THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, October 20, 2022
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9 a.m. [ET] in camera to consider new issues regarding the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Honourable senators, I am Paul Massicotte, a senator from Quebec and chair of this committee.
Today, the Standing Senate Committee on Energy, the Environment and Natural Resources is holding a meeting. Before we start, I would like to introduce the members of the committee that are participating in the meeting today.
Margaret Dawn Anderson from the Northwest Territories; Michèle Audette from Quebec; Pierre-Hugues Boisvenu from Quebec; Mary Jane McCallum from Manitoba; Julie Miville-Dechêne from Quebec; Judith G. Seidman from Quebec; Karen Sorensen from Alberta; Josée Verner, P.C., from Quebec; Hassan Yussuff from Ontario.
I am sorry, Senator Galvez, I forgot you. You’re not on my list.
Dear colleagues, as well as all the Canadians that are watching us, I bid you welcome.
We are meeting today to continue our study on hydrogen energy.
This morning’s first panel will be heard by video conference. Testifying as individuals are Christopher Bataille, Adjunct Research Fellow, Columbia Centre for Global Energy Policy, and Adjunct Professor, Simon Fraser University, and Niall Mac Dowell, Professor, CCS Knowledge Centre.
Welcome, and thank you for accepting our invitation. You each have five minutes to make a statement.
Before we continue, I will just mention that two of our witnesses forgot or lost their headsets. We will try to do this without headsets and we hope it will not be too difficult for our interpreters and others. It is possible that we may have to suspend the meeting, but we are going to see if conditions are acceptable.
We will start with Mr. Bataille, who will be followed by Mr. Mac Dowell. Mr. Bataille, you have the floor.
[English]
Christopher Bataille, Adjunct Research Fellow, Columbia Centre for Global Energy Policy, Adjunct Professor, Simon Fraser University, as an individual: Thank you very much for the opportunity to speak here this morning. While I have several institutional affiliations, I am testifying for my experience as one of the lead authors of the industry chapter, the technical summary and the summary for policy-makers of the recent sixth assessment report on mitigation, of the Intergovernmental Panel on Climate Change, or IPCC. I will speak to the opportunities for hydrogen in Canada, the challenges and what I believe to be the necessary policy interventions.
Hydrogen will be critical for meeting our net-zero targets in certain sectors and processes. We already use a lot of hydrogen made mainly from methane. It is used for hydrotreating, upgrading and oil refining, ammonia production for fertilizers and for other chemicals. Our first job is decarbonizing hydrogen production from existing uses. We can also use it to replace coal in the most emissions-intense part of steel making, the separation of oxygen from iron and iron ore. This reduced iron could be a significant exported, especially from Quebec. It can be used for long-duration energy storage for electricity stored in the same types of underground caverns as natural gas, for heavy trucks and rail, and for industries that need higher than 100- to 200-degree Celsius heat.
Hydrogen is also needed as a feedstock to make net-zero renewable or synthetic natural gas, jet food and chemical feed stocks. It is, however, very unlikely that hydrogen will be used in a significant amount for personal transport and in buildings for heat because of the advanced state and relative cheapness of direct electric alternatives. Hydrogen could also be an export product as hydrogen, ammonia or ethanol, but the price would need to be consistently very high, higher than Canada’s announced $170 per tonne carbon CO2 by 2030.
The Chair: Excuse me, apparently translation is not working. Can you speak a little bit more clearly and slowly and we can try that?
Mr. Bataille: For methane-based hydrogen, the upstream well to processing fugitives need to be half a per cent or less, with 90% capture of processed CO2. Canada’s average upstream fugitives are officially 1.1% and are probably double this —
The Chair: Excuse me, Mr. Bataille. The sound quality is not enough for everybody to clearly understand. Let’s try this: Let’s go slower, louder, and see whether it’s adequate to satisfy our own people. Do you want to try that, Mr. Bataille? Sorry.
Mr. Bataille: The so-called blue hydrogen made from methane is probably economic under Canada’s promised carbon price schedule. For electrolysis-based hydrogen, electricity costs need to be less than two cents per kilowatt hour, and ideally less than one cent per kilowatt hour. Green hydrogen is unlikely to be economic under Canada’s existing carbon price schedule unless these electricity prices are met. Because of this dynamic, blue will dominate in regions with cheap methane and CCS geology, for example, in Alberta and Saskatchewan, until at least the mid-2030s and possibly the 2040s. Europe, China and Quebec will instead go straight to electrolysis-based hydrogen.
In terms of policy instruments that can help the industry develop sustainably, the Carbon Capture, Utilization, and Storage, or CCUS, tax credits are very helpful for blue by reducing upstream methane fugitives by 75%, as the government committed to, is critical. Increasing the stringency of industrial —
The Chair: Excuse me. Hold on, please. We’re not making much progress. Let’s try this: We’re going to go directly to Mr. Mac Dowell and see if we have the same problem. If you don’t mind, Mr. Mac Dowell, we’re going to go to you, but very slowly and loudly, and we’ll see what happens.
Mr. Bataille, I recommend, if you don’t mind, sending us your briefing notes. That would be much appreciated, and then at least we can appreciate your contribution.
Niall Mac Dowell, Professor, CCS Knowledge Centre: Hello. Thank you for letting me participate in this meeting. I have prepared some slides to show, as much of what I would like to communicate is quantitative and that might be better. Is that possible or permissible?
The Chair: We can’t do slides. Apparently, Zoom does not allow slides.
Mr. Mac Dowell: Yes, that’s disabled. That’s fine.
My name is Niall Mac Dowell. I’m a professor at Imperial College London, and I have an affiliation with the International CCS Knowledge Centre in Canada. I am a fellow of the Institution of Chemical Engineers and also a fellow of the Royal Society of Chemistry. I have published over 200 papers in the area of carbon management over the course of the last decade. I am also an adviser to the U.K. government, although some days that seems less good than others.
The first point that I would like to make is that hydrogen as a concept, blue or green, is not new. Canada was an early pioneer of this technology. Electrolytic hydrogen was first demonstrated in 1789. It was industrially deployed by 1888, and in 1902 it had been scaled to 100 megawatts using hydroelectricity in Canada. Grey hydrogen, using hydrocarbon reforming, was developed in 1868, commercially deployed in the 1910s. So even though people today are very excited about hydrogen, we need to recognize that it has been around for a long time. As Chris Bataille said a moment ago, today it is extensively used in certain parts of industry.
In the context of a net-zero transition or energy transition, it’s important to note that, whilst hydrogen can, in principle, be used for many different applications, it is not obviously competitive in all cases. For example, in the context of fertilizer, hydrogenation, desulphurization, hydrofracking, there is essentially no real alternative. In other areas, such as, for example, fuel-cell cars, buses, electric vehicles, batteries and so on are important competitors. So, just because hydrogen can be used, doesn’t mean it will be used.
We also need to be very cognizant of the cost of hydrogen. In the context of blue hydrogen — so producing hydrogen from methane coupled with carbon capture and storage — the cost of natural gas is a key determinant. In some parts of Canada, this will imply that the production costs of blue hydrogen is very low. Conversely — and, again, as Chris said — the cost of green hydrogen is a strong function of the cost of reliable, renewable electricity. This means that we need to be able to produce electricity in base load all the time. This capacity varies substantially around the world and also around Canada. In some parts of Canada, electrolytic hydrogen can be produced very cheaply; in others, really quite expensively.
In terms of the carbon footprint of blue and green hydrogen, obviously, the carbon footprint of green hydrogen is a strong function of the carbon intensity of the electricity that you use. In order to be competitive from a carbon intensity perspective with blue hydrogen, it is necessary to have the carbon intensity of the electricity system almost zero. In order for blue hydrogen to be viable as an environmentally benign product, not only must almost all of the CO2 be captured at the point of methane conversion to hydrogen, but also methane leakage on the natural gas supply chain must be decreased to almost zero. This is possible, but it must be done.
The other point to consider is that there is more to the environment than simply carbon. From a carbon perspective, blue hydrogen, if very stringently controlled, can be low in carbon emissions, but renewable hydrogen from electricity will almost always have a lower carbon footprint. However, from other perspectives, such as ecotoxicity, mineral resource scarcity, acidification, particulate matter and ozone depletion, green hydrogen can perform less well than blue.
In terms of deploying hydrogen, it is always important to consider the opportunity cost. If we make the choice to deploy green hydrogen, even in the context of a power purchase agreement, a PPA, it is necessary to consider what we could have otherwise done with that green energy to avoid carbon emissions.
In this context, unless and until the carbon intensity of the electricity grid within which that green hydrogen is being deployed is less than about 60 kilograms per megawatt hour, which is quite low, you will get better decarbonization value by using that green electricity to displace higher-polluting or higher-CO2-emitting assets from the electricity grid and using blue hydrogen to displace methane instead.
To address the specific questions that you are considering, I believe that the opportunity for hydrogen in Canada or, in my view, anywhere else, remains quite uncertain. In some occupations, it is a very good idea; in others, much less so. I believe that long-distance hydrogen transport appears challenging, both from a cost perspective and also from an energy efficiency perspective.
Astutely deployed, both blue and green hydrogen can play an important role in delivering net-zero greenhouse gas emission targets. I believe that short- and medium-term challenges remain at every step of the value chain, from the supply, the production of hydrogen, its distribution, and also on the demand side.
Globally, in whatever country you are, attractive and investable business models are vital. Policy decisions are very helpful here. It is important to reconcile political, policy, investment and deployment time scales. Affordability and energy security remain paramount. It is important that we do not present individual technology solutions as an either/or solution. I think that would be a fundamental mistake.
Thank you for the opportunity to speak.
The Chair: Thank you very much, Mr. Mac Dowell. You must be tired. That was a difficult pace to maintain.
Senator Galvez: My question is for the witness that we heard. Getting to net zero is a race, and Canada is late to join in this race. For us, the time issue is critical. We have had in the past nine goals on emissions reductions, none of which we have attained.
So, 2030 is around the corner, and 2050 is very close. I still will be, hopefully, alive. There is an issue of emergency and the need to go fast.
Now, people talk about carbon capture and storage and that the efficiency is so low. People talk about hydrogen and how it’s not completely developed for the purposes we want, the technology existed 40 years ago, but as you mentioned they don’t deliver in terms of cost and in terms of energy efficiency.
According to you, why are we pushing for hydrogen and why are we pushing for carbon capture and storage? Can you please explain? Because I think that is a no-brainer. I think it’s a very direct logical, economical and environmental way to analyze these things, but we seem to be stuck in studying what we call silver-bullet solutions, which we know are not silver-bullet solutions. They are the only ones that we have heard.
Mr. Mac Dowell: Thank you. Those are excellent and difficult questions.
The first thing is there are no silver bullets. We need everything, as fast as we can.
Second, the challenge before us to achieve net zero in any meaningful time scale is immense. It is also true, I believe, that there is a global race emerging to deploy technologies and to capture the value that is associated with that.
Recently, I was at the Global Clean Energy Action Forum and the Clean Energy Ministerial in Pittsburgh, and there it was evident to me that the economic stimulus created by the United States’ Inflation Reduction Act was very significant. There is a great deal of enthusiasm from the private sector to get involved and to start delivering projects.
I am not an advocate of hydrogen, nor am I an opponent of hydrogen. I believe that all things will have their place. I understand from both the IPCC and the IAEA, my own work and others’, the work of people like Christopher Bataille, that CCS repeatedly emerges as being integral to any scenario where we can credibly meet net-zero requirements. It provides path independence. It allows us to decarbonize power, industry and heat. It allows us to remove CO2 from the atmosphere. So it has an important role.
Going back to your comment about race, it seems to me that there are only so many companies on the planet that can meaningfully participate in the deployment of these technologies. They will go where their investment gets them the greatest return.
So the role of government, in my opinion, is to contribute to the de-risking of that investment. That need not simply be through tax credits or subsidies. There are many things that government can do that do not involve spending public money to enable these investments to be made efficiently. But there is a very important role. The key thing is to have a reliable business model.
Senator Galvez: Thank you very much for this very comprehensive and complete answer to my question. When we come to the specificity of producing hydrogen — blue, grey, or whatever colour it is — we still need to report on scope 1, scope 2 and scope 3.
We’ve been discussing that scope 1 and scope 2 are already very high for hydrogen. I don’t think the hydrogen that Canada will produce will be for our own use because we have so many other sources of energy, especially if we continue developing solar, wind, wave and hydro. But to transport and export it somewhere will increase scope 3. In a moment when we need to reduce all the emissions — scope 1, 2 and 3 — what can you say about the fact that hydrogen is for exportation? Therefore, how will scope 3 play into the addition of all the emissions?
Mr. Mac Dowell: Thank you. Again, excellent question. You are right that net zero involves scope 1, 2 and 3. Just talking about the emissions, the contribution of shipping transport — I assume that’s what we’re discussing here — on grams of CO2 per kilowatt hour of energy delivered is small relative to the entire supply chain.
Second, all of these emissions effectively become choices. We can choose to minimize, and essentially drive to zero, emissions in the supply of methane or electricity. We can choose to minimize and drive to zero emissions associated with the production of blue hydrogen at the production site.
Similarly, it seems that people are exploring ammonia or methanol as an alternative shipping fuel, and this will drive down to very near to zero the carbon emissions associated with the whole supply chain.
Residual emissions can be — I hope, I believe — cost effectively and permanently compensated for by direct physical removal of carbon dioxide from the atmosphere via, for example, direct air capture or bioenergy with CCS, et cetera.
[Translation]
Senator Miville-Dechêne: Thank you. As I’m not an expert in these matters, I would like to know more about what you said about electricity, and the fact that you obviously need energy to be able to generate electricity, but that the energy needed in the case of green hydrogen is greater than the reduction in emissions.
You spoke in absolute terms, but I would like to know in more concrete terms if that means that the electricity produced in Quebec, of which Quebecers are very proud, is too expensive energy-wise to allow us to produce green hydrogen at a reasonable net cost as we seek to be carbon neutral?
[English]
Mr. Mac Dowell: Thank you for the question. I am not sure I understand perfectly.
Senator Miville-Dechêne: I might rephrase it. It was not that well said.
We produce hydroelectricity in Quebec. We’re very proud of it. But you seemed to imply in your statement that the cost of producing hydroelectricity in some parts of Canada is too high to produce green hydrogen at a cost that makes sense and that will help us reduce our emissions.
I want you to clarify: Can Quebec, because of its hydroelectricity, produce green hydrogen at a decent cost in terms of the environment?
Mr. Mac Dowell: Thank you. I understand. My comment was with regard to specifically wind and solar power, and not hydro. The calculations I had done were for wind and solar.
My understanding is that if you use hydroelectricity, especially established hydroelectricity — so you are not building new assets; you are using existing assets — then the carbon electricity of green hydrogen produced using Quebec’s hydroelectricity would be very low. This would be entirely acceptable.
Moreover, hydroelectricity is a reliable form of power. It’s essentially always available as long as the water is there. Therefore, you do not need to worry about the intermittency that is associated with wind and solar power. These are all very good things. The question that I would ask is, if you use your hydroelectricity to produce hydrogen, have you somehow reduced the amount of hydroelectricity available to meet the existing demand? And if so, how do you meet that demand shortfall? That becomes a challenge.
Senator Miville-Dechêne: Considering all of that, how would you rate the hydrogen strategy of Canada at this point? Should it be abandoned? Should it be continued? Should it be changed? In a nutshell, what are you recommending?
Mr. Mac Dowell: I would not have a recommendation on that. I would need more time to answer that question. My apologies.
Senator Miville-Dechêne: That’s too bad.
Senator Sorensen: I’m going to direct this first question to Mr. Mac Dowell, and I’m happy, if I get a second question, to try to have Mr. Bataille come in as well.
Mr. Mac Dowell, again, I’m far from an expert and I’m learning every day about hydrogen. I wanted to understand a little bit more about cleaning blue hydrogen better. I think what you said is that in order to do that, more CO2 would have to be captured and leakage would have to be reduced. Can you, as I’ve said many times, kindergarten-style explain to me how that would happen? How can that happen?
Mr. Mac Dowell: Thank you. Excellent question. If we use natural gas piped from Russia to Europe, regardless of what we do with it, I think that hydrogen would always be too polluting to be used. The integrity of the natural gas distribution system is of paramount importance.
Conversely, in the U.K., if we consider using natural gas brought from Norway, the integrity of the methane supply chain is, in my understanding, sufficiently good that it is usable. However, even still, at the methane conversion point, where you perform a process called methane reforming, you will still need to capture in excess of 90% of the CO2 that is produced from that reformation step in order for the environmental quality of the hydrogen so produced to be adequate.
The good news is, in my view, that both of these steps are entirely deliverable. It remains a matter of choice. Thank you.
Senator Sorensen: I appreciate that. My second question is for both. Will there be a point when Canada fully transitions to renewable sources of energy? Or, in your opinion, will hydrocarbons always play a role for the foreseeable future?
Mr. Bataille: Almost all studies of net-zero energy systems show a very high participation of wind and solar, but it depends on the region. With our northern latitude, we can still make use of a lot of wind and solar, but we need more clean, firm energy.
Quebec’s hydropower will be critical for providing that, along with more transmission. Nuclear power from Ontario and perhaps small modular reactors may be helpful, but fossil fuels with CCS of both the current generation and new advanced types may be critical for providing the 20, 30 or 40% that will not be available from wind and solar in Canada.
Senator Seidman: My question is for Professor Mac Dowell. In a paper you coauthored this year entitled Profitability and the use of flexible CO2 capture and storage (CCS) in the transition to decarbonized electricity systems, you and your coauthors explain that fossil power with carbon capture and storage can help ensure grid stability. It’s tempting for us to think of fossil fuel energy and renewables in an either/or fashion, but much of your work suggests that having a flexible back-up fossil fuel power source actually allows for more use of renewables.
You also note that flexibly operated power plants with carbon capture and storage, or CCS, are not generally profitable today but can become profitable in cases with a proper combination of market incentives and cost reductions in carbon capture technology. Your paper looks at the U.K., U.S. Australia and China, and I’d like to know if the same principles apply in Canada. If so, are there steps you would recommend the Canadian government take to encourage the retrofitting of existing fossil plants?
Mr. Mac Dowell: Thank you for the question. I’m really happy somebody read my paper.
Yes, it used to be the case that people assumed that CCS on power would inevitably be base load. As you have observed, a lot of the work I have done would disagree with that statement, and it identifies and quantifies a substantial value proposition for electricity systems with flexible, dispatchable, reliable assets that provide a full suite of electricity grid services. It is important to note that the electricity grid needs more than just electricity. It needs reliable capacity, it needs black start capability, it needs frequency and voltage control and so on. All of these services can be provided by CCS.
As we are observing in Europe, for example, it is possible to have several years where we’re going through, for example, wind droughts or the current gas prices going very high. The profitability of flexibly operating CCS plants could be sufficient to warrant that investment. At the moment in the U.K., the Department for Business, Energy and Industrial Strategy, with whom I work, are developing business models to support flexible CCS deployed in this way. This implies deliberately and carefully constructed business models to reward both the availability of firm capacity, but also the dispatchable element.
Does that answer your question?
Senator Seidman: It goes a long way to answering my question. I’m assuming that the principles applied in the U.K. also apply in Canada, so there are steps that the government can take to encourage retrofitting of existing fossil plants, is that correct?
Mr. Mac Dowell: Yes, I think that’s correct. Step one would be to do a rigorous analysis to confirm the value proposition of flexible decarbonized assets like this, in your context. I would note that I have done this in the context of most European states, several areas in Southeast Asia, several states in the United States, including Texas, California, Wyoming, Louisiana, and Australia. So, yes, I’ve done this in a lot of places around the world, I have not yet done this in Canada. But you would first need to confirm this, and make sure this value proposition is robust to uncertainty around deployment rates of contrafactuals, the emergence of alternative technologies and so on. Once you have confirmed that, then the role of government is in developing, as I say, investable business models to ensure this would be significant. One of the key observations in the study to which you referred was that when you’re retrofitting CCS to existing power plants, where the capital of the existing power plant is substantially paid off, you only need to worry about the capital cost of the capture plant and not so much the underlying power plant. This can reduce the hurdle to profitability.
Senator Yussuff: Thank you, professor, for your presentation here. My question is twofold. One, in regard to carbon capture technology, it is obviously evolving at a rapid speed. Almost every country is investing in this technology. For the most part, we can safely say that what we know today and what will evolve in the next 10 years will be significantly different in regard to making carbon capture competitive. Can you envision a time when the deployment of the technology will help us in a significant way to achieve the objective of using the technology to reduce greenhouse gas and to allow more broad use and production of hydrogen, whether it’s blue, green or grey hydrogen?
My second point is a question in regard to jobs gained and jobs lost in a certain sector. There are a lot of worries for people who work in these sectors that, in the transition, they will lose their jobs. What can we say about jobs that will be created as a result of moving to hydrogen technology?
The Chair: Because of time, we can only have an answer to the first question, if we could. That is addressed to Mr. Mac Dowell? Yes.
Mr. Mac Dowell: Thank you for the question. Very quickly, on the basis of the analysis that I have done, the current technologies that are available are more than adequate for deployment today. Further improvement of carbon capture and storage, or CCS, technology will not, in my view, deliver substantial benefit to bill payers, to ratepayers, but will rather deliver more benefits to the technology providers.
My advice would be that the Canadian government and other governments expedite the deployment of key enabling infrastructure, like CO2 transport and storage, and also contribute to the development of investable business models that will create the environments for these technologies to be deployed.
As you mentioned, there are a lot of agencies developing new technologies. That demand pull for the deployment of those technologies will simply pull them through. I would not advise waiting for a new technology to emerge.
I can also talk about the “just transition” element and job creation, but I’m not sure if we have time.
The Chair: We have to pass.
Senator McCallum: Thank you very much for your presentation, and thank you for joining us today.
I have a comment and then my question. We’re not only dealing with net-zero challenges, but we’re dealing with the destruction and dispossession of land caused by resource extraction companies, and these are in Indigenous communities. When we consider climate change, especially drought, the impact of existing hydroelectricity, especially in B.C. and Manitoba, is occurring now.
Can you make remarks about that? When we talked with Manitoba Hydro, they said they didn’t have enough power to be able to build transmission lines to other communities, and they expressed the need to build more dams. Could you comment on that, Mr. Mac Dowell?
Mr. Mac Dowell: I’m afraid I cannot comment on that. I’m not an expert in the area you are asking about.
Mr. Bataille: Manitoba has the capacity to build a few more dams, but it is questionable whether, on balance, that is in the best interests of Manitobans, especially northern Manitobans.
Manitoba has lots of potential wind capacity that could be added to its hydro. The two of them together could probably provide a sustainable system going forward.
The Chair: I am sorry that we’re tight for time. We will turn to our next witness. Mr. Mac Dowell and Mr. Bataille, we look forward to receiving your notes to ensure we have the complete picture. Thank you.
[Translation]
We will now hear Mr. Jerry DeMarco, who is the Commissioner of the Environment and Sustainable Development with the Office of the Auditor General of Canada, as well as Mathieu Lequain, who is the director and will be participating by videoconference.
I bid you welcome and thank you for accepting our invitation.
Mr. DeMarco, over to you.
[English]
Jerry DeMarco, Commissioner of the Environment and Sustainable Development, Office of the Auditor General of Canada: Mr. Chair, thank you for the opportunity to discuss our report on hydrogen’s potential to reduce greenhouse gas emissions, which was tabled in Parliament on April 26, 2022. I would like to acknowledge that this hearing is taking place on the traditional unceded territory of the Algonquin Anishinaabe people.
With me today is Mathieu Lequain, the director who is responsible for the audit.
The potential role hydrogen could play in net-zero energy systems and decarbonization is gaining significant global interest. Hydrogen can be used to drive down emissions where electrification is not technically or economically feasible, such as in energy-intensive industries. However, hydrogen’s potential for decarbonization depends on how the hydrogen is produced and used. For this audit, we wanted to know whether Environment and Climate Change Canada and Natural Resources Canada comprehensively assessed the role that hydrogen should play as a pathway to reach Canada’s climate commitments.
Overall, we found that the two departments had different approaches to assessing the role hydrogen should play in reducing greenhouse gas emissions. Environment and Climate Change Canada expected to achieve 15 megatonnes of carbon dioxide equivalent emission reduction in 2030, whereas Natural Resources Canada projected up to 45 megatonnes by 2030.
To assess the demand for hydrogen, Environment and Climate Change Canada assumed a blending mandate for hydrogen and natural gas that was not based on any existing policy at the provincial or federal levels. In addition, this approach was uneconomical based on the current trend of carbon pricing.
[Translation]
For its part, Natural Resources Canada favoured a transformative scenario that assumed the adoption of aggressive and sometimes non-existent policies, along with an ambitious uptake of new technology.
It is important that Environment and Climate Change Canada and other federal departments adopt a standard framework to estimate the initial impacts of proposed policy, clean technology and fuels.
Generally, Environment and Climate Change Canada did not distinguish existing policies and measures from those not yet announced or implemented. We found that Environment and Climate Change Canada’s climate plan in effect at the time of the audit was based on measures that sometimes had not been implemented and that relied on policies that did not have the necessary legislative and financial support.
Environment and Climate Change Canada would benefit from a stronger framework for peer review, public scrutiny, and quality assurance and control in its modelling exercises. This is important because it would improve the quality and transparency of, and the trust in, the department’s climate change modelling in future emission reduction plans.
We made four recommendations to Environment and Climate Change Canada and two recommendations to Natural Resources Canada. Both departments agreed with all of our recommendations.
Mr. Chair, this concludes my opening remarks. We are pleased to answer any questions the committee may have. Thank you.
The Chair: Thank you. From what I understand, we have two departments, and each one selected an evaluation method and often based itself on political statements and not on reality. Have I understood correctly?
Mr. DeMarco: Yes.
The Chair: Excellent.
Senator Miville-Dechêne: I would go further than the chair. I find this pretty depressing. This means that we have two departments that do not talk to each other and that came up with a mishmash of unreliable forecasts based on what we know about technology and policies that are currently in place or not.
We are legislators, but right now, we are undertaking a study: We have to make recommendations. If I understand correctly, we do not have what we need in order to be able to say yes, we can go ahead with the proposed objectives, or no, we can’t.
Mr. DeMarco: That’s the reason why we have made many recommendations. There were quite a few problems, like those you just mentioned. There’s a saying, “like two ships passing in the night.” In the case of these two departments, I’m not saying that they didn’t communicate at all, but not enough. There was no coordination of their efforts.
This is important. Hence our recommendations, because we do have a federal plan on climate change. We do not need different scenarios and different targets set by individual departments. It’s not efficient and serves no purpose. It’s not a question of saying that one department has the right answer whereas the other does not. There were problems with the answers from both departments.
Senator Miville-Dechêne: So you’re not recommending either one. According to your notes, you seem to be saying that Environment and Climate Change Canada, which based itself on policies that have not been adopted yet, is purely speculating?
Mr. DeMarco: Yes, and Mr. Lequain could provide more details on this issue.
Mathieu Lequain, Director, Office of the Auditor General of Canada: Yes. In Environment and Climate Change Canada’s plan, you will find measures that are linked to tax incentives on carbon capture. They are somewhat similar to what is found in the measure called 45Q in the United States, which provides a tax subsidy based on the amount of carbon captured by energy producers. That is one of the reasons.
[English]
Senator Seidman: Thank you, Mr. DeMarco, for being with us today.
How unusual is it that two departments that are so closely aligned for delivering something as important as this aren’t working on the same set of definitions or the same models, and not communicating with each other? How unusual is that, in your experience? Of course, that’s all you can speak to.
Mr. DeMarco: Yes. There are lots of problems with regard to horizontality, which is the lingo that is used for issues that are cross-cutting across the various departments. This was a particularly obvious example of that lack of coordination.
Pivoting over to a report from the fall of 2021 where we talk about the importance of leadership and coordination, the crisis of climate change is not only a multi-departmental issue, it’s a whole-of-society issue, as the committee knows well. Government institutions will need to overcome the barriers that historical silos have created in their work.
Typically, departments are vertically aligned and stick to their mandates. But the issues we face — whether it’s climate change, biodiversity loss, reconciliation, all of these things that cross all sorts of departments — the structures need to be adapted significantly to address these things if we’re going to have policies that are harmonized, have good effect and good results, which is what matters in the end.
Unfortunately, it’s not as unusual as I would like it to be in terms of problems with siloed department thinking as opposed to horizontal coordination.
Senator Seidman: You went further than that. If I look at page 8 of your report, 3.16, you said:
We found the 2 departments used unrealistic assumptions for modelling the potential of hydrogen to reduce greenhouse gas emissions. Based on our findings, we are concerned that A Healthy Environment and a Healthy Economy was not aligned with Canada’s climate commitment of 30% emissions reduction in 2030, which was in effect at the time of the development of that plan.
That’s a pretty strong statement and very concerning. What I’m wondering is how are you going to follow up with these departments as we move toward 2030 and targets that are obviously critical for the country?
Mr. DeMarco: This was an interesting audit, because we were expecting to solely concern ourselves with a deep dive into the hydrogen strategy and associated policies and initiatives. However, we uncovered problems that were not unique to the hydrogen file; they were problems relating to Canada’s approach to modelling plans to reach their various targets.
The A Healthy Environment and a Healthy Economy plan was the one in effect at the time of this audit and has since been replaced in March by the Emissions Reduction Plan. We realized in the course of our audit that it would be best to point out that there were problems with the overall approach rather than confine ourselves simply to issues that were endemic to the hydrogen file.
It is very concerning. As you know, from our Lessons Learned report of last year, Canada has had no shortage of commitments and targets over the years, 32 years now of them, and has not met any of those. This report points out some of the problems with their modelling and planning, with the hope that the recommendations we’ve made, if acted upon, will make future modelling and plans more accurate and targets more achievable.
That’s really what we’re concerned about here: Are the results matching the intentions? There’s no shortage of good intentions over the years, from the early 1990s to now. That’s not just an issue of coordination, which we were talking about first, but it’s an issue of how realistic are the plans and how well grounded are they in sound evidence.
Senator Galvez: You mentioned about two ministers working in silos, using different hypotheses, carrying on with their work and coming up with conclusions. I’m sure you’ve seen this is not just a problem with the Minister of the Environment and the Minister of Natural Resources, but it’s a systemic thing with respect to climate change. We wish that the Minister of Finance would be involved in that too, because we are giving billions of subsidies to oil and gas, and we were supposed to phase out those subsidies. I think it’s been 20 years that we’ve been saying that’s what we’re going to do, and we don’t do it. So the explanation for why we are not attaining any of our targets is because everybody is working inside.
You are the auditor for the environment, so you have a view of the global thing. I want you to tell us how we can help you in making the right recommendations so that we look at everything holistically, so that we become more efficient and that one day we will attain one of our given targets because we cannot continue like this. We are talking about hydrogen, because I’m sure you know, if we develop hydrogen and carbon capture and storage, is it a way of keeping locked in with the fossil fuel way of producing energy and transport?
Mr. DeMarco: There is a lot there.
Senator Galvez: I know. I’m sorry.
Mr. DeMarco: I’m happy to speak about these issues. In fact, concerns such as those that you’ve raised were the impetus for the lessons learned report from last year. We typically do deep dives into particular programs or initiatives like the hydrogen strategy, but in that report we were able to look at a couple of decades of our own work in auditing various programs. We carried out interviews with experts in the field and we wanted to bring it all together in terms of addressing things at a high level, at the same level that you’ve posed your question. There are a couple of highlights from that.
One of the lessons learned, not surprisingly — and these are not lessons learned that we dreamed up, they were the results of our previous work and our interviews with experts. We don’t take ownership of them. If you wish to adopt some of them for your recommendations, we’d be happier for it. The realistic targets and plans are one of the lessons learned, leadership and collaboration with respect to horizontal issues is another one. Another one of particular interest, and I think the Senate is, perhaps, best positioned to address, is the issue of a long-term perspective and intergenerational equity. The Senate has a history of representing the underrepresented and, of course, the most underrepresented in our current system are the generations of the future and the other species with which we share the planet. Committees such as this have the luxury of being able to look at long-term issues like climate change, biodiversity loss and reconciliation and not be defeated by the short-term expediencies that tend to get in the way of effective action on climate and have, in fact, gotten in the way of Canada’s climate action and resulted in the policy incoherence, and so on, that we talk about in the report.
Those are some of my initial thoughts on a question that I think we could have a whole-day session on. I’ll leave it there so that we leave time for your colleagues as well.
Senator Galvez: If you have other ideas and you want to elaborate on the answer to my question, you can always submit something in writing at a later time and elaborate as much as you want.
Mr. DeMarco: Okay. We’re happy to do so.
Senator Galvez: Yes, please.
Mr. DeMarco: I should point out that recommendation 34 also gets at some of the issues you raised in your question in terms of comprehensive modelling for the use of hydrogen. It looks at it in a holistic way in relation to other fuel sources and so on. There is a tendency to pick a winner like hydrogen and then to focus on all of the assumptions and variables that are needed to model that. But really, we need to model our future energy supply, of which hydrogen and the others could be part of, and look at it in a holistic way and, as I mentioned, a long-term way as well.
Senator Yussuff: Thank you for being here. Your report is quite scathing. Essentially, what you’re saying here — maybe to put it in different language — that the department’s assumptions about how we’re going to achieve our objective is a lie. Based on the assumptions, some of these things are not even possible, nor do they actually figure out the costing.
How is the country to have confidence that we’re going to meet our objective by 2030 or 2050 if the department assumptions are so fundamentally wrong? Given that these two departments don’t collaborate, which one would you give higher marks in regard to their assumption based on the report?
Mr. DeMarco: We didn’t grade them individually on their performance because there were different problems with each. I’m not sure. It would be a bit of apples and oranges to say which. Clearly, the transformative scenario of Natural Resources Canada, which was projected to reach up to 45 megatonnes in the equivalent of CO2 reductions, was less realistic than its own other scenario, as well as the Environment Canada scenario.
Targets are often set before there is a real plan to make them, and there is nothing wrong with that. That’s typically how things have happened with the climate file. The international community comes together every few years and agrees on some sort of targets and it’s up to the various countries to figure out their role in that and their individual contributions, their nationally determined contributions, or NDCs.
It’s not just a matter of making the math add up. It has to be realistic math that adds up. That is the point of this report. It’s not hard to come up with a scenario where you reach the target of the previous plan or the new target, but will it work? That’s why the lessons learned report was produced, because we want to remind parliamentarians and hold the government to account that none of the previous plans has worked and that if we keep on that path and apply the maxim that the best predictor of future performance is past performance, then we will fail again. There are signs that this time the new emissions reduction plan will be more likely to achieve its target because we have things like carbon pricing, which were absent from previous iterations of the plans, especially in the 1990s and the 2000s. It may work, but we will have to report on that next year once we do a deep dive into the 2030 Emissions Reductions Plan. We have to do that under the Canadian Net-Zero Emissions Accountability Act by 2024. We may do it earlier if we have the capacity to do so. So stay tuned for our report on the newest plan. But the reason we put in the last third of this report is that we saw systemic problems with their approach generally, with the hope that we could provide some formative advice and useful recommendations so they do not repeat the mistakes of the past.
Senator Yussuff: Hydrogen is going to form a very fundamental part of Canada’s transition strategy. Equally, as a new fuel development that Canada is obviously investing in, but also trying to get the international community to contribute into that investment in Canada. How do we labour at this to the point where we can get Canadians to appreciate that the reality of using hydrogen is not going to go away, but we need to make sure the modelling we are using in terms of cost and reduction are realistic so they can have some confidence in what government is doing? Because a lot of taxpayers’ money is being used right now to subsidize the industry to achieve the objectives, but Canadians, other than being told that this will work, don’t necessarily know what the costs will be and whether or not we will meet the assumptions that the government is telling us.
Mr. DeMarco: We audited the strategy at an early stage, but our intention wasn’t to make our own prediction of exactly what percentage of the fuel mix will be hydrogen. The recommendations, if acted upon, will give us more of the answers and give you more of the answers that you need to hold the government to account on its plans.
Aside from saying that hydrogen is in the mix, I can’t tell you what percentage I expect it to be because all of these recommendations need to be acted upon. That work needs to be done and we need to look at the results of that. As I’ve mentioned in a previous answer, although hearings like this look at a particular subject matter, we do need an economic and energy transformation plan that doesn’t just pick a winner and then sets up a system to make sure that fuel is favoured over all the others. You have to look at it in a holistic way and factor in the environmental, economic and the social costs, the negative externalities that are not captured by carbon pricing and the negative temporal externalities that are borne by future generations.
Once you put all that together, Canada should have a better sense of the role hydrogen will play. With the information that we uncovered in this report, I can say that I wasn’t confident in their assumptions, but I’m not in a position to say that the right answer is X, Y, or Z at this stage. There is a lot of important work that needs to be done by the departments, hopefully, in a coordinated way this time to address that.
Senator Sorensen: We’ve been dancing around an answer to the question I have, so I think this is a super-quick question. If I understand this correctly, you made recommendations on the Federal Sustainable Development Strategy. In point 10 of your comments, you said that they agreed with your four recommendations to environment and climate change and two to natural resources, but I think what I’m hearing you say now is just because they agree with them, it doesn’t mean that they will actually act on them.
Mr. DeMarco: They’ll act on them in their responses, which are starting at page 29 of our report. They do agree with them and they indicate the work they will do to implement them. Once we see the results of that work, we’ll have a better sense of it. I mean, it’s still modelling and planning. You can never predict the future entirely. The point of this is to make it as realistic as possible and to make sure the assumptions are founded on sound evidence and policies, rather than just hopes. It’s not just finding out the answer to the equation and going backwards with whatever inputs needed to get the answer. It needs to be done in a more sound and coordinated way.
[Translation]
Senator Verner: In your audit, you find that Natural Resources Canada set out unfounded assumptions that all of the provinces would adopt uniform policies on hydrogen. Not only are you confirming that these assumptions were not supported by current provincial policies, but also that they do not take into account regional differences within the energy sector in Canada.
Can you give us more details on your observations on this aspect in particular, that is to say the regional differences that weren’t taken into account?
Mr. DeMarco: Yes, I will ask Mr. Lequain, the director responsible for the audit, to help me with your question. Mr. Lequain, can you please help me provide an answer?
Mr. Lequain: Regarding the hydrogen strategy for Canada, Natural Resources Canada looked at various strategies found in some provinces dealing with, for example, vehicles that don’t emit any CO2, public transport, electricity prices, etc., and the departments assumed that the most stringent measures for reducing greenhouse gas emissions were applied in all the provinces. This has blurred the differences between the provinces and their various initiatives, given that they have been presumed to have been uniformly applied in all provinces. I don’t know if that answers your question.
Senator Verner: I thought we might get more details on the differences between each province and their ability to reach the targets, especially as you are talking about provincial policies that may not even exist yet. That’s why I was trying to understand —
Mr. Lequain: For example, the department assumes that all buses will be models that don’t emit any CO2, a measure which is not in force in Canada. That is an example that we give at paragraph 39 of the report.
Senator Verner: Thank you.
[English]
Senator Anderson: In section 3.19 of your report, you speak to Natural Resources Canada, and you say:
The department also assumed ambitious technology uptake in its modelling. In our view, these assumptions are overly optimistic and could jeopardize the achievement of the objectives of the Hydrogen Strategy for Canada. Finally, departmental officials told us that policy makers did not use the hydrogen strategy to inform policy decisions.
Based on the findings, does the potential of hydrogen need to be reevaluated in Canada, or can it be addressed by the recommendations that you have put forward? What is needed to correct the trajectory that jeopardizes and misinforms the objectives of Canada’s hydrogen strategy?
Mr. DeMarco: Thank you for the question. Our recommendations seek to address the very point of your question. Let me just use one as an example, but all of the recommendations are pertinent to your question.
Recommendation at paragraph 34, in the case of Natural Resources Canada, which was responsible for the strategy, they should perform a comprehensive bottom-up modelling for the use of hydrogen and account for the following: emission reduction efficiencies by the sector on a cost of emission reductions per megatonne of carbon dioxide equivalent. This is crucial because it is not just about hydrogen. It is hydrogen’s position vis-à-vis other potential fuels. It goes back to the question of don’t just pick a winner. We have to figure out where it sits in terms of its price point, and environmental and economic costs vis-à-vis other sources of fuel. It has to look at all those other substitutional fuels, for example, biofuel and electrification and so on in a comprehensive way. And it should look at the feasible deployment of technologies and supporting infrastructure, not just pie-in-the-sky, or a hope or a prayer that we could have this blending rate between hydrogen and natural gas or this price point for electricity to make this work.
The intention of our recommendations is to address the very thing that you’ve asked. The quality of their work in the follow-up to their responses will determine whether parliamentarians like yourselves will have the information that you need to be confident in the modelling that follows the implementation of our recommendations.
We do intend to follow-up in the future in the context of the current climate plan, the emissions reduction plan, not only on the hydrogen tranche, but also on the others, to again look at whether — after being remodeled and, hopefully, in a coordinated way between the two departments — the assumptions and projections are valid. That’s something I expect we’ll be doing regularly now under the net-zero act at a minimum every five years, but more likely more often.
Senator Anderson: Are the recommendations binding?
Mr. DeMarco: They are agreed to, but they’re not binding. The role of an officer of the legislature like us is to help hold government to account, but we can’t order them to do as they have agreed to.
We’re happy that they’ve agreed without reservation to all six of the recommendations, but that’s not a guarantee. We had in our office, both on the environmental side and on the auditor’s side, several long-standing issues over the years that there have been reports about recommendations accepted, but then not enough action. One of the reasons we put the appendix to the lessons learned on climate change in there was to show some of these things we’ve been saying for quite some time.
Senator Anderson: Thank you.
Senator Galvez: We understand that these two departments used different assumptions with respect to policies and technologies that didn’t exist. If I see it from a very macro perspective, they wanted to say: These are the emissions we are producing, and these technologies will reduce it by this much. That’s what they pretended; that’s what their objective was. But at the point, talking with people who follow this modelling, there was this hypothesis that was grown in both cases because they used the same data on emissions at the beginning. I was informed, for example, that forest fires, which are happening all the time now in Canada, produce CO2, but it’s not considered emissions because it’s not naturally produced. In the global model, we just want to count the ones that humans have produced. The problem is that we are having so many forest fires, we cannot ignore that source anymore.
The question is are you also looking at the very basic assumptions that affect the end results. Even if they use the same data, the hypothesis will still be wrong because, at the very beginning, they are not using all the data that they’re supposed to use.
Mr. DeMarco: Yes. As you all know, global temperature is correlated with the amount of greenhouse gas in the atmosphere in terms of concentration. That is the result of the net of removals and emissions over time because they accumulate in the atmosphere and the residency time, depending on the molecule, is quite long.
What really matters, under Paris, is the objective, which is to try to limit global temperature rise. To do that, we really need to focus on how much is actually going up into the atmosphere and staying there and how much is being removed. With respect to most Canadian industries, we look largely at just emissions because there isn’t any removal. With forests, obviously, there are emissions and removals. We have just begun a deep-dive audit, like this hydrogen one, on the role of forests in climate, including Canada’s approach to accounting for forests. There are concerns there that, even if something is permissible under the accounting, we still need to know what’s actually happening in the atmosphere because that’s what’s going to determine global temperature rise.
There is no winner in the end that is able to say, “A-ha, we were able to account for this in a way that allowed all of this CO2 to go up into the atmosphere without getting into any trouble.” You still get into trouble because you have the severe weather and the global temperature rise and sea rise that are associated with it.
We need realistic measures — not just models, but measures — of the impacts of forests as a source and as a sink in terms of greenhouse gas emissions. I expect that by this time next year I’ll be able to present results on our audit on land use and forestry as well as the particular initiative of the 2 billion trees.
The Chair: Thank you for being with us this morning. I must say — and I’m repeating the comments of everyone else — this is amazing to me. It seems so nonsensical, what you’re telling us, whereby there is such a desire to achieve certain goals that you make them up. You cook the books. It’s like playing golf. The guy who has the pencil always wins because he changes the rules all the time. Canadians are listening to us and they should be upset because, you know what, we haven’t met any goal, and now we’re fooling around with the books. It makes no sense. It puts into question the whole credibility issue. I hope people do get upset. I hope people are listening, and I hope this is the last time they hear this because it makes no sense. It is insulting to Canadians as a whole. It’s just unacceptable. But that’s not your job. Thank you very much.
Mr. DeMarco: Hopefully, you mean that what we found was nonsensical, as opposed to what I said was nonsensical, but we’ll leave it to you to determine that.
The Chair: Thank you very much.
(The committee continued in camera.)