denhoff and hydrogen fuel cells: I've always been interested in this technology and have followed the early years of Ballard. You mentioned that we're building fuel cells around the world. Who is building them? Is it Ballard or a subcontractor? Is it you association? Who is building them?

Mr. Denhoff: No, senator, they're built by Ballard in Vancouver, by Hydrogenics, a firm in Mississauga, which is a competing publicly-traded company, and they're built by Mercedes/Daimler in Vancouver, as well, for export back to Germany. We have an industry cluster in Vancouver and a smaller one in Toronto centred around either providing components or extensions of the applications of fuel cells.

Senator MacDonald: Are we still considered to be the leader in hydrogen technology in the world?

Mr. Denhoff: We are, although I think in some areas, depending on the area, other people have either caught up or are moving ahead of us. Japan is investing so much money, as are Europe and even Korea, that I think if we don't make further significant investments in Canada in the next five years, we'll start to fall behind.

If you have a submarine that you want fuel cells in, they're probably Canadian fuel cells. If you have backup power for telecom in Indonesia, those would be Canadian fuel cells. If you have buses in China, those would, in all likelihood, be Canadian fuel cells.

Senator MacDonald: You bemoaned the lack of government investment in this technology. I'm looking at some numbers. The lack of investment doesn't seem to be attributed to any one government or any particular philosophy. There's about 7 per cent invested, total, from Canadian governments. It's not a lot of money.

Why is there so little growth and so little investment in this in Canada? One of the problems we've noticed here is it's the same thing with nuclear technology: We're exporting our nuclear technology everywhere but haven't built a new reactor in 30 years. It seems to be the same problem.

Mr. Denhoff: I think it's a combination of factors. I think the industry overpromised early on. When I joined the association four or five years ago and looked back in the clippings, there had been a sense 10 years ago that the industry would expand much more quickly than it could. The primary challenges were reducing costs — the cost of platinum is one of the key ingredients in a fuel cell — and increasing durability. Those took longer to take place than people were patient for.

Of the funds invested in Canada — say, about a billion dollars over the last 30 years — most of that has come from the private sector, and they continue to make investments now. In fact, there's been quite a resurgence in the last year or 18 months; governments in the U.S. and overseas and the private sector are ramping up their investment.

I think it's often difficult for the federal government because they're asked to pick between battery electric, fuel cell electric or alternate fuel technology and others. We don't ask them to pick us alone or make a particular choice. We just ask for comparability. There's an accelerated capital cost allowance for wind and solar, for example, but for whatever reason there is not for hydrogen fuel cells. We think there are simple things like that.

I must say the Quebec government has done a marvelous job recently in introducing California-like minimum regulatory requirements for zero emission vehicles, much like my colleague was talking about for renewable fuels. Quebec has said 15 per cent of vehicles in the future have to be zero emission if you want to sell your regular cars here. Those kinds of things are in existence in the other jurisdictions, and they drive the investment by OEMs or they drive investment by other applications.

If Canada does a couple of very simple things, we'll maintain our leadership and accelerate again. We're funny that way. From the Avro Arrow to all kinds of other technologies, we like to invent them and then have somebody come in and snatch them away from us. I've been in a meeting with the deputy minister in Ottawa who said, "Yeah, it is a good technology and probably does require some investment, but it will happen. The Americans or the Europeans will put the money in, and we'll get the benefit of the vehicles eventually anyway, so why do I want to risk my capital?''

I understand the reasoning. I'm a bit more nationalist than that, so I would prefer to see us make some investments, or simply have a regulatory environment equivalent to that we are seeing emerge in California and elsewhere where, if you want to sell vehicles, which probably produce a quarter of the pollution in the country, X per cent of those must be zero emission.

We have a very quirky problem: They're all commercially available now. Hyundai, Honda and Toyota are all making and leasing or selling fuel cell vehicles. But they're making them in quantities of 3,000 and 5,000 and 10,000. When you want to compete to have those vehicles deployed to Canada, they say "Well, in California, if we don't deliver vehicles there, it costs up $85,000 to $100,000 per vehicle penalty.'' In Scandinavia they get free import duty, which is 100 per cent on a vehicle going there, they get free ferry passage, free HOV-lane access and free parking. We're competing to have those vehicles deployed, and we don't have the competitive tools to do that. We don't have the incentives that others have.

Senator MacDonald: You said we require modest investments. What does "modest investment'' mean?

Mr. Denhoff: I think they're on this sort of plane: We spend some money now in Canada on R&D in doing things like reducing the amount of platinum needed in fuel cells and increasing the durability of fuel cells and that sort of thing. We think there should be continuing modest increases in funding.

The federal government has increased the funding for the IRAP — Industrial Research Assistance Program — significantly, and that helps our industry a lot. That's the kind of thing that's important.

Second, we think this sort of regulatory change to enable accelerated CCAs — that cost would literally be in the few millions to the treasury. I don't think it would even be $10 million or $20 million a year. It would be very modest.

The third thing is investments in infrastructure. You need to build fueling stations. In California, for example, to blanket the state with 100 stations, which they feel is sufficient to handle the expected deployment of vehicles there, the California government is spending, I think, about $100 million over five or so years towards subsidies towards those stations in a competitive environment. Industry is investing too. Toyota puts money in, and the government puts money in.

To roll out initially in major markets like the Greater Toronto Area, Montreal and Vancouver and places like that, you would probably need about a similar hundred stations over the next five years, and that would provide sufficient coverage. Then you'd be rolling out the connectors, just like you do Superchargers for Teslas. The federal government has begun that by offering 50-cent dollars on the next few stations. The B.C. government offers some funding for fueling stations. We need to accelerate that.

At the federal level, I think you're probably talking in the neighbourhood, over five years, of a maximum of about $50 million in stations, and that would produce 100 to 200 stations around the country and provide the initial network you would need. It's real money, but it's not dramatic.

Senator MacDonald: When it comes to this technology, the transportation that comes to my mind are buses and things of that nature. How transferable is this technology to other means of transportation, whether it's, let's say, trains, ferries or bigger, heavier vehicles? Is it practical for this type of transportation?

Mr. Denhoff: It does seem to be for trains. Alstom, the big French company, and Hydrogenics from Toronto are filling an order for 100 train set units for France. China is buying train set units, and I think Bombardier, if I remember correctly, actually tried a train unit some years ago, just for experimental purposes. I don't think there's an issue there around commercial application; I think there's just an issue around adoption. It's quite a conservative industry.

I've seen several examples in Scotland and Scandinavia where they're piloting the use of fuel cells for ferries, sometimes as backup and sometimes as primary power, and I don't think there's any particular commercial reason not to use them. Again, this is just a conservative industry that is used to diesel and other things.

It's used extensively for backup power for telecom companies. If you don't have power and your cellphones aren't operating, there's no revenue. In the Bahamas, during the last major hurricane, the fuel cell-backed stations all operated seamlessly, while the battery backup ones went out after a few hours or days, and the diesel ones, often, were damaged in the storm.

There's a lot of good use for stationary applications. In the United States, high-temperature fuel cells are used by these really large data companies that are driving huge amounts of data and therefore using a lot of power. They will take natural gas and clean it up and take the GHGss out of it by running it through fuel cells and power these huge data centres with them, and it has environmental benefits.

The most commercial application of all, interestingly, is forklifts and material handling. Coca-Cola, Whole Foods, Canadian Tire and Walmart are on their fifth, sixth and seventh sets of orders because they're commercially competitive, GHG-reducing and easy to deploy. There are a lot of different applications we're seeing now that probably weren't envisaged five or ten years ago.

Senator Ringuette: I'm a very strong believer, and, like my colleague, I have been following the Ballard development for 20 years now.

We've talked about transportation applications and telecom and so forth. How is the research going with regard to building energy requirements, whether you're looking at homes or commercial complexes and so forth? Because, ultimately, I believe you are looking at how your technology can substitute for fossil fuel markets. Where are you in regard to that kind of building application?

Mr. Denhoff: Thank you, senator. That's a very interesting question. Canadian companies like Ballard have built fuel cell powering applications for Toyota's headquarters building in California. It was powered by Ballard fuel cells, using biomass energy to power the fuel cell.

In Canada, generally, in places like Quebec and British Columbia, hydroelectric power is so cheap that it really undercuts hydrogen. In Alberta, natural gas is so cheap, and it's so oriented towards gas.

In the States, they use a lot more, as I said, in buildings where they reform natural gas into hydrogen and run it through a fuel cell. They do it more as a GHG reduction because it's not really any cheaper. You're adding a cost of reforming the natural gas.

In Japan, it's terrifically popular. There are hundreds and hundreds of thousands of homes powered by fuel cell applications, for several reasons. One, it's not really more expensive than the incumbent power system there, but, two, they want independence from the grid, because, after things like Fukushima and other events, they really want individual home independence from the grid.

In Canada, it's a tough sell just on price. When you have very cheap hydroelectric power and very cheap natural gas, it's tough for both homes and institutions. It's more difficult for vehicles even.

Senator Ringuette: That brings me to my second question. With regard to cost, how do you compare yourself to other energy sources?

Mr. Denhoff: We are competitive, depending on the source of the hydrogen. Renewable hydrogen, particularly, is very competitive, and hydrogen that comes from a by-product industrial process is usually quite competitive, depending on the transport costs. On-site generated hydrogen, if you put a little mini wind tower on the back of the building here and generated electricity and then used some electrolyzer and made the hydrogen, would probably be reasonably competitive because there's no transport cost.

One point, for example: They had to transport the hydrogen from Quebec all the way to Calgary for the Walmart forklifts. Even after transporting it all that way, the GHG profile was still lower than battery electric forklifts operating in Calgary because it's coal-fired power that they were using from electricity there. But the transport costs made the hydrogen more expensive than if they'd used natural gas or electricity.

The price is coming down quite rapidly, and there are markets already in North America where the hydrogen price is competitive with gasoline. The engines are more efficient, so there's no reason to believe that it can't be competitive when on a large scale.

Senator Ringuette: I have one more question, and this question is for Ms. Kent. Ms. Kent, I was a Member of Parliament in the House of Commons in the years when we approved the legislation for ethanol fuels. I must admit that, at the time, I found that it was an interesting solution. However, since then, I must say that different studies on the impact of using food content in either gasoline or diesel and the impact around the world with regard to the food supply and the cost of food supply is certainly a great concern.

You are asking the federal government to move from 5 per cent for gasoline to double that, 10 per cent. Have you looked at the ramifications with regard to the availability of food and the cost of food with regard to your recommendation? With all of the different new alternatives, I don't think that I would support the increase to 10 per cent. Have you done any study with regard to what the effect would be in Canada of doubling the ethanol requirements?

Ms. Kent: Absolutely, senator, and I thank you for the question. This is an issue that comes up a lot. It's a general issue of sustainability as well, and making sure that our industry is accountable in this area is something that continues to be very important to us.

When the initial mandates were built out in 2007, it was largely an agricultural push, which is an interesting but very relevant part of understanding the initial reasoning behind instituting the renewable fuel standard. It wasn't just an environmental policy, of course, as you recall, but it had a very strong agricultural driver to it and a rural economic component to it as well. Farmers wanted to have more market opportunities for their crops in Canada. They wanted to have a larger domestic market for them.

As to international food security and food scarcity issues and sustainability issues, when you look at deforestation and other practices happening on a global scale, when you look at the Canadian context — and I think that it's fair that you view and analyze it in the context in which we are speaking, which is a Canadian mandate for domestic biofuels production here.

We have, of course, continued to monitor this. At the time the policies were brought in and even more so today, crop production in Canada continues to trend in a direction that indicates we are producing more crops on less cropland. In terms of the sustainability profile and the environmental responsibility profile from a Canadian crop perspective, there is no concern in competing against food crops to put in an increase in the ethanol gasoline market.

When you look at oil prices and food prices, going again to the food versus fuel component that you asked about, there are links. Obviously, food prices and oil prices tend to move and peak and valley in tandem. When you look, however, at corn prices in the same way, the effect of corn prices is really quite muted. For any demand for corn prices or any suspected increase in the cost of food as a result of biofuels, we have proven, through publicly available data from the world price indexing of this, that there is no threat there and that there is no competition between the two commodities.

I think that what really is at the core of people's concerns about food scarcity and food security has to do with issues that are larger than biofuels now. I think it has to do with food waste. I think it has to do with very unfortunate economic factors around the world that are causing these pressures.

I'd be really happy to share with you the latest findings. We presented a lot of this dashboard information on biofuels market, outlook, commodity prices and how they continue to work together in a broader market context in some open panels. We invited officials from Environment Canada, Natural Resources Canada and Agriculture Canada, the three core industries, to show them, and it's available online. I'll definitely make sure that the latest data are there, because the concerns are valid in that global context of food security.

It's important to keep a close eye on how the food and biofuels market actually function and how they support each other in Canada, because that's the Canadian context and reality to these policies. Looking at expanding out from 5 per cent to 10 per cent, if you get gas in Ontario and look at the label, it already says it can contain up to 10 per cent ethanol. Because of the price advantage of ethanol and its wholesale discount to gasoline, which continues to be about 20 cents a litre, many obligated parties are already regularly blending upwards of 7 per cent to 7.5 per cent.

The other issue is that we're not fundamentally changing behaviour. We're not really fundamentally changing the market for food crops and biofuels production. The increase in the mandate is simply adding in that policy certainty so that we guarantee a minimum sustained level of additional GHG reduction benefits and the economic benefits too of having that policy certainty to grow in a very successful industry.

I appreciate your giving me the time to answer that.

Senator Ringuette: I look forward to the data. Still, I hope that your data are very conclusive because as of yet, if I had the opportunity to review my vote in support of ethanol, I would probably remove it.

Ms. Kent: That candour is fine. It's important to realize that it's not our data. They're Environment Canada and Agriculture Canada data, world price indexing information and Statistics Canada data. I'm more than happy to share that.

In terms of energy literacy, understanding these issues is important. It should apply to all sectors, and this rigour should apply to all policy options as well. Electrification is a great example. In jurisdictions on coal, it's not a low- carbon option at the end of the day, but looking at options that we're talking about here, it can be a huge environmental benefit.

The Deputy Chair: Thank you. This is such an important issue, and there may be a lot of misinformation out there. I know you answered, but for most Canadians, including many senators and myself, I'm not too sure we understand the response you gave. Am I correct in saying that in Canada we import food source to create our biofuels? In other words, the demand exceeds the local supply from a country sense?

Ms. Kent: I guess this is most specific to corn ethanol, as you're not really talking about biodiesel as much, so I will answer in that context. Corn is the ethanol that we're talking about here from the fuel perspective that goes into gasoline. Biodiesel in distillate comes from different biomass, such as rendered fats, crushed seed oils or used french fry grease. They are different.

Senator Ringuette's question was specific to the ethanol mandate and corn production.

The Deputy Chair: How about a little larger? I don't want to escape the issue by talking about only one. Could you consider the whole food source? I think canola is a big part of it, as is corn.

Ms. Kent: Sure, yes.

The Deputy Chair: Are we satisfying our demand locally? Are we importing?

Ms. Kent: We do import, but gasoline imports as well. A lot of this is determined by price. We are a liquid transportation fuel, which we're talking about here. In many ways, we will behave in the market similar to other fuels. There is an import-export component to it.

Looking at ethanol in Canada, we have 15 domestic producers. The total capacity is 1.8 million litres a year. We operate all of those facilities close to or at capacity regularly. Sixty per cent of ethanol is produced in Ontario.

The cycle begins in the farmer's field, is transported to the processing facility and then ultimately is blended and put into the fuel market. Often this is within a 100-kilometre radius that we're talking about. It is placed strategically close to the agricultural biomass sources. It's produced domestically. It employs people in rural areas, and then it gets blended into the fuel pool. It applies across.

The Deputy Chair: Could you just deal with the short answer? From the statistics I saw, we're importing. But to increase the percentage of biofuel in our fuels, diesel and so on, it would only suggest that we'll either have to increase production in our country or most probably in the short term import more.

The Conference Board of Canada made a study recently, and the World Bank commented recently also, to the extent that we are going to import more and cause more food source to be created. The counter-argument if that is the case is that supply and demand will dictate. Like the World Bank noted, there's a cost issue with the food source, obviously, and even a poverty issue in the world sense because we're importing predominantly from the United States. Maybe it is relevant somewhat to simply say we have no problem in Canada, but it seems to be a real issue. There have been many studies showing from a total sourcing, including water, that some of the stuff, including corn, given the total ingredient and the total cost, may be not such a good idea.

Ms. Kent: If that were the way the market behaved, I would agree that it would really not achieve the economic component of it.

GHG benefits will accrue where the fuel is used. Even in the instance where we have some imports coming in right now, as long as those biofuels are being used in Canada, the transition to a low-carbon economy is being achieved. It's kind of a technical outlier here, but it's an important context to go back to the core of the study that we're talking about. I suspect firmly that if you look back at how the original mandate from 0 per cent to 5 per cent worked, it created policy certainty in an area so that investment could take root and build out a domestic industry.

We have imports right now, but the majority of those imports are going to what we refer to as voluntary compliance — this over-blending that I mentioned. Even though the mandate is for 5 per cent in gasoline, because of that price advantage, most of the times when you're at the fuel pump you're putting in, unknowingly, 7 per cent or 7.5 per cent, 8 or almost 10 per cent. That's why the fuel label will say up to 10 per cent ethanol.

When you take the mandate from 5 per cent to 10 per cent, we already know there's no technical barrier to it. We already know that the food and fuel relationship in Canada is not one that would create any scarcity or sustainability issues. What you do is send a market signal to the Canadian marketplace. You give them that certainty. Look at Ontario's announcement to increase their gasoline mandate that came out in their climate action plan. I know that some biofuels producers are already calling the bank as they look at expanding their domestic operations to fill that demand locally.

The issue we've had is that we're at capacity to meet the existing mandate. We're filling the voluntary overage with imports because there hasn't been a strong market signal to increase domestic capacity. In addition to the additional 1 million cars' worth of GHGs that increasing from 5 per cent to 10 per cent would deliver, you would also get that economic kickback of domestic production.

Again, the cycle has to be that virtual cycle.

The Deputy Chair: The issue was not just the imports but whether it would be good for the economy and society when you consider the whole source. Obviously, the more demand you have for a certain food source, it will affect price, production and deforestation if you have to import a lot. There's a consequence of all that. I think that's the point we were trying to make.

Mr. Denhoff, obviously you're competing somewhat against electric cars. I would make the observation that you seem to be losing that competition. In fact, Musk from Tesla recently said "fool cell'' as opposed to "fuel cell.'' Why are you losing that reputation for competition against electric cars if it's so advantageous?

Mr. Denhoff: I'm not sure as yet that we are. They're both electric vehicles. Fuel cells are in an electric vehicle the same as a battery electric vehicle. Mr. Musk has a particular personality that lends itself to attracting a lot of news coverage. He's sort of the Donald Trump of the transportation world. His battery plants are going to be huge.

Look, it's a fabulous product if you want to spend $120,000. He hasn't built the new, less-expensive one yet. If you want to spend $120,000 or $140,000, you can participate in the supercharging system if you want to wait somewhere between overnight and a half an hour to charge the battery. If you're driving from Ottawa to Toronto and you don't mind stopping partway and sitting there for an hour or so to charge your vehicle, then the application is fine. It's most well-suited, obviously, for urban transport around town where you're going to use the battery much less and you can charge overnight.

The Deputy Chair: Why did he choose that technology and not hydrogen?

Mr. Denhoff: His view is that he can reduce the size and weight of the battery load in the vehicle and increase the distance available before charging such that he'll have the competitive advantage.

When you have a hydrogen fuel cell vehicle and you roll into the Newport, California shell station, it takes you 2 or 3 minutes to fill your car up, exactly like a regular internal combustion car, and when you go driving, it goes for 500 kilometres or so without refueling.

The problem with battery electric right now is that they cannot yet get the battery small enough, the weight down enough and the power up enough. It doesn't work well in large power applications. It works fine for smaller cars, but it doesn't work as well for trucks, and it doesn't work as well in cold weather. He and others haven't yet been able to demonstrate that they can get the battery load down and their price down sufficiently.

So look at it this way: take a company like Toyota. The chairman and Chief Executive Officer of Toyota, Takeshi Uchiyamada, was the chief designer of Prius, probably the most successful car in Toyota's history and one of the world's most successful cars. He personally decided that hydrogen fuel cell vehicles were the vehicle of the future, not that there was no role for battery electric. He clearly saw that as well. So they bet more than a billion dollars.

The chairman of Hyundai, a Korean manufacturer, bet more than a billion dollars on fuel cell vehicles even though they're very cognizant of battery electric. In the European joint fuel cell undertaking, companies like Daimler, Volkswagen and others are spending billions more.

Somebody will win or both will win. It may well be, over time, that Elon Musk cannot get costs down enough and cannot get battery duration long enough that he can successfully sell vehicles for longer-range applications. They could be niche vehicles for people who have a lot of money and who are willing to pay and sit around waiting for superchargers. On the other hand, it could prove that, over the long-term, his vehicles are super-successful and drive out other technologies, like hydrogen fuel cells.

We're not asking government to make a bet one way or the other. We're saying to the government that the urgent imperative for GHG reductions is so enormous that you should be even-handed and just have a regulatory environment that says we want zero emission vehicles, and then let the market decide. The market can fill them up with hydrogen fuel cell vehicles or they can fill them up with battery electric vehicles.

One of the tragedies for Canada is that Elon Musk very cleverly has taken manufacturing of those vehicles out of the traditional Detroit-Windsor-Oshawa triangle and has moved the battery plant and the car production plants out to California and elsewhere. This presents a very profound risk to Ontario, in fact, in that if the next generation of battery-electric vehicles don't have to reside in Ontario and Michigan and places like that, then you can decentralize automotive manufacturing, and all of that supply chain and all the rest of it disappears from Ontario. So why Ontario and the federal government wouldn't want to make a modest investment to make sure they're not picking the wrong technology in fuel cells is sort of beyond me. It's not a major investment.

Most of it is simply regulatory. It's just like Quebec. Say you have to provide 10 or 15 per cent or whatever modest number the government thinks is appropriate, and then let the market decide.

We're not enemies of battery electric. They're electric vehicles like us.

The Deputy Chair: Mr. Kirk, you're an expert in this matter. You talk a lot about your automated cars, and you've made it very clear the future is electric cars. Is that battery-operated, or hydrogen-operated? What are you espousing and why do you foresee that?

Mr. Kirk: My prediction is that the future for autonomous cars and driverless vehicles and taxis will be electric. The companies who are actually making vehicles like that today, the European companies, are making low-speed shuttle buses. Tesla we've mentioned, and Google has their prototypes. New Flyer in Winnipeg has battery-powered buses. They are all working on the battery-powered electric model, and they feel that shows the most promise.

As I mentioned earlier, the reality is that most of our driving is urban. I agree that, at the moment, battery-powered technology has some range issues, but battery technology and drive train technology is improving at about 8 per cent per year, which represents a lot of changes, and charging technology is improving. As we move ahead to the 2020s, we will see a lot of battery-powered electric vehicles in use.

I agree with my colleague that Tesla's vehicles at the moment are expensive, but there are two things I do want to emphasize. One is that the price of electric and autonomous vehicles is coming down. Ford has announced that its autonomous vehicles will be "for the masses.'' As we move into shared driverless taxis and car ownership goes down, the cost for transportation goes down.

Last year we published a report jointly with the Conference Board of Canada that showed that with the use of self- driving taxis, the average Canadian family would save $3,000 a year. Now that assumes, of course, that the use of the vehicles is convenient, but I think it will be, the way the industry is working. All the players are working towards that objective. We're not looking at individual people buying a high-priced ca; we're looking at people buying a ride.

The Deputy Chair: By why not hydrogen? The argument seems so simple and so good. You don't have to wait 10 years to be able to drive from Florida to California.

Mr. Kirk: Maybe fuel cells will be useful for long distances, but for urban use, certainly the industry trend is towards battery-powered electric.

The Deputy Chair: But why?

Mr. Kirk: To be honest, I'm not completely sure. I'm not an expert on the battery side. I just know the industry is moving in that direction. They have their own reasons, and it's a good question to ask some of the manufacturers, but to be honest, Mr. Chair, I don't have a simple good answer for you.

Mr. Denhoff: If I could interject, Mr. Chairman, I'm glad you raised New Flyer Industries, because it's a great Canadian company in Winnipeg. They're a wonderful bus manufacturer that makes buses in Canada and the U.S.

They were the original bus manufacturer of fuel cell buses for Vancouver, where they manufactured 20-odd fuel cell buses. They make them now and are exporting them into the United States, and I believe they've won — I think it's been announced or will be announced — a major bus order in the United States for fuel cell buses.

Van Hool, the major bus manufacturer in Europe, makes hundreds of fuel cell buses. Aberdeen, Scotland has just launched Europe's largest fuel cell fleet, and they have 10 or 20 going. Oakland has a big fleet of fuel cell buses in California. They have the same availability rate as diesel buses, none of the GHG emissions, work very well in urban environments and are a terrific application because they have a single fueling station to service. They run all day and don't have to be recharged partway through the day.

In some urban applications, fuel cells work extremely well already. The cost profile is there and the fuel supply is there. In other applications, battery electric vehicles work very well. In heavy duty trucks, battery electric is not going to work. Heavy duty postal delivery vehicles and that sort of thing won't work at this time, and fuel cell vehicles do work.

There are areas where battery electric is clearly superior and there are areas we would argue where fuel cell vehicles are superior. Let the market figure it out. That's why we have a market.

The Deputy Chair: In your case, I understand — I'm not an expert or scientist — you're sourcing hydrogen on one hand from natural gas and on the other from H2O, which is much more complicated. I gather most of your sourcing must come from electricity or natural gas to create hydrogen. Is that the case?

Mr. Denhoff: There's an intriguing array now. We have biomass-generated hydrogen.

The Deputy Chair: Give me a sense of the proportion.

Mr. Denhoff: It's different by jurisdiction, but in Canada I would think the bulk would come from industrial by- product in Quebec and places like that. We don't really reform natural gas much in Canada for it, but you would get a little bit from that.

And then some comes from wind to electrolyzer. You take wind, you create the electricity and using an electrolyzer you create hydrogen, and then you can store it in tanks or put it directly into the natural gas grid.

It comes predominantly from industrial processes at this point, but rapidly increasingly from renewables like off- peak wind, solar and biomass.

Senator MacDonald: I want to go back to your subject matter. When it comes to this technology, are there any areas where it's not really applicable or where it wouldn't be technologically feasible?

Mr. Denhoff: I think stationary power in Canada is a pretty tough sell. There are a few applications. It's super in isolated communities, like the Raglan Mine, where they've taken themselves pretty much off diesel, using wind and hydrogen. For a big building in Ottawa, it's great for backup power, but if you're going to have to take natural gas and reform it and run it through a fuel cell, you are going to add a price to do that. I wouldn't think of it as a sole-purpose power rather than a backup power. But, for most of the other applications, yes, I think it works very well, even in Canada.

Senator MacDonald: If you were to advise the government and this committee on a set of recommendations with regard to the growth of the use of hydrogen fuel cells, what would your shortlist of recommendations be?

Mr. Denhoff: I think it would be very simple. One, just create a national strategy that parallels those that other countries have done and, within that, take a look at the policy, the regulatory and the taxation framework that might encourage further investment in the sector by government or the private sector or both. I think that short answer would resolve the bulk of the issues.

Government can make its own assessment of the efficacy of the technology, its commercialization, viability, the benefits to Canada and that sort of thing. They've done a number of studies over time, Industry Canada and others. It wouldn't take them that long. Within six months, they could analyze and decide what their view is of the benefits of hydrogen fuel cells to Canada and then create a framework that enables further investment in that. It takes some work. This is rocket science, but it doesn't take rocket science-like timelines to do the work. That's why I took the job, so I could be able to say, "Yeah, this is rocket science.''

Senator MacDonald: Ms. Kent, we haven't forgotten about you. Biofuels. I'm one of those people who has a radical view when it comes to growing food. I think we should grow it to eat it. I've always had trouble with the concept of growing food to turn it into fuel.

I know that there was quite an issue in the States a number of years ago with the amount of money that was being spent by state governments in the biofuel industry, particularly ethanol and corn, and, really, for the most part, they had to cut out most of these programs because it was crippling them economically to subsidize this industry.

I assume we're susceptible to the same pressures in Canada. How do you address these concerns?

Ms. Kent: I'm enjoying my time here today, and, with all due respect to the way the conversation is going, I have noticed a general trend of very forward-looking questions for my colleagues on either side, which is great in a transition-to-low-carbon-innovation discussion, but the biofuels questions seem to be 15 years ago in a lot of ways.

The Deputy Chair: It's not rocket science.

Ms. Kent: I'm not a rocket scientist either.

We do not have here in Canada a lot of the subsidy programs that you mentioned in the U.S., Senator MacDonald. We are not asking for that here in Canada either. I think it's only fair to highlight that difference. As similar as the two marketplaces are, how we have approached building out the industry has been pretty different, and the size of our market is relatively so small compared to the elephant in the room, which is theirs.

A lot of those studies and a lot of those subsidy programs have really pivoted around the U.S. blend wall and market share for oil versus renewable content. Here, I'm really proud that the Canadian approach has been a lot more integrated and less polarized. When we look at what we're advocating for here, it really is just increasing the mandated requirement along the lines of what the marketplace is already doing.

I think that we would probably benefit from sharing some more of the current information that we have regarding crop use, crop production and food prices. That would really substantiate what I'm trying to explain here in that these scarcity and food security issues are not part of the domestic value chain for biofuels production as we are doing it now and as we intend to build it out in the future.

The other thing we haven't touched on as well is that innovation is twofold. Innovation is transformative. It is disruptive. But, at the same time, it also enhances and improves existing technology, and it grows efficacy in existing technological platforms.

Next generation advanced or cellulosic ethanol is what is coming down the line. We are ahead in the game, in some ways, of commercializing that in Canada. One of our member companies, Enerkem, is in Edmonton. It is waste-to- biofuels technology that is displacing solid municipal waste that otherwise is going to go into a landfill and create literally tonnes of methane gas and turning it into an advanced biofuel. This is a marriage between really advanced first-of-kind technology, as well as being able to operate off of an established, successful renewable fuels platform. We need to be able to work in tandem, especially in the short to medium term. There is a valuable role here for biofuels.

I think what I've heard very loud and clear from the honesty and candour of the senators around the table — and I thank you for that — is that we probably need to do a little bit of a better job of getting you a current picture of how it is that our industry has come along this path. No pun intended here. Obviously, there are some food issues rooted in where we came from, but it isn't really part of the current picture. It certainly should not be a concern going forward, especially looking at the fundamental ask that we've asked for here.

Thanks for giving me that added chance to elaborate a little bit more on what's ahead.

The Chair: We are looking forward to getting the information.

Senator Patterson: I want to say this has been a most stimulating panel. I think the three presenters have excited and enlightened me. I think they've all been complementary.

Mr. Denhoff, you made a very compelling case for fuel cells in vehicles. I wonder if you would address the question of cost. You talked about the Tesla and its prohibitive cost. How do fuel cells in vehicles compare in cost?

Mr. Denhoff: A fuel cell vehicle, if you lease it in California, I think it's 499, something like 499 a month, including the fuel. I think it's similar in Canada. Because of the dollar depreciation, it might be slightly higher, into the 500s. That's for an SUV, the Hyundai Tucson SUV. In the market, you would see a relatively comparable price for a modestly premium vehicle. You're not going to get a Honda Civic equivalent fuel cell vehicle yet, and it's all just economies of scale. When you're making 3 or 4 or 5,000 of those vehicles a year as a manufacturer, you're simply not getting the scale.

We see, for example, with buses, that the fuel cell buses originally were almost 3 million. Then they were 2.5, then 2, then 1.8, 1.7, and, now, with the European bus order for 142, I think it is, they anticipate the price of the fuel cell buses to come in in the 7 to $900,000, which makes them competitive with a trolley bus.

Similarly with vehicles, to be fair to Mr. Musk, the reason those Teslas are 100,000 is the scale of production. He argues that, once he can get production up, he will have a $35,000 or so U.S. mid-range vehicle. That won't have access to the super stations. They'll have to pay.

For all of them, whether it's fuel cell or battery electric, it's getting the scale of production up, and that produces cheaper cars. In the market, you can lease them or buy them competitively now, but the manufacturers are internalizing that subsidy, basically.

What's very interesting — and I'll provide some data later — is that, on companies like Ballard, their original fuel cell buses, for example, were about $3 million, and their durability was X hours, 3 or 4 or 5,000 hours. Now, their fuel cell bus price would be down in the million something range, and they've cut the cost of the fuel cell by half, but the durability is up into a range that's comparable for when you would have to replace the engine in a regular diesel bus.

We were really pleased; there was a demonstration project of 20 buses in Vancouver. At the end of the almost five years they ran, Ballard had expected, if they were going to renew the project, that they would have to put in all new fuel cell systems, but I think fewer than 20 per cent of those buses needed few fuel cells, and now there's a new generation beyond that.

We're certainly getting there on cost and price. They're more expensive than the incumbents. Trolley buses are $1 million compared to a diesel bus at $600,000 or so. Why do we do it? For environmental benefit. Finding the sweet spot where people are willing to pay for the environmental benefit but not through the nose is the place where both battery electric and fuel cell electric vehicles are headed.

Senator Patterson: Senator MacDonald asked Mr. Denhoff about recommendations. I'd like to ask the other two presenters. I'm enthusiastic about this. What should we recommend, Ms. Kent? You talked about the regulatory changes in the ethanol maximum. Would there be anything else that Canada should do and that we should recommend to the federal government.

Ms. Kent: I would say, as mentioned, the increases in the existing mandate, so looking at moving ethanol from 5 per cent up to 10 per cent, and biodiesel from 2 per cent up to 5 per cent. Incrementally, those would be our short-term and most immediate asks for sure.

Another area of work that would be of interest to this group is to look at other initiatives that the government has already announced. In Budget 2016, a sizeable alternative fuels infrastructure component was given through Natural Resources Canada. As best we know, biofuels is not being considered an alternative fuel for the context of that infrastructure build-out. Mr. Denhoff said it well when he said that we're not competing with any other renewable fuel alternative. It's just making sure that there is that policy comparability across the board so that market pathways are presented and consumers can decide for themselves. Including some infrastructure for biofuels would be good in that regard.

Looking at taxation and regulatory frameworks would promote innovation both at the front end for new fledgling technologies and would recognize that some solid work is already in the pipe that still needs commercialization help as well, whether through tax exemptions or other policy. Natural gas and propane are exempt from fuel excise taxes to increase their uptake. Something similar could be done for cellulosic ethanol, which we talked about a while ago, to help it take root in the marketplace as well.

Senator Patterson: Mr. Kirk, you talked about requiring transit infrastructure proposals to have an autonomous vehicle strategy. We're about to roll out billions for transit infrastructure projects. We may have missed the boat there, I fear, in terms of implementing your recommendation. Would you add anything else?

Mr. Kirk: I don't think it's too late. It's a good question. Obviously, here in Ottawa, they are rolling out Phase I of the Ottawa LRT system. The Phase II project extension is still in the planning stage. I read through the business plan for that, and I was disturbed to find that there was zero mention of autonomous, automated or self-driving. There's an unstated assumption that the future is an extension of the past. Everything I am saying and other people who are experts in this area are saying is that autonomous vehicles, ACE vehicles and driverless taxis will be here soon, and therefore the past is not a guide for the future.

We expect later on this year the federal government to bring out both announcements about additional infrastructure spending and innovation agenda. My hope is, and I recommend, that the requirement for an AV impact analysis will be included in that.

The concern I have is this: Take the Ottawa LRT as an example. I recognize up front that when the plans were being developed 10 years ago, a light rail system was certainly the right decision. But in the last five years, a huge amount of progress has happened in the area of autonomous and driverless vehicles. The developments have been very rapid.

Assume that driverless vehicles are the way of the future in the 2020s. I mentioned earlier General Motors, which has spent $1 billion. They've bought Lyft, a car sharing technology. They've invested in Cruise, which makes autonomous vehicle technology; and they've done other things. The President of General Motors in the U.S. said that their focus will be on driverless taxis and that they are now very well-positioned to enter that market and that General Motors believes that the driverless taxi market is the logical and best place to start with autonomous vehicles, and that will compete with all sorts of transit options.

I was listening to the CBC earlier this week about the new Ottawa LRT system. Suppose people live in Kanata, which is where I live. They are going to work. They may walk to a bus stop, take a bus and then change to light rail, then get off the light rail and go to the office — a multi-modal, complicated journey. If the driverless taxi industry in the 2020s can offer an option for perhaps two or three neighbours to share a self-driving taxi and come downtown in one step without all the changes, there will be a market for that, even if they cost a little more than regular transit. That is going to remove ridership from traditional transit, reduce revenues and increase the taxpayer operating subsidy for light rail for the rest of the century.

I'm recommending that the AVs and driverless taxis should be part of the business plan and an explicit part of the financial model. To be blunt, to me light rail is a 20th century solution with its fixed route and fixed schedule point to point. The trend in the 21st century is towards on-demand, flexible routing and point to point. A driverless taxi solution meets that test; light rail does not. The mayor of Los Angeles has said twice, in public: Why are we still building light rail? His point on light rail is that it's 20th century.

Instead of putting rails in those tunnels under Ottawa, if you had an asphalt roadbed and buses that were electric or fuel celled or whatever, then the same asphalt roadbed could be used for driverless taxis and relieve some of the congestion on the streets at ground level.

There's no simple answer to the right transit solutions in any city, whether Ottawa or anywhere else, but the worst possible scenario is to ignore this elephant in the room, and the best thing is to address it and build it into the business plan and financial models.

The Deputy Chair: Relative to the average person buying the average car, tell me the price comparison between a hydrogen car, an electric vehicle and maybe an existing gas vehicle. Give me a sense of quantum. Let's say a person buys a car for $25,000. How much more for hydrogen?

Mr. Denhoff: There aren't entry-level hydrogen fuel cell cars on the market. They are typically mid-range. They would compete with mid-range SUVs or cars in the price range of the $499 lease per month.

The Deputy Chair: Make it simpler. What's the purchase price in comparison?

Mr. Denhoff: They're mostly leased, so I'd have to look. The lease range is from $499 to $599 per month, putting them in the upper middle range.

The Deputy Chair: That's a big gap. That's 20 per cent. Let's say $525 per month.

Mr. Denhoff: I think so.

The Deputy Chair: Compare that to the existing.

Mr. Denhoff: In that range, I honestly can't answer for sure. There would be a premium, but it's not dramatic. I'm sure you can lease a non-hydrogen fuel cell Hyundai car or Toyota Mirai equivalent for less, but I don't have that at my fingertips.

The Deputy Chair: More than 10 per cent or less than 10 per cent?

Mr. Denhoff: I think in the 10 to 20 per cent range.

Senator Mockler: We could be here for another two hours following up on a few of the questions from Senator MacDonald.

Could you provide us with a grid of North America when it comes to the cities that should have a business plan with the new types of vehicles? I appreciate your saying that. Could you provide that to the committee?

Mr. Kirk: Fairly simply, the sad part of the story is that over 90 per cent of the transportation master plans and transit strategies in all of North America — Canada and the U.S. — do not refer to autonomous vehicles. That's the exception. A few municipalities are starting to think about it. I've mentioned Toronto. Calgary is starting to think about it, but no municipality that I know of in Canada has built autonomous vehicles into their transportation or transit master plans, so the grid becomes very simple.

The Deputy Chair: If Moncton does it first, it will be the first in the world, then.

Mr. Kirk: Absolutely, yes.

Senator Mockler: Thank you, chair. I did have a drive in a Tesla in Moncton, as a matter of fact, and I was impressed. The computerization of that vehicle is unbelievable.

My question is: Where do lithium batteries fit into your concept?

Mr. Kirk: You're looking at me, senator, and I'm not an expert on lithium batteries. I'm an engineer, and I know the limits of my knowledge. With respect, sir, I'll take a pass on that one.

Mr. Denhoff: There is a variety of different battery technologies used for a variety of different solutions in these situations. I just can't comment. It's not an area I spend any time on.

Senator Mockler: Can I share a little information? Where Senator Ringuette and I come from, we have a lot of woodcutters. I've been privy to looking at chainsaws with lithium batteries that you can buy at Walmart, Canadian Tire and elsewhere. We're very impressed in our neck of the woods, in Atlantic Canada, when it comes to Oregon, which is a specialized chainsaw company. We know they're credible. They have a lithium battery-powered chainsaw, a branch cutter and trimmers. They last for anywhere between four and a half to six hours. We were very impressed by that.

Mr. Denhoff: For small applications, they're terrific. They're really hard to beat. It's where you need more power or you need it for a longer period of time that you run into issues.

There are some intriguing things about fuel cells, as I mentioned earlier, in defence applications. The Americans just placed a second follow-on $5 million order from Ballard to use fuel cells for the platoon-size squad of power supply. They all have navigation things, and they're carrying around hundreds of pounds of electronics now, and the batteries you need to provide long-life support to that are too heavy.

I'm careful to say some of these applications beat the pants off fuel cells, like a chainsaw. We don't have one yet for that. There are fuel cell applications for phones, but not competitively. Then when you get into larger trucks or really cold weather and on and on, then we do better. Everybody has something.

The Deputy Chair: I made a comment earlier about Senator Ringuette being dangerous in a car. Imagine if she had a chainsaw beside her.

Senator MacDonald: The one thing we haven't discussed is the assumption we're all working from, which is that we're trying to reduce CO2 emissions and that CO2 emissions are fundamentally bad when it comes to global warming and things of this nature. Of course, when it comes to things like wind power, we think it is supposed to be so green, but there's a lot of front-end CO2 emissions from wind power. You're producing towers and turbines, and there's a cost to that in terms of carbon. You're cutting wood roads to establish these things, and there's a cost to that. You're mining copper to produce generators, and there's a cost to that as well. As with hydro, there's a front-end cost. It's destructive to produce hydro, although it's very green. What are your front-end costs? What are the CO costs when it comes to producing biofuel or hydrogen cells?

Ms. Kent: When we say our profile is CO 60 to 99 per cent lower, that's a life cycle analysis. That is everything from well to wheel. We'll look at the biomass, where it's grown, how it's harvested, how it's transported to the production facility, how it's processed, how that is transported to a blender, how it's blended and then, ultimately, what comes out of the tailpipe at the end. That takes into account that entire value chain. There is a cost, but the net benefit is still there.

Mr. Denhoff: Ours is the same. Our numbers, when we put them in, show the total. If you take hydrogen from wind, exactly as you say, you have all that steel being used, the infrastructure and the fuel to set it up. If you have battery electric, you have a huge absorption of hydroelectric power off the grid for cars. In some jurisdictions, that will require you to build new power plants, and then you will have NIMBY and transmission line issues to go with it.

None of the technologies are without an impact. All of them generate savings of GHGs at the end of the day. I agree with you 100 per cent that there's no magic fairy dust here that produces a completely zero emission source. Even if it's from biomass, you still have to have big machines and that sort of thing.

Senator MacDonald: When it comes to wind power, when they're abandoned, it's a bunch of junk on the landscape.

The Deputy Chair: What's the percentage reduction of life cycle cost?

Mr. Denhoff: I submitted that in writing. It depends on whether it's buses or cars or whatever the application is. Fuel cell engines are two or three times more efficient than diesel, just in terms of efficiency, and the GHG reductions are in the presentation I gave you. It depends whether it's cars or buses.

The Deputy Chair: That's the 30 per cent?

Mr. Denhoff: Something like that.

Senator Ringuette: With regard to tax incentives, which you all seem to be looking for to go to the industry so that they can reduce their cost and increase the scale, wouldn't it be more efficient for the federal government to give a yearly tax credit to users for carbon-free car purchases? Then the tax incentive towards no fuel or no GHG emission would be a permanent thing, and that would increase the demand, the scale and so forth. Maybe we're looking at it the wrong way. If we want to increase the presence in Canada, maybe the way is to go through a user tax credit rather than an industry tax credit.

Mr. Denhoff: We do that a bit in B.C. There's a $6,000 credit there. They do that in other jurisdictions, too. The cheapest solution of all is just to regulate that OEMs must employ a percentage of vehicles that are zero emission if they want to sell their regular vehicles in Canada, and that doesn't cost the taxpayer anything. But either works.

Ms. Kent: I think you need both. If you really want to transition to a low-carbon economy, you have to attack vehicle by vehicle in the fleet, and at the same time you should be making the fuel cleaner across the entire fuel pool. Why would you choose one or the other when you could do both?

Mr. Kirk: Most thought leaders, as I said earlier, feel that the era of personal car ownership is going to slowly come to a close. There will be a lot more driverless taxis. Morgan Stanley, in the U.S., has predicted that we are now witnessing the start of the end of the auto industry as we now know it. These are hugely disruptive changes, and any incentives need to be oriented toward the driverless taxi market rather than personal car ownership.

The Deputy Chair: Thank you very much, all three of you. I think this was a very interesting discussion, and we certainly learned a lot. Hopefully we will make use of this information to contribute to a Canada that produces less CO2. Thank you very much.

(The committee adjourned.)