THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, September 29, 2022
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference today at 9 a.m. [ET] to consider emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Hello. My name is Paul Massicotte. I am a senator from Quebec and chair of this committee.
Today, we are conducting a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
Before we begin, I’d like to remind the witnesses appearing virtually to please keep your microphone muted at all times, unless recognized by name by the chair. I would also like to remind you to speak slowly and clearly.
Now, I would like to introduce the members of the committee who are participating in this meeting: Margaret Dawn Anderson, from the Northwest Territories; David Arnot, from Saskatchewan; Clément Gignac, from Quebec; Julie Miville-Dechêne, from Quebec; Judith G. Seidman, from Quebec; Karen Sorensen, from Alberta; Josée Verner, P.C., from Quebec.
I wish to welcome you all, and the viewers across the country who may be watching.
Today, we are meeting to continue our study on hydrogen energy.
This morning, for our first panel, we welcome, from the Canada Energy Regulator, Jean-Denis Charlebois, Chief Economist, and Jim Fox, Vice-President, Regulatory Strategy and Cooperation; Mark Zacharias, the Executive Director of Clean Energy Canada will also be joining us.
Welcome and thank you for being here. You have five minutes to deliver your opening remarks.
We will begin with Mr. Charlebois, followed by Mr. Zacharias, Mr. Charlebois, you now have the floor.
Jean-Denis Charlebois, Chief Economist, Canada Energy Regulator: Hello and thank you, honourable senators. My name is Jean-Denis Charlebois, and I am the Chief Economist at the Canada Energy Regulator, or CER.
[English]
I am joined by my colleague Jim Fox, Vice-President of Regulatory Strategy and Cooperation.
I want to acknowledge that I am joining you today from Montreal, the traditional territory of the Kanien’kehá:ka (Mohawk), a place which has long served as a site of meeting and exchange among nations.
[Translation]
Thank you for the opportunity to appear today to speak about our work at the CER in relation to your study on the future hydrogen economy in Canada.
I will present the CER mandate, the potential contribution of hydrogen to Canada’s energy mix, as well as the CER’s role in hydrogen regulation.
[English]
At the CER, we work to keep energy moving in Canada while enforcing some of the strictest safety and environmental standards in the world.
Our mandate is derived from our enabling legislation, the Canadian Energy Regulator Act. To fulfill our mandate, the CER has four core responsibilities. They are safety and environmental oversight, energy adjudication, energy information and engagement. In everything we do, safety and environmental oversight of energy projects throughout their life cycle are always at the forefront. It is the reason why we exist.
Under our energy adjudication core responsibility, the CER assesses projects to determine if they’re in the public interest. It is under this core responsibility that hydrogen pipelines would be assessed.
For energy information, the CER analyzes and publishes information and analysis on energy markets and supply. We also make projections about Canada’s energy system. This includes projecting what role new sources of energy, such as hydrogen, could play as Canada strives to meet its net-zero goal by 2050.
It is important to emphasize that the CER is a regulator. Federal and provincial governments will develop policies and strategies for the production and use of new energy commodities, like hydrogen. Then it is up to the CER to implement those policies to the extent that they relate to our mandate.
The CER would be responsible for regulating interprovincial and international hydrogen pipelines. However, as we speak, there are no hydrogen pipelines currently operating in Canada under federal jurisdiction. There are a handful of dedicated intraprovincial hydrogen pipelines, and these are regulated by the relevant provinces.
Although no hydrogen pipeline applications are expected in the near term, the CER is preparing for this eventuality. These pipelines could be pure hydrogen, hydrogen blended with natural gas or a chemical hydrogen carrier such as methanol or ammonia.
We are currently conducting a comprehensive review of the Onshore Pipeline Regulations. This review is considering what revisions might be required to regulate hydrogen pipelines. We are also engaged with the Canadian Standards Association on the CSA Z662 Hydrogen Task Force. This initiative will develop codes and standards to ensure the safety and integrity of hydrogen infrastructure.
It is important to note that the CER can assess and regulate hydrogen pipelines on a case-by-case basis if an application were to be made today. We have taken this approach when assessing commodity pipelines in the past, pipelines that do not transport oil or gas, such as the Genesis brine pipeline in Corunna, Ontario. This approach could be extended to a hydrogen project as well.
A focus of the CER on energy information is to publish timely and relevant information and analysis that contribute to the dialogue on energy transition. Such information and analysis support governments and the public in decision making.
One of our flagship energy reports, Canada’s Energy Future 2021, made projections of energy supply and demand for the long run, including supply and demand of hydrogen. As Canada’s energy system decarbonizes, new non-emitting fuels, including hydrogen, will be required to replace oil and gas. A key finding of the report is that Canadians will use more electricity from increasingly low-carbon sources. Despite total energy use declining by around 25% over the projection period, electricity demand grows 44% to 2050, much of it from new demands such as electric vehicles and hydrogen production.
Canada’s electricity system is also projected to get greener, going from 82% non-emitting in 2021 to 95% by 2050. More specifically, total hydrogen demand would reach 4.7 Mt by 2050. This would account for about 6% of total energy use, with a focus on the industrial and transportation sectors generating most of that demand. Both renewable electricity and natural gas with carbon capture and storage are used to produce this hydrogen.
We have also studied scenarios where Canadian provinces meet their electricity demand in different ways. These include a mix of hydro, nuclear, wind, solar, fossil fuel and biomass with carbon capture and storage, as well as hydrogen.
The next iteration of our report, Energy Futures 2023, due out this spring, will contain analysis consistent with Canada’s 2050 net-zero target. Hydrogen will play a role in helping Canada meet this target.
[Translation]
Those are my introductory remarks for today. Thank you for the opportunity to speak to you about this today. We look forward to your questions.
The Chair: Mr. Fox, would you like to add something?
[English]
Mr. Charlebois: I don’t think Jim has anything to add.
The Chair: Okay. Mr. Zacharias.
Mark Zacharias, Executive Director, Clean Energy Canada: Good morning. My name is Mark Zacharias and I am the Executive Director of Clean Energy Canada, a climate and clean energy think tank based at Simon Fraser University. I’m based here in Victoria, B.C.
This morning, I will be speaking on how Canada can position itself to become a clean hydrogen leader through growing our domestic supply and demand, which, in turn, sets Canada up as a clean hydrogen exporter.
Over the past couple of years, a growing number of clean hydrogen initiatives have emerged across Canada. Clean hydrogen has a number of unique advantages as a climate solution, particularly in sectors that are the most difficult to decarbonize and where alternatives are limited. These are often referred to as the “toughest third” of emissions and include trucking, shipping and the production of steel, fertilizer and cement.
Canada is among a small group of countries with the highest potential for exporting clean hydrogen. This is thanks to an electricity grid that is currently 83% non-emitting, sufficient access to fresh water, which is required for electrolysis, and abundant natural gas resources and renewable energy potential.
The International Energy Agency cites a growing international consensus that clean hydrogen will play a key role in the world’s transition to a sustainable energy future.
BloombergNEF, meanwhile, estimates that clean hydrogen could meet up to nearly a quarter of the world’s energy demand by 2050. Canada has the opportunity to secure a slice of this pie. Last month’s announcement between the Canadian and German governments to produce green hydrogen in Newfoundland and ship it to Germany as early as 2025 sent a strong signal for the kind of clean energy that the world wants from Canada.
Indeed, Canada’s long-term hydrogen advantage is most likely production not from natural gas but from zero-emission electricity. The cost of producing green hydrogen — made from electricity — is projected to be on par with blue hydrogen — made from natural gas — as early as 2030 and cheaper thereafter. Green hydrogen is expected to be cheaper than natural gas by 2050. The international ambition to produce green hydrogen, from Germany to Australia to Oman, may spur cost declines even sooner. Over 130 nations have pledged to reach net-zero emissions, so our biggest trading partners are going to be looking to buy the world’s cleanest hydrogen. Canada’s ability to generate abundant low-cost renewable energy is a significant competitive advantage.
I would also like to bring the committee’s attention to recent efforts in the U.S. The new Inflation Reduction Act includes a production tax credit for clean hydrogen, which is estimated to enable green hydrogen to compete with grey hydrogen in some places in the U.S. today and in most places by 2030. The U.S. government has also set aside US$7 billion to establish up to 10 regional hydrogen hubs.
So what must Canada do to seize the hydrogen advantage? First, replace fossil fuels with new hydrogen-based applications, particularly in sectors that are the most difficult to decarbonize and where alternatives are limited. Chemicals, fertilizers and steel are excellent examples of where hydrogen can replace fossil fuels.
Second, use clean hydrogen to decarbonize natural gas utilities, which are increasingly setting targets or facing regulations requiring that they blend in increasing amounts of renewable gases, including biomethane and hydrogen. Currently up to 15% of the blend can be hydrogen with little modification to existing pipeline systems and appliances. Hydrogen can also be used to store renewable electricity when it’s needed.
Third, reduce the emissions’ intensity of current grey hydrogen production by making it blue through carbon capture and storage or replacing it with green hydrogen.
Fourth, while government policies are emerging from the federal and provincial governments, more work is necessary to support the production of clean hydrogen as well as grow demand in Canada that will ultimately lead to export opportunities.
To summarize, Canada has tremendous opportunities to build and participate in the emerging global hydrogen economy.
Thank you for your invitation to speak today, and I look forward to your questions.
The Chair: Thank you very much.
Senator Seidman: Thank you very much to our witnesses for appearing this morning. My first question is for Mr. Charlebois from the Canada Energy Regulator.
Mr. Charlebois, you spoke a lot about your publications on your regulator site, and I would like to ask you about your Market Snapshot published in August 2022, where you state with regard to blue hydrogen:
. . . natural gas with carbon capture and storage (CCS) . . . uses natural gas as a feedstock in a type of chemical reaction called reforming to produce hydrogen and carbon dioxide. We assume that over 90% of the carbon dioxide produced by reforming is captured and stored permanently using CCS technology.
I would like to ask you two questions about this assumption, if I might. On Tuesday evening, Dr. Robert Howarth told us that natural gas, which is the feed product for blue hydrogen, can’t be used without having some unburned methane emitted into the atmosphere. The latest report from the Intergovernmental Panel on Climate Change tells us that 45% of all global warming to date is coming from methane emissions, and we need to cut that down. Blue hydrogen increases those emissions.
My first question is this: Is the Canada Energy Regulator considering the methane emissions inherent in the production of blue hydrogen in its analysis, and if not, why not?
And related to that, we also heard from another witness, Ms. Levin, at Environmental Defence Canada, that we are not even close to 90% carbon capture. She told us that Quest, a large blue hydrogen facility, is at 60%. My second question is this: Is it actually possible to capture 90% of carbon dioxide emissions, and if it is not, why is the CER using that figure in its publication online?
Thank you.
Mr. Charlebois: Thank you for your question, senator. Essentially, what we project is the status of affairs basically to 2050, and we recognize that on the path to 2050 there will be periods where technology will obviously improve and allow greater capture of carbon through the process.
Ultimately, is it possible to capture all carbon? Probably not. Time will tell, and technology will tell. But that said, we need to remind ourselves that the reason why hydrogen would be produced in that way would be to offset the use of oil and gas and —. So on a net-effect basis, even if hydrogen produced with carbon capture and storage produces some carbon, on a net basis, the energy system would be producing less carbon because hydrogen would be burned instead of natural gas or oil, depending on the case.
Senator Seidman: I’ll leave it there for now. Do I have any more time?
The Chair: Yes.
Senator Seidman: Good. Thank you. I’ll have to think about that answer, if I might, and come back to it, but I would like to go on to Mr. Zacharias.
In July 2021, you issued a statement regarding B.C.’s hydrogen strategy in which you said that while B.C. is ideally positioned to produce blue hydrogen from its natural gas reserves, recent forecasts suggest that green hydrogen, made from electricity and water, will outcompete blue hydrogen in price as early as 2030.
My question for you is this: If we consider the methane emissions associated with the production of blue hydrogen, the difficulty of carbon capture and your analysis that green hydrogen will soon be more cost-effective than blue hydrogen, are all the investments that Canadian governments are making in blue hydrogen worth it?
Thank you.
Mr. Zacharias: Thank you for your question. At Clean Energy Canada, our position is that blue hydrogen and investing in a blue hydrogen industry builds a workforce, builds the skills and builds the capacity to eventually transition Canada to a green hydrogen industry.
As I mentioned in my opening statement, the Biden administration’s Inflation Reduction Act now has a subsidy of up to US$3 per kilogram for green hydrogen production, based on carbon intensity, and that makes it cost-competitive with blue hydrogen in the U.S. in most areas.
I agree with your point that blue hydrogen does still have methane; it does still have a carbon footprint. In the future, however, we believe green hydrogen will be the solution, but given our workforce, given our natural gas reserves and given the need to transition, there will be a period by which blue hydrogen will be important for the B.C. and Canadian economy.
Senator Seidman: Thank you.
[Translation]
Senator Miville-Dechêne: I will not go into as much detail as my colleague, Senator Seidman. I have a more general question for you both. For Mr. Zacharias, you seem to be very optimistic about the future of hydrogen, especially green hydrogen.
The day before yesterday, however, we heard from Mr. Howarth, who was more realistic or perhaps more reserved on the matter. He noted that a great deal of energy is still needed to produce green hydrogen, and questioned whether we could truly become a big exporter of this resource to Germany, in particular.
I would like to hear from both witnesses on this.
Mr. Charlebois: Thank you for the question, senator.
What our work shows is that, throughout the projected period up to 2050, hydrogen production using electricity will become more cost effective than it is now. So we see potential, especially in light of technological improvements, so that this production method, using electricity, by 2050, could become competitive in terms of cost and quite comparable to hydrogen production using natural gas with carbon capture.
It remains to be seen, once again, whether this projection is feasible. As our analysis indicates, we project that hydrogen production could in fact meet about 6% of Canada’s energy demand.
Let me say in conclusion that this analysis does not take into consideration Canada’s objective of carbon neutrality by 2050. Rather, it is in the context of climate policies that are becoming increasingly ambitious, as has been the case thus far, but not with respect to achieving carbon neutrality.
In our next report on the future of energy, which will be released in the spring, we will model carbon neutrality, with greater emphasis on hydrogen than in our last report.
Senator Miville-Dechêne: What you saying is that we will not have a choice in the end.
Mr. Charlebois: I’m saying that the potential exists, but it remains to be seen whether the economic dynamics, as well as the political and regulatory support, will essentially facilitate hydrogen production at the necessary level, not only to meet the demand here in Canada, but also for export.
Senator Miville-Dechêne: Thank you.
[English]
Mr. Zacharias: Thank you for your question. Canada was assessed a number of years ago, through a study at Harvard University, as being one of the leading jurisdictions worldwide in the production of green hydrogen for several reasons. First was the ability to stand up renewable generation assets and have sufficient electricity to be able to generate green hydrogen, as we have seen in Quebec with the Varennes project, which was announced in 2020, as well as a number of other projects across Canada that I can talk about.
Second, in order to make green hydrogen you require nine litres of water to produce one kilogram of green hydrogen. Canada, unlike Western Australia and a number of the Gulf States, has an inherent competitive advantage when it comes to water.
Your question was also around how real is the industry and the opportunity. I would point to a number of international investments that are currently being made in green hydrogen. In Texas, as of March 2022, there is a new company called Green Hydrogen International. They will start producing rocket fuel for the SpaceX program beginning in 2026. Phase 1 is two gigawatts of input energy. To put that into perspective, that is two Site C dams or about 2.7 Muskrat Falls. They plan to scale up to around 60 GW of input which, again, would be around 60 Site C dams. Kazakhstan has similar ambitions in terms of producing green hydrogen that they could input into the existing gas grid for export to Europe and Asia. Again, they are looking at 45 GW of production, which is massive and would be equivalent to all the hydrogen currently produced by all streams in Canada right now.
Western Australia has something called the Asian Renewable Energy Hub, a proposed project of around US$36 billion and 26 GW of wind and solar energy covering an area of 6,500 square kilometres. Even Europe has some exceedingly large green hydrogen projects in play right now. Earlier this year, HyDeal España announced a plan to build 9.5 GW of solar farms and electrolyzers in northern Spain by 2030 to feed the European market.
I have a number of other examples.
[Translation]
Senator Miville-Dechêne: I have one last sub-question for Mr. Charlebois.
When you talk about the economic competitiveness of blue hydrogen, are you expecting the companies themselves to invest in these technologies or should the investments once again be subsidized by governments?
Mr. Charlebois: Our hypothesis is that the industry will fund these developments. In many cases, economic competitiveness also depends on the cost of the alternative so, given the state of hydrogen production technology that uses natural gas, the technology is indeed far enough advanced to be the preferred option right now, in relation to hydrogen produced with electricity.
Senator Miville-Dechêne: Thank you.
[English]
Senator Arnot: Good morning, witnesses. This builds upon both questions from my colleagues and is directed at Mr. Zacharias, but I would like to hear from Mr. Charlebois with any comments on this.
Previous witnesses have indicated that carbon capture sequestration projects have been proven to be an abject failure and that blue hydrogen is not a solution but an expensive distraction. It is well known that Saskatchewan had a heavy investment in CCS through SaskPower and other government support. Is any program of government support for a project or program a waste of public funds when it concerns carbon capture sequestration?
Mr. Zacharias: That is a good question. I would point to the International Energy Agency’s conclusion over the last several years that all tools in the tool box will be required globally if the world is going to meet its climate ambition and keep global warming below 2 °C, and ideally below 1.5 °C. That includes carbon capture and storage at a large scale.
Canada has a number of advantages in the carbon capture, utilization and storage, or CCUS, base. We have favourable geology, a skilled oil and gas workforce that is able to move the technology forward and a number of government subsidies and investments that will help develop the industry.
Will carbon capture and storage be a major part of Canada’s climate plans in 20 or 30 years? I’m unable to predict at this juncture. However, we will need efforts into this base if Canada is to meet its carbon climate targets.
Mr. Charlebois: In addition, there are a couple of projects that are currently capturing carbon in Saskatchewan and Alberta that are actually working. I think the technology can build on the learnings from those projects to increase its scale and its applicability across the energy system.
It is up to policy-makers to determine the extent of the support that is needed and required to bring this to a level that will support Canada’s energy transition toward a net-zero future.
[Translation]
Senator Verner: Thank you for your presentations this morning. Let me start with a question that might be for Mr. Zacharias.
I was wondering if you were aware of the statement made last March by Hydro Quebec CEO Ms. Brochu.
She said that Quebec would not have any surplus clean energy left by 2027 because of the very high demand, owing in part to the establishment of new companies, including those that want to produce green hydrogen.
My question has two parts. Have you incorporated this statement from Hydro Quebec into your calculations or projections? Have you launched other initiatives that could make the green hydrogen industry consume less energy?
Mr. Charlebois: I will be pleased to answer the question, but I think it is for Mr. Zacharias.
[English]
Mr. Zacharias: Thank you. I would be happy to answer and then turn it over to Mr. Charlebois.
Canada will need at least double its electricity system — perhaps triple — by 2050 if it is going to meet its net-zero goals. Environment Canada came out with some modelling in 2020 that suggested that two to three times more clean electricity will be required for Canada to fully decarbonize. Subsequent work by Natural Resources Canada has moved that number down to around double.
We are aware that a number of utilities and provinces are looking at potential deficits in electricity generation as early as 2026 to 2028. We would, however, point to the fact that Canada has the ability to stand up new renewable generating assets at a very low price. Alberta has led the way, producing power at four cents per kilowatt hour over the last five years.
There was a study in Nature last fall comparing 42 nations in terms of which nations are best set up and positioned to power their economies fully through renewal assets, and Canada was number two in that study.
So yes, we are aware of the concern, but we’re also aware of the opportunity for Canada to scale up electricity generation.
[Translation]
Senator Verner: Thank you, Mr. Zacharias.
The Chair: Do you have something to add, Mr. Charlebois?
Mr. Charlebois: Our analysis suggests the same thing. We recognize that the demand for energy will increase by roughly 44% by 2050. The production capacity must of course be sufficient to meet that demand. We see the potential for solar and wind energy to play a key role in this growth. Once again, it is up to the various public utility companies, at the provincial level, to find solutions to that problem. Our modelling does not view that as a constraint, but rather as an opportunity to increase renewable energy production.
Senator Verner: This question is probably for Mr. Charlebois. On another matter, on August 23 of this year, as everyone knows, Canada and Germany signed a joint declaration of intent to establish an alliance to produce and export green hydrogen by 2025.
In previous testimony, we heard that hardly anything has been done, in terms of both infrastructure and regulation. So I am wondering if you think that 2025, which is just three years away, is truly an attainable objective in view of everything that has to be done to get there.
Mr. Charlebois: The Canada Energy Regulator is actively preparing for the possibility of having hydrogen in the pipeline networks or being ready to regulate such facilities.
[English]
I will pass it over to my colleague Jim Fox, who can speak more at length to the work we’re doing in terms of regulatory readiness.
[Translation]
To answer your question as to whether it is realistic, our work has not been to determine whether it is attainable or not. One this is certain, though. Since there is no infrastructure in place, a great deal of effort will be required, in terms of both funding and technology.
[English]
Jim, perhaps you can supplement in terms of the regulatory readiness work that we’re doing.
Jim Fox, Vice-President, Regulatory Strategy and Cooperation, Canada Energy Regulator: I’m sorry; I missed something listening to the English feed. Was there an additional question?
The Chair: I think your colleague wanted you to summarize the readiness of the regulatory system and where we are in that respect.
Senator Verner: And infrastructure.
Mr. Fox: From an infrastructure point of view, we don’t have much hydrogen infrastructure for preparing for export at this moment in Canada.
From a regulatory preparedness, if a party were to come to the CER to look for an infrastructure investment, we are prepared to look at a hydrogen pipeline on a case-by-case basis where, prior to having standards and regulations in place, we would look at the proposal and take it through a robust assessment process where the CER’s experts, along with other experts and citizens, would be able to voice their concerns and listen to the company’s responses and help the company develop its project appropriately so it can be built in a safe and environmentally protective manner.
We are prepared to do it now. More work is required to make the system clear and transparent to companies, proponents and other interested parties before we can get into an efficiently operating system. It will take some years, as my colleague noted.
Senator Verner: Yes, but the agreement between Germany and Canada was about 2025 readiness. What I asked before was about the infrastructure. Are we working toward readiness in that regard?
Mr. Fox: From the Canada Energy Regulator’s perspective, my understanding is that the 2025 date was in reference to a project that would be creating green hydrogen in Newfoundland. Given that they wouldn’t be transporting it across provincial or international boundaries in a pipeline, the CER wouldn’t necessarily be involved in that project.
Senator Verner: Thank you.
Senator Anderson: Quyanainni for your presentation. This is an open question for any of the witnesses.
Mr. Zacharias, you stated that Canada needs to secure a slice of this pie. I am from the Northwest Territories, where oil and gas was big in the 1980s. Production was happening in my hometown of Tuktoyaktuk, and it provided an economic boom for Canada and the North. However, when they left, the companies left behind an artificial island of approximately 150 sumps that are leaching into the land. A third of those are in the Inuvialuit region. Over 40 years later, they still sit there, not fully addressed.
You all spoke about the benefits of hydrogen. Can you tell us about some of the disadvantages and challenges with hydrogen, and are you expecting remediation plans to be built into the production of hydrogen to ensure that provinces and territories are not left dealing with what the companies leave behind when they are done? Thank you.
Mr. Charlebois: As the Canada Energy Regulator, we are overseeing the construction and operation of pipelines to the extent that they cross interprovincial boundaries. We are not directly involved in the oversight of the production, whether it’s for oil and gas or hydrogen. It’s really for the transportation, specifically.
So I couldn’t speak to the work that is being done on the production side to make sure that safety and environmental protection are maintained at the production phase of the value chain.
The Chair: Mr. Zacharias, can you help us there?
Mr. Zacharias: Absolutely. It’s a really good question.
Regardless of the hydrogen production method, whether it’s blue from natural gas or green from renewal electricity, all facilities need to be properly bonded such that they don’t become stranded assets into the future and they don’t become orphaned assets left to the taxpayer and communities to clean up.
We fully agree with that. It is always in our recommendations that everything needs to be properly bonded before it is authorized to be permitted.
You also asked about some of the other environmental and public health impacts around the production of hydrogen. It is obviously a gas and it is flammable. There are concerns around that, which will have to be addressed. Again, we already have a number of fossil-fuel regulatory systems in place around how to deal with volatile chemicals and also fossil fuels.
Those are the two main pieces that I would bring up. I agree, the regulatory frame is becoming stronger both at the provincial and at the federal levels, but there is still work to do.
The Chair: What should Senator Anderson do with her pile of sand and debris and pollution? What should she do?
Mr. Zacharias: I’ve spent 25 years of my career working in governments, often on the remediation and restoration side. There are funding sources from the federal government that can be applied for to help recover these assets. There are also a number of legal mechanisms to go after the responsible party from a legal perspective to find who might be able to pay. Again, I’m saying that as someone who is no longer in this business, but maybe the CER has some ideas.
Senator Anderson: To get clarification, Mr. Zacharias, you spoke about recommendations. Are those recommendations binding?
Mr. Zacharias: It really depends on the province, territory or regulatory regime, and it also depends on the type of projects. For example, I live in B.C., and for new assets in industrial sites that are stood up, sufficient bonding must now be in play to be able to clean up anything that might be left should a company either not be able to continue to operate or abandon those assets and leave them to the taxpayer. I know B.C., where I’ve worked before, is looking at doing something very similar for mining projects as well. It depends on the jurisdiction.
The Chair: I admit, it’s really unfair and it’s very negative, but obviously a bit late. We have to make sure it doesn’t happen again at the very least. Maybe I could add a couple of questions.
[Translation]
The day before yesterday, we welcomed Professor Robert Howarth from Cornell University, who I consider very credible and knowledgeable. He has some involvement in the energy recommendations for the state of New York, which is a populous state that has important leadership.
This state has decided not to be involved in hydrogen in any way, because methane always escapes, and because it is a very harmful step with a lot of hypotheses, and which is possible to avoid.
Mr. Charlebois, at this point, we accept all that, but no one knows for certain what the real consequences could be. Are you familiar with the energy policy recommended by Professor Howarth from Cornell University?
Mr. Charlebois: I am not very familiar with New York state’s energy policy, unfortunately. I can simply add to the safety and security issue just mentioned. If hydrogen were transported by pipeline, which is regulated by the Canada Energy Regulator, I can assure you that, before any hydrogen is transported across Canada, we would eliminate any uncertainty to ensure that all security issues are most rigorously addressed.
We have a robust regulatory framework for financial securities and for ceasing the operation of pipelines. That whole regulatory framework will apply to hydrogen pipelines if they ever go into operation.
The Chair: While it is possible that your office’s undertakings will ensure it is safe, the fact remains that the decision we will make will not be cost-effective and will entail a lot of methane pollution. We say these are important hypotheses, but perhaps it will be too late, once again, because we are talking about a lot of money and the consequence is serious.
I think if we look at Professor Howarth’s hypothesis, his presentation, perhaps another time we could hear your opinion as to whether it is credible and feasible.
I would also like to talk about carbon capture in Saskatchewan. This has been discussed for years, but right now we do not know the exact amount of the subsidy needed to produce results. An agreement is far off and some people are saying it will cost $150 per barrel. Are those figures on the subsidy needed really accurate? Also, will it reach the cost-effectiveness threshold? Mr. Charlebois and Mr. Zacharias, do you wish to comment?
Mr. Charlebois: With respect to hydrogen and, to some extent, carbon capture, these technologies are evolving. Carbon capture technology is perhaps more advanced than the technology for the broader use of hydrogen. In retrospect, we can see that natural gas and oil technology has improved over time. It is not perfect, but it has improved.
When hydrogen and carbon capture enter Canada’s energy system on a larger scale, we expect that the Canada Energy Regulator and other regulatory bodies in the provinces will perform their monitoring role.
Politically, decision-makers will establish the necessary parameters to ensure that these operations and this carbon capture technology are state of the art and meet the highest engineering and environmental standards.
[English]
Mr. Zacharias: Thank you for the question. We need to separate two things here. One is that carbon capture can be used for a number of purposes. Canada has an enormous amount of what’s called “pore space” in it. It’s a large country with suitable geology to hold a lot of carbon underground, and there may be an opportunity to establish a market, independent of blue hydrogen, where companies and governments pay Canada to take carbon out of the atmosphere, push it underground and into the pore space and permanently store it. Ideally, in some geologies in Canada, that carbon will mineralize within two years and become rock. That’s one piece of this. The markets will sort out whether that becomes an effective solution for climate, and what the cost per tonne will be to store all that carbon underground.
With respect to blue hydrogen and your question, again, I think the markets will sort out, probably in the next five to seven years, what the ideal pathway for that production will be. The market price that’s paid for either green hydrogen from electricity or blue hydrogen from natural gas will also look at the carbon intensity. If the carbon intensity is poor, and blue hydrogen does allow methane to escape and it’s not all that much cleaner than traditional hydrogen produced from steam methane reforming, that will be reflected in the price.
To your question, I do think that the EU is going to be demanding the highest-quality and lowest-carbon-intensity hydrogen from Canada, and the blue hydrogen industry may be able to support that, but it may not. That’s yet to be seen.
The Chair: Having said that, I agree the market can filter what is right or wrong, feasible or not. In our case, it’s not that simple. There is a significant level of subsidy, and until that subsidy gets removed, we don’t know what the market would justify. How do you determine what is justifiable and market-oriented when we have such a high level of subsidies going on? And also, in the United States, the same thing.
Mr. Zacharias: I’d love to answer. That’s a great question. There are two elements of that subsidy question and an incentive question. I’m going to look at the U.S. version right now. Most recently, in the Inflation Reduction Act they now have a subsidy and production tax credit that is based on the carbon intensity of hydrogen. They don’t care what colour it is. It’s how clean it is, and how much carbon goes into the atmosphere on its production. That’s something Canada should be looking at.
The second piece, and I think Mr. Charlebois said the same thing, is that we are in early days in carbon capture and storage and in blue hydrogen production. We have 200,000 oil-and-gas workers who can all be useful in this space and potentially transition into clean hydrogen production in Canada.
Again, there is a need for R&D and innovation supports, and there is a need to grow small and medium Canadian companies into this space. Will they always, at the end of the day, turn out to be productive and profitable for Canada? We don’t know yet, but that’s the path of innovation. Sometimes you have to take some risks.
[Translation]
The Chair: I have another question. Many people argue that this looks very appealing, but why go through that stage? You mentioned this, Mr. Charlebois: the cost of producing energy is about four cents per kilogram. That is very cheap. Why not proceed directly to these two or three very clean and inexpensive sources rather than subsidize another product with other complications?
Mr. Charlebois: I think we have to remember the context in which all of this is developing. It is a context in which Canada has very strong ambitions to reach climate objectives and carbon neutrality by 2050. That will require major transformations to the energy system we have now. No one knows exactly how Canada can achieve carbon neutrality. For the time being, though, we have to consider the available options, while being cautious about new technologies, including hydrogen and carbon capture.
It remains to be seen which technology will emerge to achieve carbon neutrality. At this point, it is hard for us at the Canada Energy Regulator to judge which technology or fuel to focus on to achieve carbon neutrality.
[English]
Mr. Zacharias: I agree with Mr. Charlebois. There will be a need for all technologies and all options over the next 10 years. The question is this: Is investing in blue hydrogen a loss leader, and are the subsidies ultimately not going to be required because we will have green hydrogen coming on at some point in the future?
I think my answer is that when you’re dealing with the production of hydrogen, regardless of the production method, you’re building capacity and experience in Canada, and you’re building a workforce that knows how to deal with hydrogen writ large.
A lot of the skills and experience that will be developed in the blue hydrogen world will be transferable to the green hydrogen world.
So I do agree. Right now, we need to decarbonize quickly. We have technological options that are viable and in front of us, and they’re actually being used today. I think there’s a reasonable expectation that we could continue to invest in some of those, at least to see whether they’re going to be viable in the future. If not, we change course and look at another technology.
The Chair: Maybe more specifically, one of my questions was this: Do we have to go there when you have competitive energy at four cents per kilowatt hour maximum? Look at Hydro-Québec; they’re at six or seven cents. We could produce new energy cheaper. Why go to hydrogen? It looks like we have ample opportunity to go wind or solar.
Mr. Zacharias: That’s an absolutely excellent question.
I’m going to use vehicles. If you look at light-duty vehicles and garbage trucks, school buses, dump trucks and municipal vehicles — trucks up to class 7 or 8 — the future of those is most likely batteries. It’s exactly as you say — generate clean electricity, put it into a battery and move forward.
The problem, though, is that there are parts of our economy and society that are incredibly hard to decarbonize using electricity. Steel, cement and fertilizer require hydrogen as inputs, and right now, that hydrogen is from the methane molecule. They also require high-heat applications, which, again, is not something that electricity is good at. Long-haul trucking would be another example where hydrogen is probably going to beat electrification and batteries to market and probably be the long-term solution.
Again, we talk about the toughest third of emissions to decarbonize, and that’s where hydrogen has an advantage, whether it’s blue or green, over traditional electrification in the way you’re describing.
The Chair: Thank you.
Senator Seidman: Mr. Zacharias, if we’re moving into more effective production of green hydrogen, you said we would have to ramp up to, I think you said, double electricity.
Mr. Zacharias: Correct.
Senator Seidman: The whole aspect of using fresh water — the water resources — more and more. Is it the best use of fresh water? If I look around the world, I know Canada has the second-largest resources of fresh water in the world, but if I look at it as a commodity or a resource, and a very important one, is the best use of fresh water developing and ramping up toward green energy?
Mr. Zacharias: It’s a good question, and it’s one that I don’t think society is yet able to answer, mainly because we don’t really know what the pathways to global decarbonization are going to look like. What I mean by that is that we actually don’t know how much energy is going to be required globally to switch away from the use of fossil fuels and whether Canada is going to be inputting that energy.
We already send 8% of the electricity that we generate to the U.S. on an annual basis. The question then becomes this: Is there an economic opportunity for Canada to export hydrogen — green, blue or whatever colour it’s going to be — and can that opportunity be done in a sustainable manner, using resources sustainably in Canada, with the consent of Indigenous peoples where those projects are located? There are a whole bunch of decisions that have to be made as a society.
At Clean Energy Canada, we would say to keep all of our options open at this particular juncture. The future is going to eliminate options and focus us onto pathways that will be the best for decarbonization, for growing Canadian jobs, building Canadian industries and providing a good livelihood for all people across Canada. That’s the way we would look at this.
It’s a very good question, and it’s too early to tell, but I would say that Canada does have some competitive advantages in terms of our ability and size to generate electricity. We need a lot more, though.
Senator Miville-Dechêne: You’re all saying that all the options should be kept open. However, when we see the evidence or the science evolve — I’m referring to an article in the New York Times three weeks ago where experts were saying that, and this is the title, “Every Dollar Spent on This Climate Technology Is a Waste” — it seems to me that Canada seems to be forging ahead or doing things that have already been said to be useless for climate change.
Is there any future? Should we just stop those grants for carbon capture systems? Is it a waste? I’m addressing my question to both witnesses because both seem to say, “Let’s keep our options open, let’s look at it, why not,” and it seems to me we’re not there anymore.
Mr. Zacharias: I would love to answer, thank you.
If we are going to keep the planet under two degrees warming, we will need to store carbon. We need to store it in cement and underground. We are going to need to store it in forest products. We are going to need to store carbon wherever we can, as fast as we can, while we decarbonize society and everyone switches to electric vehicles, heat pumps, et cetera, and our industry is decarbonized.
That is the reason why carbon storage is important, and it’s the reason why we need to pay attention to it now.
I agree with you, if humanity stopped using fossil fuels tomorrow, we wouldn’t need carbon capture and storage to the degree and extent that we will need it, but it is going to be one of the tools, and we will most likely need it globally going forward.
Mr. Charlebois: When we look at the situation on a global basis, to the extent Canada has the technology and geology to have some of it in terms of carbon capture and storage, then it can be used to produce oil and gas that would support the transition in other countries. Not to say that it is the silver bullet, but in the context of a global energy transition, I think using all the tools available and leveraging the advantages of different countries are some things that ought to be considered.
[Translation]
The Chair: Thanks to the three of you. It has been a good discussion. It is not over though, unfortunately. Nonetheless, it helps us better understand the challenges and consequences.
[English]
Thank you to all three of you. We very much appreciate it. We will certainly give it significant thought and maybe have you back here before we write our report, as we are learning more and more about the importance and the consequences of this energy. Thank you.
[Translation]
For our second panel, we welcome Greg Moffatt, Vice President, Policy and Corporate Secretary, Chemistry Industry Association of Canada, and Michael Powell, Vice President of Government Relations, Electricity Canada.
Welcome and thank you for being here. You have five minutes each for introductory remarks. We will begin with Mr. Moffatt, and then Mr. Powell.
Mr. Moffatt, you have the floor.
[English]
Greg Moffatt, Vice-President, Policy and Corporate Secretary, Chemistry Industry Association of Canada: Thank you very much. Before starting my comments today, I’m joining you from my home in Calgary and would like to acknowledge the traditional territories of the peoples of the Treaty 7 region in southern Alberta, which includes the Blackfoot First Nations of the Siksika, Piikani and Kainai; the Stoney Nakoda First Nations of Chiniki, Bearspaw and Wesley First Nations; and the Tsuut’ina First Nation. The city of Calgary is home to the historic Northwest Métis and to the Métis Nation of Alberta, Region 3. Thank you for the invitation to appear before the committee today on behalf of the Chemistry Industry Association of Canada, or CIAC, and our members on the topic of hydrogen energy.
For context, Canada’s $65-billion chemical manufacturing industry is a significant contributor to our country’s economy. The sector is directly responsible for 78,000 jobs and pays approximately $6.6 billion in salary and wages. Primarily concentrated in Alberta, Ontario and Quebec, the industry supports an additional 390,000 jobs in the overall economy across the country. Relative to other sectors, chemistry and plastics in Canada is fourth in value of shipments behind transportation equipment, food and refined energy products, and third in value-added manufacturing output.
More than 95% of all manufactured products rely on chemistry, and there is a growing global demand for chemicals and plastic resins with the lowest carbon production available. Chemistry and plastics help all Canadians reduce emissions in key sectors, such as green buildings, including innovative insulation to prevent heat and cooling loss; sustainable transportation by making vehicles lighter and powering batteries in electric vehicles; clean energy, such as solar and wind turbines; sustainable agriculture; and lightweight food packaging that prevents food spoilage.
Chemistry plays a crucial role in the supply chain for almost all manufacturing in Canada. Decarbonizing the chemistry sector production and downstream supply chains will require significant investment in new and existing facilities. Hydrogen will very much be a part of the transition and new investment story in chemistry in Canada, but so too will be the deployment of carbon capture, utilization and storage. With CCUS as an enabling technology, hydrogen will be produced from low-carbon natural gas and natural gas liquids.
CIAC members produce hydrogen today as a by-product of chemical reactions through steam crackers and electrochemistry. That by-product, hydrogen, is used in multiple ways, including as supplemental fuel for heat, or sold to third parties as feedstock for other process, including chemical manufacturing. Dow Chemical Canada’s proposed net-zero carbon emissions integrated ethylene cracker and derivates site near Edmonton will be based on a hydrogen-fuelled ethylene cracker that uses by-product hydrogen — the circular economy in action. The hydrogen will be produced from low-carbon natural gas and natural gas liquids with CCUS as the enabling technology.
To close my comments and welcome questions, I’ll offer some perspective on what policy investment support instruments are needed to make investments in hydrogen and CCUS a reality in Canada.
Industry needs certainty and predictability in carbon policy and revenue recycling to underpin chemistry and plastic sector investments to help our industry and others to achieve society’s net-zero ambitions. Certainty and predictability are eroded with layering of multiple policies and priorities on carbon pricing, such as clean fuels regulation, clean electricity regulations and the oil and gas emissions cap.
Ensure current and future investment attraction programs are long-lived and are available to investors for at least 10 years once in place to respect business planning cycles. Increased transparency and predictability must be cornerstones, and we must avoid behind-closed-doors, opaque adjudication processes.
Utilize Canada’s tax code to increase transparency, program access and uptake by private sector capital. Newly developed investment tax credit, or ITC, incentives should be technology-agnostic and outcome-based, with clear eligibility criteria providing predictability and certainty.
CIAC is reviewing the CCUS ITC, and while we are supportive of many elements, some feedback we have heard from our members includes the gap in value of the ITC in comparison to other jurisdictions, including the U.S. 45Q mentioned in the previous panel. The application review behind closed doors is also a concern, as it erodes predictability and certainty. Eligibility criteria and technical guidelines should be established up front to confirm eligibility or value of the ITC.
Finally, extend the accelerated capital cost allowance until at least 2040 with no phase-out or wind-down until at least 2030 to ensure that Canada’s manufacturing sector can make critical investments to strengthen domestic supply chains and build back better from the COVID-19 pandemic.
These are just a few of the enabling measures required for hydrogen and CCUS investment identified in the background note provided to the committee along with a copy of my remarks today.
Thank you for your time and attention and for your service. I look forward to your questions.
Michael Powell, Vice President of Government Relations, Electricity Canada: I would also like to begin by acknowledging that the land on which we gather today is the traditional territory of the Algonquin and Anishinabek people. In addition to my role at Electricity Canada, I’m happy to serve as industry co-chair with the Government of Canada’s electricity working group as part of the hydrogen strategy.
Electricity Canada is the national voice for sustainable electricity. Our members produce, transport and distribute electricity to industry, commercial and residential customers from coast to coast to coast. Canada’s electricity sector is among the cleanest in the world. More than 80% of Canadian electricity is already non-emitting, and that is increasing.
Electricity is Canada’s energy future. It is an economic, environmental and social enabler essential to Canadian prosperity. It is electricity that will power Canada’s path to net-zero emissions, and we’ll need more electricity as a result.
My comments today are going to focus on the production and use of hydrogen by our sector. We also face challenges on the transportation, storage and establishing a market for hydrogen products that other players face as well.
Hydrogen and electricity are natural partners in Canada’s net-zero transition. The Canadian Climate Institute has identified electrification and hydrogen energy systems as a potential pathway toward net zero.
Low-carbon hydrogen can help decarbonize several sectors of our economy that are difficult to electrify. It can power heavy-duty vehicles such as long-distance trucks or trains, where batteries might be impractical. It can displace fossil fuels and industries to produce high-grade heat, which is needed for the production of cement and iron. It can also be used to heat homes and buildings, even if mixed with the existing natural gas system.
These are real opportunities to make significant carbon dioxide emissions reductions. To realize them, we need to simultaneously create both hydrogen supply and demand. We are in both.
Our sector, with our clean electricity grid, offers real opportunities for hydrogen production. Effectively, this is electrification by another name. We have already seen a case of this future — it was mentioned by senators in the last panel — with the announcement of a Canada-Germany alliance and a commitment to produce and export green hydrogen from Newfoundland by 2025.
The nature of our grid is that sometimes we have much more power than we need at that exact moment. Surplus electricity can be leveraged to produce carbon-free hydrogen which, in turn, can be used as a clean fuel in other applications. As the hydrogen economy matures, we’ll likely see generation systems built just to produce hydrogen over and above whatever electricity demands may require.
Hydrogen also offers opportunities to help decarbonize the electricity sector. As you know, the federal government has committed to a net-zero electricity grid by 2035. That target is going to be a big lift, especially while keeping the system reliable and affordable, particularly in provinces that rely more on emitting forms of electricity generation than others. We are going to need new technologies.
Hydrogen is one of those that members are bullish about. Some of our members have already announced plans in Alberta to use low-carbon blue hydrogen as a clean fuel for electricity production in existing plants, taking advantage of existing natural gas infrastructure and using carbon capture and storage. This will be deployable in the very near term.
Beyond helping clean the grid, demand for electricity may also help serve as a market for hydrogen, helping create the demand to incentivize production. We can be the chicken and the egg at the same time.
For all this potential, there remain significant challenges in the widespread adoption of hydrogen. They’re similar to what you have heard elsewhere. We’d ask that you consider a few issues. I note that these are also what is good for growing the grid generally.
It will be hard to make clean hydrogen without a supply of affordable, clean power. The price of electricity will drive the price of clean hydrogen. Beyond ensuring that our system remains affordable generally, we’ll have to consider how regulatory models support or hinder hydrogen production as we grow this part of the economy.
We’ll also have to work together to accelerate permitting and approval processes. New electricity generation or transmission can take years or decades to get projects approved even before they begin construction. Our climate targets, be they 2035 or 2050, don’t leave us that time to sort through the process. We have to make it faster.
Government must also create a healthy investment climate. This includes ensuring that support programs, be they investment tax credits or others, are internationally competitive. Capital is a fungible asset that knows no borders. Where there are government programs, we have to make sure dollars get out the door quickly and expeditiously to make projects happen.
We also need to make sure that price signals remain consistent and clear. Our members are making substantial investments, and there needs to be certainty on pricing that that investment will be sound, particularly around issues such as carbon pricing.
As a sector, the electricity industry is committed to helping build the hydrogen economy. We encourage the government to continue working on these important issues to ensure that hydrogen is part of Canada’s future clean energy system. Thank you.
The Chair: Thank you. Let’s go to questions.
Senator Sorensen: Thank you to the witnesses. I was late arriving. To introduce myself, I’m Senator Karen Sorensen, from Alberta.
Mr. Moffatt, one of your organization’s areas of expertise is chemical management, which we learned a lot about during our study of Bill S-5. Does the expansion of hydrogen energy present any new challenges or risks in that regard? And then, to both you and Mr. Powell, can you explain to me how hydrogen is transported? Are there risks associated with transporting it?
Mr. Moffatt: Thank you, Senator Sorensen, for that question. From a chemical management perspective, the expansion of hydrogen doesn’t represent any additional risk to society. However, there are considerations around safety and transportation in the context of hydrogen carriers. When we are talking about hydrogen, sometimes we are also talking about ammonia as a hydrogen carrier.
The chemistry industry and others have experience working with high-hazard chemicals. In our previous appearance, you would have heard about responsible care and the focus on managing the risks and minimizing the impacts on communities where we operate and where we transport through. Managing those high-hazard chemicals would be of key importance when thinking about how hydrogen, as a clean energy, or energy carriers like ammonia would be used to transport hydrogen.
Mr. Powell: I would add that with electricity there is the opportunity to disconnect where you produce hydrogen and where the power is made. You have seen the wires, the very elaborate transmission and distribution network in Canada, which could offer the opportunity to have places where there may be lots of wind or surplus nuclear or hydro to allow production of hydrogen right where it would be needed. However, there are challenges to that. Our transmission system is already constrained by capacity. That will likely grow as demand for and production of electricity, particularly new renewables, grow. That will affect the price of where it is. That is part of the conversation our members are having when we think about how we can make sure that the production side of hydrogen is as affordable as possible.
Senator Sorensen: Thank you.
[Translation]
Senator Miville-Dechêne: My question is for Mr. Moffatt, from the Chemistry Industry Association of Canada.
I listened to what you said, but we have to remember the fact that oil and gas are used primarily to make chemical and plastic products. I don’t know how you can talk about making the environment greener when you yourself do carbon capture and produce hydrogen. Increasingly, we are recognizing that blue hydrogen is not very compatible with a healthy environment.
[English]
Mr. Moffatt: Thank you, senator, for that question. I was a little distracted trying to figure out my audio, but I think I captured the extent of it.
As I noted in my comments, the reality is that chemicals and plastics play an integral role in the Canadian and global economies. I made mention at a very high level the role that chemistry and plastics play in green buildings and innovative insulation to prevent heat loss, the lightweighting of vehicles through the use of plastics, as well as the integration of chemistry and plastics in renewable energy such as wind and solar.
Yes, there are environmental impacts associated with the production of chemistry. Industry is aware of that. Globally, industry has been working steadily to minimize the impacts on the environment, both in the context of how we interact with communities, individuals and our employees and in the context of the environment generally.
Knowing that chemistry is going to play such a strong role going forward, in reality it would be very difficult for other sectors to achieve their own net-zero ambitions if chemistry can’t do it ourselves.
The reality is that when you are talking about chemistry, you are talking about oil and gas not just as heat but also as feedstock. We need that feedstock to be able to drive these chemical reactions to produce the products that make valuable contributions to society.
The question is this: What can we do as an industry to decarbonize the heat component to drive those reactions? We are highly dependent on natural gas for heat today, so what is the pathway? The pathway is decarbonization through CCUS.
Does that mean that will be the pathway forever? I don’t believe that’s true. There are a number of instances where global chemistry companies are working to explore electric steam crackers, and so to use electricity to drive the reaction. It would still be dependent on natural gas and natural gas liquids as feedstock, but it is to incorporate electricity into the heat process. Ultimately, that electricity would need to be zero-emission. Theoretically, you could be talking about renewables, but you need to find a way to store it because these processes are 24-7 industrial processes. Realistically, we are talking about deploying small modular nuclear reactors that can deliver large volumes of energy reliably over a long period of time.
I hope I did a reasonable job of answering your question.
The Chair: Mr. Powell, did you want to add something?
Mr. Powell: Yes.
I’m glad we are going to have more customers. That’s the first thing.
The key thing is that for our sector the timelines of 2035 are a challenge more than the technology. The amount of time we have to build and the technologies we know are coming that will provide low-carbon options for electricity are tough. For our sector, we don’t see a situation with 2025 where CCS is not part of that option.
I mentioned a plant that is looking to do conversion in Battle River that would use on-site blue hydrogen production to make electricity with low carbon emission. That helps decarbonize the grid, and for now, that reduces megatonnes. Is that the solution for 2050? I’m not sure, but we have to find every megatonne reduction we can. Low-emissions or no-emissions electricity will help facilitate decarbonization.
[Translation]
Senator Miville-Dechêne: I have another question for Mr. Moffatt. You said in your introductory remarks that you would like government programs to be neutral in terms of technology. Does that mean you do not want us to make a distinction between blue hydrogen and green hydrogen? Yet we know very well that blue hydrogen releases between 7 and 25 times more greenhouse gas than green hydrogen. Do you think it would be normal for the government to invest in green hydrogen rather than blue hydrogen?
[English]
Mr. Moffatt: Thank you very much for the question. I did have the value of listening in to the previous session. Mark Zacharias with Clean Energy Canada was very good on this point. An “all tools in the tool box” approach needs to be brought to bear here.
When we talk about hydrogen from a colour perspective, I think we do ourselves a disservice. Ultimately, we should be thinking about hydrogen on a carbon-intensity basis.
The reality is that to move forward at that scale with green hydrogen would require a tremendous amount of electricity in and of itself. Renewables might not be there today.
I already mentioned the potential for small modular nuclear reactors in the decades to come to have an influence there.
The reality is that industry is responding to society and government expectations. They are responding today to a clear and transparent carbon price. They are responding to other regulatory measures to drive decarbonization. One of the pathways to do that is to continue to leverage off of our abundant oil and gas resources in a sustainable way. That sustainable way for chemistry would be to manufacture hydrogen through the oil-and-gas pathway with carbon capture, utilization and storage.
Is it perfect? We have heard that it is not 100%, but it is better than what we have today. It is a pathway. Through deploying technology and learning, the process and technology will get better.
Again, ambition within government and society is, frankly, matched by industry and our members because I have mentioned the Dow Chemical Canada project, but there are $35-billion worth of other projects in the clean energy space, whether that’s hydrogen, ammonia or methanol, that are looking to incorporate CCUS.
Should we aspire to a net-zero economy and society? Yes, we should and we will get there. But is that something we can do today, or are there things we can do to continue to generate economic value in a sustainable way from the resources that are abundant in Canada and demanded globally? I believe that’s the case. In the case of chemistry, CCUS is an enabling technology that we should be encouraging.
Senator Miville-Dechêne: Thank you.
Senator Seidman: Thank you to our witnesses. I was going to pursue this particular issue with you, Mr. Moffatt, because you did say in your presentation to us that we should be technology-agnostic and outcome-based. I like what you are saying; I like that approach to anything we do, frankly.
Indeed, Mr. Zacharias, in response to the philosophical questions about the use of fresh water in ramping up to this net zero and more sustainable pathways to it, illustrated that how we choose to use our resources is a philosophical question, in a way, and how we manage to get to net zero. So he was also saying to keep our options open. I think you made reference to that when you began your response to Senator Miville-Dechêne.
For how long do we pursue being agnostic? For how long do we keep putting money into particular approaches to this before we recognize that maybe we should be shifting? I totally appreciate that approach because it is evidence-based and scientific, but for how long? When do we say that it’s time to make the shift? When do we have enough evidence? Tuesday night it was clear to us from the presentations that we had enough evidence already. They were absolutely definitive about that, namely, that we should not pursue blue hydrogen.
Recognizing everything here, perhaps you could take a stab at that, Mr. Moffatt and Mr. Powell. Thanks.
Mr. Moffatt: Thank you for those questions. Again, I think it comes down to policy choices and choices within society.
What’s the appropriate pathway? With the previous panel, there was acknowledgement that Canada has a very ambitious net-zero goal by 2050, with some short-term goals in 2030-35, which is a short 13 years away. Nobody is suggesting for a minute that we can’t achieve our net-zero ambition by 2050 because that’s a much longer time frame over which to consider what’s taking place.
I think that 2030-35 requires a little more focus. We’ve talked about and we’ve heard the need to double, if not triple, the amount of electricity that’s generated in Canada. That’s a generation issue. That’s a transmission issue. That’s a distribution issue. A number of sectors have been asked — and directed, through carbon pricing and specific policy measures — to head down their own decarbonization pathway.
The question becomes do we have enough human capital to be able to do all this work in the next 12 to 13 years. I think by 2050, for sure. However, in the next 12 to 13 years, do we have the human capital to be able to do this? I think we’re all seeing signs of a strained supply chain globally. The reality is we’ll all be competing with each other for equipment and material to be able to embrace our own decarbonization ambitions.
A question was asked in the previous panel around permitting. Does Canada have the capacity to permit all the stuff that needs to be done here over the short term but certainly the long term? That’s not a federal question; that’s a provincial and a municipal question as well.
A lot needs to be done to be able to move down the path toward decarbonization. Again, to this question of blue hydrogen and green hydrogen, let’s focus on the carbon intensity and let’s provide appropriate investment supports for a broad sector of technology and industry to embrace that goal of a cleaner energy stream. Hydrogen is very much a part of that.
Hopefully, I did a reasonable job of answering your question, senator.
Senator Seidman: You certainly have done so. Thank you very much. I would like to hear from Mr. Powell, given you represent Electricity Canada. We keep hearing about this doubling and tripling of electricity production.
Mr. Powell: There’s a lot to do. There’s something like 4,800 days until 2035, when we need to have a net-zero grid. Every megawatt we don’t build today is one more we have to build tomorrow. That’s something that keeps us up at night.
When I think about how we think about what that solution looks like in 2035, just from a generation perspective, it’s going to have to be all of the above and technology-agnostic but having very firm opinions about low carbon. I think that’s why, like Mr. Moffatt, we are trying to get away from colours of hydrogen. They’re easier to explain, but we need to focus on carbon intensity.
As an example, if we can use blue hydrogen, using technologies that can eliminate the vast majority of carbon emissions in a cost-effective way and produce power reliably and affordably with that, to us, that’s something that we can’t look past. That’s something where, if we think about the customers that we serve and the folks that get a bill each month, we need to make sure that we’re pushing it.
The expansion of the electricity grid — we talked about this a few times and I mentioned it in my remarks, namely, the Canada-Germany hydrogen alliance — it can take 10 years to permit an offshore wind farm. That brings us to 2035. It takes potentially decades to permit and build large-scale hydro.
As we think about solutions, we’ll have to figure out ways in which we can produce energy that is low carbon, reliable and affordable and really focus on the megatonne reduction and take a very holistic approach to this. It’s not just hydrogen production that will be demanding electricity; it’s going to be zero-emission vehicles, heat pumps for your home, industry and regular growth. We’re going to have to do it in a way that produces the electricity we need on demand. The incremental cost of a kilowatt hour of wind is great, but the cost of electricity when you need it is what our members think about. Everything is great when you’re long on power, but it’s on those very cold or very hot days that you need the sorts of backup that traditionally fossil fuel-based thermal power generation has done. If hydrogen can be part of the answer for that, I think it’s something we have to pursue.
Senator Gignac: My expertise on hydrogen is very low, so my questions will be for our witnesses.
I have tried to understand. Taking this year, for example, and taking steel and aluminum, I assume that hydrogen could make more sense than electricity. In Quebec, for example, aluminum plants and smelters are subsidized to some extent with a low electricity price. Hydrogen could be green hydrogen produced by electricity, but in fact it’s already hydroelectricity in Quebec. The demand for hydroelectricity is huge in Quebec, particularly from Americans.
At the end of the day, do we have a business model? What is the price of electricity we need to encourage some aluminum plants and smelters to shift from electricity to hydrogen? Does it make sense or does no technology currently exist on this? I assume that at some point it could make sense even for the Quebec government or for Hydro-Québec to encourage companies to move to hydrogen rather than electricity. Do we have net savings of electricity if we shift the production process from electricity to hydrogen, or are there no savings at all? In both cases you have no carbon footprint; I totally agree. But maybe it could be profitable to shift the process.
Mr. Powell: The way to think about it is that the price of electricity really depends on a number of factors. As an example with aluminum production in Quebec, one of our members is Rio Tinto. They own and operate hydro facilities in the Saguenay, which benefits from having both ore to smelt and tremendous hydro resources that are almost unparalleled anywhere else in the world.
That’s not true if you’re a steel plant in Hamilton. The challenge that you get into is the technology — and I am not in the steelmaking business. I use aluminum cans and that’s about as far as I get. But I think the way of thinking about it is that when a business is making a decision on how they make their product, they want to make sure that they have a reliable supply of energy and that they have a predictable cost for it, and then they can figure out the competitive parts around that.
In the case of Quebec, it’s very predictable where power is. In other places, the advantage, particularly for high heat production, is that fossil fuels have traditionally been relatively stable in pricing, and you’re able to make sure that they are on site. Electricity might be able to offer that, but in some cases the supply of hydrogen, particularly if you are in a high-heat piece — cement is, as I understand it, a heat-based process — then burning hydrogen, of which the output is just water vapour, might make more sense than building a high-use reactor or furnace built on electricity. Or, as Mr. Moffatt said, you pursue a technology like a small modular reactor. We think of nuclear reactors like Pickering or Darlington as producing power, but really what they produce is steam, which then turns a turbine. You could see a similar process used possibly at those facilities, with waste or surplus electricity to make hydrogen from that. I hope that answers your question. It’s a real balance.
The Chair: We have a lot of witnesses and everyone talks about the market, the — what is doable, what is not doable and so on. But at the same time, nearly everybody coming to our committee is looking for a subsidy. In other words, they need help. Financially, it doesn’t make any sense. I say it’s all very nice to talk about the market. I believe in the market. But what would happen if we eliminated all subsidy? We go back to what the essence should be. What happens to our industry? Are we dead? Will nothing happen? Could you comment on that, Mr. Powell and Mr. Moffatt?
Mr. Powell: What’s driving a lot of transition in our sector is the carbon price. Even for the 2035 target, we hear from members that, more than any regulatory model the government might have, certainty that the carbon price will last, not just from one government but into the future, helps drive investment toward cleaner technologies. That is not an expense the government incurs.
The other piece I would give on incentives and subsidies is that in some cases there is a gap between what a technology might be able to offer because it’s relatively new versus where existing ones are. Our members are obligated because of the provincial energy regulators they work with to provide power at the lowest cost. When we’re thinking about something that’s new, there is a value in helping to bridge that gap to begin the commercialization.
The final thing I would say is that we want to make sure, particularly in light of hydrogen production — and we heard this from the previous panel — that it’s a competitive marketplace. It probably doesn’t need to be a direct subsidy, but thinking about how we can encourage investment in Canada with near-term investment tax credits will help attract capital here and projects here, which provides jobs and allows the marketplace to grow, rather than end up in a place that might be different.
All these things are there. At the end of the day, I think what you as decision makers should think about is how we ensure we have an energy system which is not just clean but also reliable and affordable. We’re seeing the dangers of this in other places in the world. We’re very fortunate in Canada, and a lot of what our sector is doing is just making sure it stays that way.
The Chair: Mr. Moffatt, when we look at comments we get from nearly around the world, everybody says the most efficient way to get to where you want to go is to have a price on carbon. We’ve done that, and it’s an escalating price. Why is that not good enough? Why is it that we must subsidize industry beyond that, including CCUS and so on?
Mr. Moffatt: Thank you for the question. The reality is that Dow Chemical Canada, when they announced their net-zero ethylene cracker, the project that they’re considering to proceed with, one of the reasons they chose Canada was because we’re one of the few jurisdictions with a clear, predictable and transparent price on carbon. There’s a clear path to carbon price escalation through to 2030.
The reality is that carbon pricing in and of itself is likely enough to achieve the high ambition that Canada has set for itself, which is why you’re seeing other regulatory measures with implied carbon price effects being brought to bear, like the clean fuel standards, the oil and gas emission cap and the clean electricity standards. The reality is that, in addition to something that’s very clear, predictable and transparent, like the carbon price, now we have regulatory measures to achieve emission reductions that have implied carbon price effects, but that erodes the predictability and transparency of the carbon price signal. We’re also asking industry and society to take on new investments that have a relatively long life. We’re talking about 2030, 35-year investments, and they’re very much dependent on this clear and transparent carbon price.
With some uncertainty about what the path of that carbon price is, the ultimate goal here should be the expenditure of private capital and how to de-risk the risk of a carbon price that might change in the future. Really, that comes down to providing some type of investment support.
I would back up and say generally that chemistry, globally, is a US$3-trillion to US$5-trillion industry. It’s hugely competitive with highly traded commodities across the globe. The value of chemistry grows in orders of magnitude above GDP every year. Countries very much want to have these chemical sectors within their countries because they’re enabling industrial growth and opportunity within their own jurisdiction. There is significant competition for new chemistry sector investment around the globe.
When we talk about Canada, we’re really competing against our neighbour, the U.S., and the U.S. Gulf Coast. They have access to these resources and to tidewater. We are very much competing with the U.S. when we think about new investments.
In an ideal world, perhaps maybe we wouldn’t be in the investment support game, but there are lots of reasons why we are. Countries are competing for this new investment, and, as I alluded to earlier, if it was so easy to provide something that was predictable and transparent that industry could react to, that’s great. But we all know that things change over time, and we need to be able to de-risk that associated risk to enable new industry.
The Chair: What I’m hearing is that we’re dependent upon the subsidy, you’re saying, because competition requires it. It’s kind of disappointing because we’re talking about the market forces, and then everybody says that they need an exception, they need help and so on. It’s kind of frustrating.
[Translation]
Senator Verner: My question is for Mr. Powell. I imagine you heard my previous question, or at least are aware that the CEO of Hydro Quebec, Sophie Brochu, stated that Quebec would no longer have a clean electricity surplus by 2027 because of the very high demand, owing in part to the establishment of new green hydrogen production companies.
One would expect that the production capacity cannot increase overnight. Under the circumstances then, could this not compromise the growth and competitiveness of the green hydrogen sector, a sector that uses a lot of energy?
Further, do you anticipate initiatives that would reduce the energy demand from the new green hydrogen industry?
[English]
Mr. Powell: I’m not sure about the science of electrolysis. I’m not sure if there are ways of increasing the efficiency. That’s beyond my expertise.
What I do know, though, is that the advantage Quebec has is that it has the world’s biggest battery. The reservoirs that have been built allow for long-term energy storage. Hydro-Québec has years of capacity right now, which allows them to provide firm power and help decarbonize other places such as New York State and Massachusetts.
I think that’s why Hydro-Québec has announced very aggressive renewables targets to add more wind to the system. There is a lot of wind in Quebec, and the challenge that wind normally has is that it’s variable; you can’t predict when it is, and so you can’t count on it. The upside that Hydro-Québec has is that they can integrate that and choose not to run and store it in the water. Every time a wind turbine is spinning, you maybe need to use less from one of the hydro facilities further in the north.
That’s a way we can start fixing these things.
The broader issue of whether we will have the capacity to export green hydrogen to other parts of the world will rely on our ability to have power here that is surplus to our domestic needs — beyond lighting homes, running air conditioners and charging cars — in ways that are affordable and in sufficient quantities so that the investments people make in electrolyzers are able to run at a capacity that is there.
It will have to be in a place where you can then transport and move it elsewhere. That’s a hard problem. The hydrogen strategy is starting to think about that with a hub model. There are opportunities to build that ecosystem up; leveraging the early start that blue hydrogen has to build that capacity is something that’s there.
One of the things we’re worried about, though, is how we make enough clean electricity for 2035 and 2050. That’s a hard problem. We’re going to need all the technologies. Hydro-Québec is actually in a good spot. The provinces that have lots of water up here and people down there are in a very fortunate position.
[Translation]
Senator Miville-Dechêne: Since we have a few minutes left, I have some more questions for Mr. Moffatt regarding the subsidies that our chair has raised.
The government does not of course have an unlimited budget to invest. The money spent on this energy transition and carbon capture could be directed to much more important things related to COVID.
My question is the following. Why should the government help you by investing in a technology which in a few years — and even now — is considered outdated, rather than encourage you to find better solutions?
The chemical industry is a profitable one all the same; it is not in deficit. My question is why we should continue along a path that has no future and that could ultimately delay your search for greener solutions.
[English]
Mr. Moffatt: Thank you, senator.
The history of Canada is “hewers of wood and drawers of water.” We produce more goods than we require, and we export those to the world to create value within the Canadian economy — jobs and economic contribution. In the case of chemistry in Canada, it’s not all petrochemicals, but there is a significant portion of the chemistry sector in Canada that does provide inputs to the Canadian economy — vital inputs — whether it’s to clean your drinking water or in food packaging and vehicle manufacturing.
But in reality, a large portion of what we produce is exported globally. Again, we’re competing in an international space to sell our goods and services, just like every other sector.
This notion about subsidy, I guess I would go back and say that everything government should be doing should be about enabling the expenditure of private capital. That’s exactly what we should be doing. Industry is not saying they don’t want to spend their own money, because they’re very much prepared to do so. The reality is that there are risks associated with spending that money in Canada, and the government, to a certain extent, needs to de-risk that. The carbon price is a great example because it could be changed at some point in the future. How do we de-risk the expenditure of private capital today, given what may happen in the future?
The tax code and the tax measures that I mentioned — CCUS ITC — again, you would not receive a benefit through the tax code unless you spent qualifying capital. It should be very clear and very transparent. There should be no adjudication process. The tax code is the tax code. If I spend X, I get Y. That will enable the expenditure of private capital.
Yes, it could be considered a subsidy through reduced tax dollars, but you ultimately want that capital invested so it’s generating a return to the Canadian economy through taxes to government, wages, property taxes to local government and what have you.
The accelerated capital cost allowance is another great example of an incentive that encourages the expenditure of private capital. It allows a qualifying expenditure to be expensed 100% in the year when it’s deployed, and it’s a deferral of tax revenue.
So this doesn’t always have to be about programmatic dollars given to industry. Again, I talked about behind-closed-door adjudication, opaque processes and popularity contests. Two projects could submit to a government program, and one gets a “yes, here is your support,” and the other gets a “no.”
Again, we should very much be focused on certainty and predictability and encouraging the expenditure of private capital to achieve society, government and industry goals to decarbonize the Canadian economy.
The Chair: Thank you very much, Mr. Moffatt. I thank both of you. We had a very good discussion and we continue to learn. Thank you for being available and educating us on these matters.
[Translation]
Thank you, much appreciated.
(The meeting adjourned.)