THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, November 24, 2022
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9 a.m. [ET], to study emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Good morning, everyone. My name is Paul Massicotte, I am a senator from Quebec, and I am the chair of the committee. Today, we are conducting a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
I would like to begin with a reminder. Before asking and answering questions, I would like to ask members and witnesses in the room to please refrain from leaning in too close to the microphone or removing your earpiece when doing so. This will avoid any sound feedback that could negatively impact the committee staff in the room.
Now, I would like to introduce the members of the committee who are participating in this meeting: Margaret Dawn Anderson, Northwest Territories; Michèle Audette, Quebec; Rosa Galvez, Quebec; Julie Miville-Dechêne, Quebec; Judith Seidman, Quebec; Karen Sorensen, Alberta; Hassan Yussuff, Ontario; Don Plett, who will join us shortly.
We can see that, apart from me, we have only women around the table this morning. Congratulations. It’s well deserved.
I wish to welcome all of you, 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, by videoconference, Aaron Hoskin, Senior Manager, Intergovernmental Initiatives, and Sébastien Labelle, Director General, Clean Fuels Branch, from Natural Resources Canada.
We also welcome Miodrag Jovanovic, Senior Assistant Deputy Minister, Tax Policy Branch, and Marie-Josée Lambert, Acting Director General, Crown Investment and Asset Management, from the Department of Finance Canada.
Welcome and thank you for being with us. We will begin with the Natural Resources Canada representatives. The floor is yours.
Sébastien Labelle, Director General, Clean Fuels Branch, Natural Resources Canada: Thank you very much, Mr. Chair. Good morning, senators. It is a pleasure to be with you this morning.
[English]
I’m joining you from Ottawa, which is the unceded land of the Anishinaabe Algonquin Nation, whose presence here reaches back to time immemorial. I’m pleased to be joined by Dr. Aaron Hoskin, a deputy director within my group at Natural Resources Canada.
[Translation]
It is a pleasure to be in front of you, again, to speak about the economic and environmental opportunities that hydrogen can bring across the country.
I know you have spoken with many experts over the last few months, so instead of going back to fundamentals, I would like to provide an update on how much has changed since we were last here in April.
[English]
As you will have heard throughout your study, hydrogen will play an essential role to meet domestic and global energy needs in the context of energy security, energy transition and the broader climate imperative. The Hydrogen Strategy for Canada: Seizing the Opportunities for Hydrogen was a call to action and was meant to highlight the potential of hydrogen as a clean source of energy. Many provinces have responded to that call and are taking action to realize their opportunities. British Columbia, Alberta, Ontario and Quebec have released their own strategies, and we know there is a lot of work under way in Atlantic Canada and the Prairies. We have provided a lot of financial assistance to help inform all of those strategies.
The Hydrogen Strategy for Canada also highlighted the need to work with the private sector. We co-chair 16 working groups under the strategy to facilitate an important exchange of best practices, and we fund a number of technical and economic studies to hear directly from subject matter experts and leaders from the private and public sectors, as well as Indigenous businesses and communities on a regular basis.
[Translation]
Seizing the hydrogen opportunity will take coordinated actions over the short, medium and long-term. We need to grow production, distribution and end use infrastructure now, while also fostering greater deployment in key sectors, like in freight, mining, and heavy industry. NRCan is also working hard to ensure that codes and standards are consistent, in areas such as measuring the carbon intensity of the hydrogen, to make sure that we have a common basis for this with our key trading partners.
As technologies evolve and mature, and as access to clean low-cost hydrogen grows, additional end uses will become more viable, including rail, and marine, as well as industrial processes like steel and cement manufacturing.
[English]
Over the last two years, the government has taken significant action and announced a number of investments to help seize the hydrogen opportunity. Some recent highlights include the $1.5 billion Clean Fuels Fund, which supports clean fuel production capacity in Canada, including at least 10 new hydrogen production facilities. This includes $50 million to support the development of essential codes and standards for hydrogen and other clean fuels. In fact, 10 days ago, Minister Wilkinson announced the first group of these projects — $800 million worth of projects — selected for funding. We expect him to announce the remainder of the Clean Fuels Fund projects in the coming weeks.
Through our Zero Emission Vehicle Infrastructure Program, we have been supporting the build-out of new chargers for electric vehicles as well as hydrogen refuelling stations in key metropolitan centres. Last week, Minister Wilkinson announced an investment of $5 million for five new hydrogen fuelling stations in British Columbia, part of more than 30 stations that have been selected for funding and that are getting built across the country.
Two weeks ago, a $300-million investment in a clean hydrogen production facility in Alberta was announced through the ISED — Innovation, Science and Economic Development — Strategic Innovation Fund, the Net Zero Accelerator Initiative, and this facility will use state-of-the-art technology to convert natural gas produced in the province to produce clean hydrogen, with close to 95% reductions in emissions over conventional hydrogen.
Earlier this month, the Fall Economic Statement included a new clean hydrogen refundable investment tax, and we’ll be working closely with the Department of Finance to consult on a design and implementation of this measure.
Additional details were also provided on the $15-billion Canada growth fund that includes several potential supports for hydrogen and other clean fuels.
These investments will help ensure Canada’s world-leading industry maintains its competitive advantages in the face of significant investments being made by other jurisdictions, like those made in the United States with the Inflation Reduction Act of 2022 or the European Union’s European Green Deal.
While other countries are investing, we’ve also continued to cement our position globally. In May, Minister Wilkinson announced that we would be strengthening our collaboration with the U.S. That’s a partnership that goes back more than four decades to focus on accelerating a global methodology for carbon intensity of hydrogen. We are working with many international partners on that.
We’re working on cross-border hydrogen hubs to ensure that we can fuel and produce hydrogen on-site, and make sure that it completes the value chain. We’re focusing on green freight corridors, recognizing the seamless nature of the North American transportation system.
We join the other G7 countries in endorsing the Hydrogen Action Pact which commits countries to accelerating our efforts to grow the global hydrogen economy and to work with our non-G7 countries to accelerate their efforts as well.
In August, Canada signed the joint declaration on the establishment of the Canada-Germany Hydrogen Alliance which outlines a number of activities including undertaking techno-economic analysis, accelerating action toward the common methodology for carbon intensity, enabling collaboration between our ports and determining opportunities to co-fund projects to enable the establishment of sustainable supply chains for hydrogen for Canada to Germany with initial exports targeted for 2025.
[Translation]
Hydrogen’s time has come. NRCan stands ready to work with partners across the country and around the world, to harness our combined will, expertise, and financial resources to fully seize the opportunities that hydrogen presents and create a cleaner future together. To put it simply, Canada is ready to be, and must be, at the leading edge of the global hydrogen economy.
Thank you very much. I look forward to your questions.
The Chair: Thank you. I understand that the Department of Finance does not have an opening statement, so we’ll begin question period with Senator Galvez.
Senator Galvez: First of all, I would like to apologize, as I was not able to attend the last session.
Thank you to our witnesses for your presentation. Last week I asked Minister Alghabra a question in the Senate. I told him that there are two reports, one produced by Environment Canada and one by Natural Resources Canada, on the projections and potential for hydrogen production in Canada, and that these two reports show very different results. I asked him which report he was going to use for hydrogen transportation development, and he couldn’t answer my question; maybe you can?
I think there is an inconsistency in installing hydrogen fuel stations before hydrogen is available as a fuel across Canada. It’s as if we wanted to move forward, but without the raw material, which is the fuel produced, since we’re still at the prototype stage. I’ll have more questions about the different opinions on hydrogen, but I’d love to have an answer to that question.
Mr. Labelle: Thank you for your question, Senator.
First, I will talk about the two reports. As you know, the first report is on Environment Canada’s Emissions Reduction Plan. The reports outline the Canadian measures that are in place or will be put in place to reduce greenhouse gases in this country. It’s a plan, and what they said about hydrogen was that it was a measure that they call an indicator, or a proxy in English. Sixty-four measures were modelled with one measure. This will increase the use of hydrogen in the Canadian economy, and they set a specific amount on that basis.
The Hydrogen Strategy for Canada was a completely different exercise. It was the result of three years of consultation with industry and with modellers. It was really about looking at the full potential of the sector. It was a call to action to look at the possibilities of hydrogen and see how we can get to a situation where hydrogen has a larger share of the various fuels used.
Transport is one sector that is being studied by one of the 16 groups that we chair with them. In this group, the possibilities related to the use of fuel are examined. We are also looking at exports in the “transport” mode. For example, what are we doing in the ports? There is a working group on ports in particular to discuss exports and port equipment and how hydrogen can facilitate and support the energy transition in these facilities.
As to your second question, I read something yesterday — and I know you heard about it too — about the International Energy Agency. It was just talking about the problems that exist with hydrogen projects, where some projects are planned, but they require confirmed buyers. There is a delay. This is a trend we see with many emerging technologies where production and use really have to happen together.
I think the government wants to show leadership in funding hydrogen refuelling stations to stimulate demand and production. We have to remember that these stations are, for the most part, privately funded. If companies don’t believe they’re going to make money, they won’t spend on it. They think there is a market for it. On your comment about it being a prototype — and I’d like to ask Mr. Hoskin to speak to that — that’s absolutely not the case. As we speak, there are several vehicles. Technology continues to advance every year, but today, transportation, especially for heavy goods, is absolutely viable. I don’t know if Mr. Hoskin wants to add a comment on that.
[English]
Senator Galvez: I would like a real example, if you can.
Can you mention an example where this is not a prototype but it exists and we can see it working?
Mr. Labelle: For trucking?
Aaron Hoskin, Senior Manager, Intergovernmental Initiatives, Natural Resources Canada: For trucking or transportation? Because on the road right now in Vancouver —
Senator Galvez: You have the light and the heavy vehicles.
Mr. Hoskin: Correct.
Senator Galvez: Give me an example for each one.
Mr. Hoskin: As part of a ride-share program in Vancouver, you can rent a fuel-cell vehicle and refuel it at any of the fuel stations that exist in the Greater Vancouver area. Those are produced by Hyundai in a normal manufacturing facility as they would their normal vehicles.
Toyota has deployed their Mirai vehicle, which is now in its third generation — again, factory-built vehicles in general use in taxi fleets in Paris. There are 100 examples of the Toyota Mirai deployed in Quebec, again, refuelling at some of the infrastructure we built in Quebec in partnership with the private sector and Shell.
So there are vehicles on the road that you can buy or lease — Honda is manufacturing them — and those are light-duty vehicles. Medium- and heavy-duty vehicles also exist. Buses were the first vehicles to be fuel cell charged, and that was in 1982 using Canadian technology in California. Those vehicles continue to be manufactured and built with full warranties — they’re not prototypes — and they’re deployed in Canada, the U.S. — California — the U.K. and in the Netherlands. And in Germany there’s a train that’s using fuel cells that is not a prototype; it’s in day-to-day operation. So these vehicles have been on the road for more than 10 years and they’re fully warranted.
Just to the point on the infrastructure first, studies from the International Energy Agency — the IEA — the U.S. Department of Energy, or DOE, and from Natural Resources Canada have shown that one of the biggest hurdles to deploying zero-emission vehicles is a lack of infrastructure. Consumers and industry have to know, if they want to invest in a zero-emission vehicle, that they will be able to charge or refuel that vehicle when and where they want to do it. If they can see a charger or a refuelling station, they’re more likely to adopt a zero-emission vehicle. Canada has some of the strongest and most ambitious zero-emission vehicle targets for light- and heavy-duty vehicles. If we want to get there, we need to make sure consumers and fleets in the private sector see that there’s recharging and refuelling infrastructure available. It’s not chicken-and-egg; the infrastructure has to come first, and multiple studies have shown that.
Senator Sorensen: I would like a little point of clarity from Mr. Labelle. I think what I heard in response to Senator Galvez’s question about the difference in the studies — in simplest terms for me — is that it was different processes with different questions being asked, and so that’s why there are different answers or different numbers at the end.
Mr. Labelle: Thanks for the question.
Senator Sorensen: It’s just for a point of clarity. Based on his explanation, that’s what I heard.
Mr. Labelle: Number one, they’re not studies. One is a plan and one is a call to action and a scenario of full opportunity. Yes, the process was different and the question was different.
Senator Sorensen: Thank you for that. Some of the potential roadblocks identified in your report were a lack of sustained investment and innovation; the absence of clear, long-term policy signals; limited domestic supply and access and low awareness about opportunities. My home province of Alberta has the opportunity to become one of the country’s major suppliers of clean hydrogen. I’m curious: You listed many ways the federal government is currently supporting these initiatives. What’s some insight into what Alberta and other provinces are asking for to help them move forward on this that maybe still requires more support or different tactics?
Mr. Labelle: Thanks for the question. We certainly work very closely with Alberta. They’re part of many of our working groups. We tend to speak with our counterparts there on a very regular basis.
I’ll let Dr. Hoskin pick up on this, but I’m hearing a couple of things from Alberta. Number one is ensuring that the natural gas-produced hydrogen pathway — when you produce from natural gas — and we’re talking about clean hydrogen here — is recognized as exactly that: clean hydrogen. So that’s why we’re working very closely internationally to come up with a methodology to assess the carbon intensity of hydrogen so that if Europe or Asia, for example, is looking for clean hydrogen, it can be sure that natural gas hydrogen, when it’s combined with carbon capture and storage, is clean so that they can be confident. We’re working with the European Union within the council of the Clean Energy Ministerial, which is an international organization — they have a hydrogen initiative that we lead — so that’s a really key thing for Alberta is making sure they recognize the production pathway through natural gas. We’re really making sure that it aligns.
Another key concern we’re working on with them right now — in fact, yesterday we had meetings on this again — is the transportation of ammonia. As you may know, when you produce hydrogen, the easiest way to transport it right now is through ammonia. Ammonia is a very toxic and dangerous substance. We’re talking with CN — the Canadian National Railway — and Transport Canada about how to safely transport ammonia but also how to transport more and reduce the cost. We’re asking what the liability issues are. Those are two really big ones.
I know Alberta is also working very closely with our research, development and demonstration, or RD&D, group at Natural Resources Canada. We have four labs, including CanmetENERGY. We’re looking at, for example, the resilience of our existing pipeline system to handle hydrogen. When you put hydrogen in a gas pipeline, it can cause embrittlement. Embrittlement means that the pipeline breaks. So some pipelines in Canada are more likely than others to face that degree. Various levels of hydrogen can be handled in various pipelines. So our labs at Canmet are assessing right now the full Canadian network of pipelines to see how much hydrogen can be handled here or there. We know that out east, because of the construction of some of the pipeline networks there, they can handle more. In Europe, they have converted entire networks to that. We also know that some adjustments can be made to pipelines by putting sleeves inside to make them capable of handling hydrogen at a lower cost. Those are three examples, but there is a lot in the RD&D world that I could probably talk about. Those are three good examples of what Alberta is really interested in and what we’re working actively with them on.
Mr. Hoskin, would you like to add to that?
Mr. Hoskin: I can provide a bit more clarity on the difference between the two studies because the question has come up a couple of times. As Mr. Labelle has mentioned, the 2030 Emissions Reduction Plan and the strengthened climate plan both modelled one measure for hydrogen and hydrogen blending — one very specific federal measure, and that came up to 15 megatonnes of emissions reduction. The Hydrogen Strategy for Canada, as Mr. Labelle mentioned, had two scenarios. One was an incremental scenario, and the other was a transformative scenario. They both modelled the full weight and breadth of hydrogen’s impact on the economies, the environment and society in general — and not just federally. Provincial measures were taken into account and also measures and actions to be taken by the private sector. So comparing one measure at a federal level to all of the actions being taken by provinces, territories, municipalities, the private sector and the federal government across the entire economy is like comparing apples and chickens. To say the two didn’t align is actually just for a point of clarity.
In terms of what we’re doing with Alberta specifically, as Mr. Labelle mentioned, we’re working to align code standards on regulations for blending. That’s everything from wellhead to the pipelines, and also the burner tips of the natural gas using [Technical difficulties] the equipment as well. That’s a key part for them.
Another key part where there is interest everywhere is awareness. As you mentioned, the Hydrogen Strategy for Canada identifies the need for awareness. We’re working with Alberta and the provinces in general to develop awareness packages so everyday consumers, when they see a hydrogen fuel cell bus driving down the street, are going to be comfortable getting on it. Developing awareness is also important so that industry can see the opportunities in the short, medium and long term that hydrogen presents: economic opportunities to leverage our existing energy infrastructure and make it sustainable in a long-term, net-zero future, and also so they can see that hydrogen can help drive down emissions in their own operations. It’s about consumer awareness, aligning codes and standards and opening up those opportunities.
Senator Sorensen: Thank you. I appreciate it.
The Chair: Could I ask all of you to be a bit shorter in your responses? That would be much appreciated. We’re going to run out of time.
[Translation]
Senator Miville-Dechêne: Good morning, gentlemen. I would like to ask you a question.
We are in the process of concluding this study and we have heard from a few skeptics — experts — who considered that a lot of energy was being put into a resource like hydrogen which, it seems, will always remain marginal from their point of view.
You are investing a lot in this technology. What makes you think, given that it is very expensive at the moment, that you will succeed in developing it?
I’ll have another question afterwards.
Mr. Labelle: Thank you for the question, Senator. I will keep my answer fairly succinct.
First of all, I think that when we look at the climate transition plan, we see that clean fuels will be a component of this transition. We cannot avoid having clean fuels like hydrogen. If we want to get to net zero emissions by 2050, we have to do a lot of things throughout the economy, and there are certain technologies and certain applications that can only be done by hydrogen, which is a clean fuel. We’re talking about cement, steel and heavy industry transport. To decarbonize these sectors and get to net zero emissions, we have no choice.
Second, the demand exists today. Every week we have people calling Mr. Hoskin and me, from Korea, Germany, and Japan, because they want to buy Canadian hydrogen. There is a market, absolutely, so we’re trying to develop that market, the production, the distribution and everything else. We’re not doing this for the sake of it, we’re doing it to fill an immediate need that continues to grow.
Senator Miville-Dechêne: Thank you for that very clear answer. We must remain optimistic. The second question is much more difficult, but I would like to know your projections.
First of all, what percentage of our energy needs do you hope hydrogen can meet? Have you made any projections to that effect? Secondly, roughly, what is the proportion of federal subsidies in the many hydrogen projects you are talking about? How much is privately funded and how much is publicly funded? I know it’s probably a different percentage, but on average, what percentage are you funding, and what percentage of our energy needs will be met by hydrogen, in your estimation?
Mr. Labelle: Thank you. I will start with the second question. I am responsible for the Clean Fuels Fund. We offer 30% of the capital costs for hydrogen products, up to a maximum of $150 million. If it’s a $2 billion project, the maximum contribution is $150 million; it’s a decreasing 30% percentage. I would recommend that you discuss this with my colleagues at the Department of Finance, who can tell you about the grants and tax credits that were announced a few weeks ago.
Secondly, in terms of the proportion of hydrogen use in the economy, what we have modelled is the full potential of hydrogen to achieve carbon neutrality. I wouldn’t want to be inaccurate, so Mr. Hoskin could probably give you the exact figures.
[English]
Mr. Hoskin: Thank you. The investments that we make through our programs at Natural Resources Canada are conditionally repayable. Over a 10-year period, based on conditions set out in the contribution agreement that’s negotiated beforehand, if the private sector makes a profit, then they have to repay up to the full amount over 10 years, depending on how much profit they make from those facilities.
In terms of the projection for energy, the Hydrogen Strategy for Canada said that by 2050 — again, this is in the transformative scenario — hydrogen could make up to 30% of Canada’s energy mix, with the other 70% coming from electrification and from other clean fuels.
That said, to the point about the Auditor General’s audit on the hydrogen strategy, we committed to updating our modelling every two years. We are working right now to update that modelling in partnership with the Canada Energy Regulator and Environment and Climate Change Canada. That will take into account advancements in technology, cost and new opportunities for deployment that didn’t exist because the economy and the role of hydrogen is evolving every day.
Every two years we will update that modelling and continue to put in the most up-to-date information and project, again, what Canada’s energy mix could be based on hydrogen, or what percentage of Canada’s energy mix could come from hydrogen.
We know that the Canada Energy Regulator in 2023 will be releasing their net-zero scenario, and the energy mix in a net-zero scenario in 2050, and that will also include hydrogen.
Senator Seidman: It is nice to see you back, Mr. Labelle. Welcome to Dr. Hoskin. I have a quick follow-up.
I’m sure that you are tired of talking about this. On Tuesday night I did ask about the different estimates between Environment and Climate Change Canada and Natural Resources Canada — NRCan — that were pointed out by the commissioner in our meeting with him.
Mr. Labelle, you were very clear that the two departments were modelling different things. I’m happy to hear that further explanation today, and Dr. Hoskin’s clear follow-up in explaining that.
Your two departments, NRCan and Environment and Climate Change Canada, collaborate very extensively in our plans around the strategies for climate change and a sustainable future in Canada; it becomes one of communication, and hearing different things from these two different departments really doesn’t inspire a lot of confidence in Canadians.
What roles do science, translation and communication play in your department? What kind of communication do the two departments have?
Mr. Labelle: I think that’s a really fair question. I put myself in your shoes, where you are seeing pieces of paper that don’t say the same thing, and you ask: why not?
You have to go back to what the roles are.
NRCan’s role is to promote the industry, the transition of the energy mix for Canada, the production of the fuels, the collaboration with provinces to transport the fuels and see how we export the fuels, all of that. We are very much in production, in facilitation. We are trying to be a catalyst to develop a market.
Environment and Climate Change Canada’s role is to manage the national inventory of emissions; they oversee the quantification of the plan. How they quantify that plan is really done through international modelling communities that do this.
We work closely with Environment and Climate Change Canada — ECCC — through the Canada centre — we talked about this on Tuesday — on information statistics. We both fund modellers to do that. NRCan has modellers. We talk to ECCC’s modellers. We make sure that we understand what assumptions are being made and how they are being made.
As Dr. Hoskin said, we talk to the CER — the Canada Energy Regulator. We make sure we compare notes. We are always trying to improve that. We are external facing with industry trying to understand what the opportunities are. How are we going to get from here to that net zero?
When we published that report, it is about the range of possibilities. As a country, how can we do the most with the resources that we have? It is about defining the opportunity and catalyzing that work.
It is not just our strategy. That Hydrogen Strategy for Canada is a strategy that really is the sum of the input of the private sector, provinces and Indigenous groups. It is really very broad, whereas the ECCC one is a Canadian plan to meet our targets; it looks at things that are, in their minds, credible enough to be quantified in an emissions reduction plan, whereas we are saying, “Here is the opportunity.”
The Chair: Can I comment? I will tell you what I am hearing, because we can talk all day about it. We have tried to get it.
What I think I’m hearing is that one plan is what you achieved, of something in reality; the other one is what you hope for, but it has no bearing on reality. You have to admit that’s sort of conflicting. I mean, it is not very good.
So you can repeat the story many times. We’ve heard you now four or five times, but it comes out as if it does not make any sense. If you are trying to sell goods and it is hoped for, and you wish it was, that’s not good enough. It is what is happening that’s going to be relevant. Does that help? I don’t know, but I will tell you my reaction to it.
Senator Seidman: No. I mean, I think that —
Mr. Hoskin: Can I comment?
Senator Seidman: — we are getting a certain message, and, okay — let’s leave it because I do have another question.
I thought that was going to be a concluding afterthought in the discussion about these two models.
Look, we have talked a lot about the private sector. It keeps coming up. It came up on Tuesday night. It came up in your presentation today.
If I think about the comments we heard from the many witnesses who appeared in front of our committee, about the multiple challenges around hydrogen, they talked a lot about the infrastructure. But they also talked a lot about competitiveness and our lack of competitiveness with the U.S., specifically. We are developing this big strategy between Canada and Germany; there’s a lot going on here.
I’d like to get some idea about the connection with the private sector, who are out in the field. They probably have a fairly good idea of what to pursue and how to pursue it. I know you put out the Fall Economic Statement addressing the Investment Tax Credit for Clean Technologies. You talked about things like green freight corridors and recognizing the seamless nature of the North American transportation system.
There is a lot going on. I’m trying to put some of these pieces together. Could you help me with that, and your relationship with the private sector around that?
Mr. Labelle: I would like to turn it over to my colleagues at the Department of Finance to talk about the competitiveness and recent tax measures.
We talk to the private sector every single day. We meet with companies. We have those 16 working groups. It sounds like a lot, and it is. That’s because there’s a lot going on, and there are a lot of different parts to the private sector, with different interests.
But I will move it to my colleague Mr. Jovanovic to talk about the tax credit and how it supports us to be competitive.
Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance Canada: Thank you for the question.
In the Fall Economic Statement, the government was clear that they are mindful of the effect of the Inflation Reduction Act of 2022 in the United States and the need for action. Early action at the federal level included, particularly with respect to hydrogen, the announcement of intent to introduce a refundable investment tax credit based on the carbon intensity of the pathway. If you compare with what the United States did, for instance, they’ve also introduced an investment tax credit for supporting the production of hydrogen based on carbon intensity tiers. The maximum investment tax rate available there is 30%.
It has been announced in the Fall Economic Statement that the government will also be consulting on a system in the Canadian context — it would fit the Canadian context — based similarly on tiers, with the highest level of cleanliness, if you will, of that tier receiving an investment tax credit of at least 40%.
We will be consulting intensively over the coming weeks and months with the industry. We already have had discussions to get more information to determine how best the rates should apply, depending on the pathways, and also what kinds of equipment would be deserving of the investment tax credit at various rates.
So there is still a lot of work to do, but we will do that in consultation with the industry. The objective is to make sure we have a level playing field with the United States.
Senator Anderson: Thank you, witnesses, for your presentation.
Mr. Labelle, in your presentation, you spoke of advancement of hydrogen in the provinces, with no mention of the North: the Yukon, the Northwest Territories and Nunavut. The North is historically taken for a ride but is not necessarily a driver in Canadian-driven decisions that greatly affect us. According to your hydrogen strategy on the NRCan website, the North — specifically the Yukon, Northwest Territories and Nunavut — is identified as “Mixed feedstock hydrogen production potential.”
Can you elaborate on that? In your opinion, is hydrogen a viable form of energy in the North?
Mr. Labelle: Thanks for the question.
I will let Dr. Hoskin talk about the specifics, but before I do that, I will say that, in the context of our working groups, we have a federal-provincial working group. We invite all the territories to participate, and we encourage them to do that. We are open to that. They participate to varying degrees, based on their availability at the time.
But maybe Dr. Hoskin can talk about the hydrogen strategy.
Mr. Hoskin: Sure.
In terms of opportunities for hydrogen in the North, as Mr. Labelle said, we are working with the provinces and territories. All the territories have come to the table to have discussions on hydrogen opportunities. Hydrogen is seen as a displacement of diesel, whether that is in a diesel generation set or diesel for use as a fuel in transportation.
One of the emissions from diesel engines is black carbon, and black carbon is one of the worst particulate matters to melt snow. Deploying hydrogen in the North actually helps mitigate not just emissions from GHGs but also the black carbon emissions that are melting the snowpack at a faster rate. So there is absolutely an opportunity for hydrogen in the North.
In fact, hydrogen is being used in northern Quebec right now at the Raglan Mine, which is just on the border with the territories. It is a wind-to-hydrogen project, where wind turbines are providing electricity to a community. That community is getting its electricity from the wind turbine, but when the wind stops blowing, it is also making hydrogen, and the hydrogen is used to displace diesel in a diesel generation set.
There are significant opportunities to decarbonize the North, to reduce black carbon emissions in the North and for it to potentially become an economic opportunity in northern communities and the territories as well in tapping into significant solar in the summertime and wind in the winter.
Senator Anderson: I don’t know if this is so much a question as a comment.
You spoke about the potential and the opportunity in the North. We’re very well aware that we are heavily reliant on diesel. Our infrastructure is dated. You spoke about the importance of setting up infrastructure, such as the charging stations. Have you looked at setting up infrastructure in the North?
Mr. Labelle: Yes, absolutely. We have just gotten money in Budget 2022 — $900 million — to support charging and refuelling stations. That will be delivered with the Canada Infrastructure Bank and NRCan.
Certainly, one of NRCan’s interests is looking at underserved areas, in particular. It is looking at making sure we’ve hit the areas where it’s perhaps less commercially viable.
Mr. Hoskin, perhaps you could add to that.
Mr. Hoskin: There are a number of programs that can help support infrastructure in the North. As Mr. Labelle said, through our Zero Emission Vehicle Infrastructure Program, we have already deployed some electric vehicle chargers in Nunavut and Yellowknife. Also, NRCan has the Clean Energy for Rural and Remote Communities Program that looks at getting remote communities off diesel. Right now, they are funding some feasibility studies in terms of how to look at renewables and new opportunities for hydrogen to help those communities in the North get off diesel and go to more sustainable energy systems.
[Translation]
Senator Audette: Thank you very much to the interpreters for their work. You speak very fast, in a scientific and complex context, but I was able to understand most of the dialogue and exchanges.
I would like to understand better, knowing that we are finishing this study and you are going to continue to execute your mandate. To me, Indigenous groups are more than groups; they are our governments, our leaders and the custodians of knowledge and territories. When we talk about storage, transportation, market development, ports, there are Indigenous peoples living in all these great territories, whether it’s in the east, in the north, in the west or in the south and so on.
Would it be possible to send us the list of nations that collaborated, contested or participated? I would like to make sure I understand that we are going beyond just ticking a box. I had a group that spoke and said, “Thank you, I’ve done my consultation.” This is very important, because it has a direct effect on our economy, our health and our relationship with the territory. It’s not to stop you from doing anything, but I need to understand who has been involved and who is involved in this work with you.
The Chair: May we obtain this list?
[English]
Mr. Hoskin: During the hydrogen strategy, to be clear, this is not an end process, right? The Hydrogen Strategy for Canada was a beginning, actually, and that’s why it is “A Call to Action.” And we continue to have these working groups that are helping to deliver on the strategy, and that includes a dedicated Indigenous working group, and part of the strategic steering committee is a dedicated Indigenous, business and community working group solely focused on opportunities.
We are actually working with several First Nations that expand into the U.S. as well, realizing that First Nations don’t necessarily follow federal boundaries, right? There are some nations that extend into other jurisdictions. Similarly, there are Alberta and B.C. First Nations that extend across both borders as well.
We can provide that list, but I also wanted to flag that the $1.5 billion Clean Fuels Fund has a dedicated stream for Indigenous-led projects. That means the project itself has to be more than 50% Indigenous owned and operated to be eligible to receive funding under that program. So we are working very closely with Indigenous businesses and communities. We have from the beginning and we will continue to do so as we implement it.
[Translation]
Mr. Labelle: The question about nations is very important. We can certainly give you the list, although we recognize that it is still growing. We’re also talking to representative organizations, such as the First Nations Major Projects Coalition, which had a hydrogen conference that we supported and continue to support. We are actually scheduled to meet with them this week. Very often we meet with them to talk about First Nations projects that look promising — not just to talk to people who are closely affected by these projects, but who are also leaders in these projects. So we’re very interested and happy to continue to collaborate in that way.
Senator Audette: Thank you very much.
[English]
The Chair: If I can ask a question before we go to round two, to go back to a point, we had some highly credible witnesses, including one professor at York University. Their conclusion was, in spite of all the efforts, including CCS — carbon capture and storage — producing hydrogen will cause a release of emissions of methane, which is very negative — 30 times worse than CO — carbon monoxide — or CO2, which is carbon dioxide. How do you respond?
And this professor sits on the board of New York State relative to the choice of fuels, also sits on the advisory board of New York City. These are serious people, and they are saying we’re not going to do this, we won’t get involved and we can’t get there without having a significant release of methane. Can you comment on that? And why are you so confident when some experts in the world say you are wasting money? Can you respond to that, Mr. Labelle?
Mr. Labelle: Yes, of course. Thank you for the question, Mr. Chair. That is why we want a common methodology. Common methodology means it is not one professor or another expert having their own views based on their science. It is having a common methodology that’s the same. That methodology will assess the methane reductions and the CO2 emissions, and look at it all together to make sure that it is, in fact, serious and quantifiable and common. So that’s exactly what we’re working on.
The Chair: So, at this point we’re not sure, is that what you are saying? It is unfounded at this point, I gather, and you are not so sure that it is going to work.
Mr. Labelle: I am absolutely sure.
The Chair: And is it economical?
Mr. Labelle: I’m sure that we can produce hydrogen that has a carbon intensity that is low, if not up to 95% without CO2 emissions.
The Chair: At what price?
Mr. Labelle: The price will vary, of course, depending on where it’s located. It will depend on the technologies they use. It will depend on, for example, where they sequester carbon and so many variables. If the question is whether it can be done, the answer is, yes, absolutely. It is being done today.
The Chair: I agree.
Mr. Labelle: The second question is: What is the price? And that will depend on the particular facility, feedstock, how you sequester carbon and where you put it.
The Chair: Let’s hope. The second question I have is related to the deal with the Germans, which is in the Labrador area. Is that deal done? Is that a firm deal, or are we speculating that hopefully the parties will agree? How advanced is that? We’re talking about a lot of money. How real is it? Is it just a PR exercise or is it a real, legal commitment today?
Mr. Labelle: When you say, Mr. Chair, “a lot of money,” whose money are we talking about here?
The Chair: I’m asking you. You’re the witness; give us the answer.
Mr. Labelle: Sure. There is no federal money in the Stephenville project where the German event was going on. I’ll start with that.
The Chair: So in spite of the press conference with the Prime Minister telling the world that we have a deal, are you saying not to worry about it, that there is no cash up front?
Mr. Labelle: Well, the Prime Minister signed an agreement deal with Chancellor Scholz committing to supporting the production of hydrogen and eventually the export to Germany; they want to buy our hydrogen because it is clean and it’s abundant.
The Chair: And no price has been determined?
Mr. Labelle: No price has been determined at this point, no.
The Chair: So it is not a real deal yet?
Mr. Labelle: In Newfoundland, for example, there are 10 or 11 projects in various stages of development right now. Pricing will depend on things like electrolyzers. They all need electrolyzers to convert the wind energy into green hydrogen. That price, of course, depends on the supply of and demand for that part. Some of them have been acquired, some have not. They are also working offshore. So, for example, the point of that is really to show the enormous potential of hydrogen on the East Coast, and the potential to export it to Germany.
There are a number of projects, not just one. That Stephenville project has not sought federal money at this time. Other projects have, and we hope to announce some of them in the coming months. But to answer your question, the commitment is to work with Germany on that carbon methodology to make sure that when they buy clean hydrogen, they know what they are buying.
The Chair: So at this point, there is no hard deal but we hope to get to the point where we eventually produce energy-efficient hydrogen. Let’s hope we get there.
Mr. Hoskin: It is not a specific trade deal, it is an MOU — a memorandum of understanding — to collaborate with Germany. Germany also has a similar MOU with Australia, which has opened up the German market for Australian companies to sell their hydrogen into the German market. In the absence of that MOU, it is much more difficult for Australia to sell into the German market.
If Canada didn’t enter into an MOU with Germany, it would be much more difficult for Canadian companies to sell into the German market, which is anticipated to reach multiple billions of euros by 2030. That was the essential reason to have that MOU, because it opens the door for our private sector to start to export energy products into the European market — Germany first and then into the Netherlands and then further into the European Union.
Senator Galvez: It has been mentioned several times, and in documents from the government, that the government is a catalyst agent and it just wants to put people together to do business. But because money is given to develop this technology — and I am in front of the Canada growth fund that will be released in the Fall Economic Statement, and there is money for that — it is not really catalyzing. It is choosing winners and determining losers. And so, if what I was told earlier is true — that they are full scale and they are all operational — I would like to know the levelized cost of energy analysis. Because when I see the curve of the price in freefall for solar and wind — which is approximately between $30 and $40 per kilowatt produced — I would like to know the price for the green hydrogen and for grey hydrogen.
The Chair: We are nearly out of time. Let’s try to answer the first question in less than one minute. Mr. Labelle, can you try that?
Mr. Labelle: There are a number of questions there. The first is about the Canada growth fund. I’m not clear what the question was, but on the price currently for green hydrogen and others, we can certainly get back to you with specifics. These prices change all the time, of course.
The Chair: Good idea. We would love to get that.
Senator Galvez: Thank you.
Mr. Labelle: And on the Canada growth fund, perhaps I could ask my colleague from the Department of Finance to comment on that.
The Chair: Mr. Jovanovic?
Mr. Jovanovic: Thank you. I will turn to my colleague Marie-Josée Lambert.
Marie-Josée Lambert, Acting Director General, Crown Investment and Asset Management, Department of Finance Canada: The Canada growth fund will be a new investment fund intended to catalyze private investment to help Canada scale any technologies that will decarbonize our economy and create jobs. At this point, it’s still just being set up, and we will have more information about it in Budget 2023.
[Translation]
The Chair: We are coming to the end of this first panel of witnesses.
Thank you all for joining us this morning to share your knowledge. We strongly support you in your endeavours. We wish you every success in this sector on which our future depends.
We now welcome Ms. Rachel Samson, Vice President, Research, Institute for Research on Public Policy, and as individuals, Dr. Sean McCoy, Assistant Professor, Transition Accelerator Fellow, Chemical and Petroleum Engineering, University of Calgary, and Dr. Simon Moore, Vice President, Investor Relations, Corporate Relations and Sustainability, Air Products.
Welcome to you all, and thank you for accepting our invitation. You have five minutes each to make your opening statement. We will begin with Ms. Samson, followed by Mr. McCoy, and then Mr. Moore.
Ms. Samson, you have the floor.
[English]
Rachel Samson, Vice-President, Research, Institute for Research on Public Policy: Thank you very much.
I have three main points that I would like to make, which relate to how hydrogen fits into strategic economic considerations for Canada.
The first is that Canada faces a significant economic challenge as the world transitions away from fossil fuels, and new sources of economic growth and jobs — such as hydrogen — will be critical to Canada successfully navigating that transition.
The second is that hydrogen is one of many market opportunities in the global transition, and on its own it will not be a replacement for oil and gas, but it could play an important role in diversifying Canada’s exports, improving the resilience of key sectors, and attracting new investment.
The third point is that government policy should not only consider incentives to produce hydrogen, but also incentives for the use of hydrogen and manufacturing hydrogen-related products such as fuel cells, electrolyzers, trucks and marine vessels.
In terms of Canada’s economic challenge, we know that 60% to 70% of our goods exports are vulnerable to the market changes that will happen as the world transitions. And we know that Canada’s economy is far more vulnerable to global market change than it is to domestic climate policy.
While many sectors, from auto manufacturing to steel production, will face challenges, the biggest challenge will be declining global demand for oil and gas. With countries representing over 90% of global GDP committed to reach net zero by mid century, a substantial decline in the use of fossil fuels is inevitable and may happen faster than anticipated in key export markets for Canada. Even under a scenario with current policies, U.S. oil and gas demand is projected to fall by around 30% by 2050. In a world where countries meet their net-zero pledges, U.S. oil and gas demand is projected to fall by 50% to 60% by 2050.
China, India and other emerging markets could be alternatives for Canada’s oil and liquefied natural gas, but those markets will be highly competitive and are also transitioning to renewable energy and electric vehicles.
Canada is facing structural economic change, and governments need to treat it differently than a one-time economic shock. Canada needs to adapt its economy to succeed through the global transition. A significant part of that adaptation should include developing new sources of growth, jobs and exports to replace the value of oil and gas over the coming decades.
Hydrogen, on its own, will not be a replacement for oil and gas. Canada will need to pursue multiple opportunities across a variety of sectors.
There are relatively certain opportunities for hydrogen in some applications, such as steel, fertilizers, refineries, aviation, rail and heavy-duty trucks. However, hydrogen producers face challenges in an uncertain and evolving global market.
One of the most important things governments can do is accelerate demand for hydrogen in Canada to help provide a more certain market for producers.
While Canada has opportunities to grow hydrogen demand domestically, the bigger economic prize will be in the U.S. and international markets, and that is where the competitiveness challenge arises. With the U.S. hydrogen tax credit, there is a real risk that production aimed at the U.S. market will shift south of the border. The closer the Canadian tax credit is to that of the U.S., the easier it will be for investors to consider projects in both countries equally.
However, the government should not consider their job done with a tax credit. Producers will need guaranteed buyers, ideally with long-term contracts, and they need infrastructure to transport and export hydrogen or ammonia or methanol. The Canada growth fund, Export Development Canada and the Canadian Infrastructure Bank can play a major role in filling that gap.
The hydrogen sector will also need clear standards that address concerns related to leakage, air pollution and safety. It is important to make sure we are not creating new problems as we address CO2.
The Fall Economic Statement mentioned that the government will develop additional policies to support advanced manufacturing competitiveness. Those policies should consider the potential for hydrogen-related manufacturing, such as fuel cells, electrolyzers and hydrogen-powered trucks. Ballard Power Systems, for example, is a Canadian success story for hydrogen-powered fuel cells for various applications, including marine and rail, yet many of their projects are in Europe or China and not in Canada. While much of the manufacturing focus has been on batteries and electric vehicles, there are also manufacturing opportunities in hydrogen products.
In conclusion, hydrogen is an important opportunity for Canada, and the sector needs additional policy support. However, we should not put all our eggs in one basket. With limited public resources, Canada will need to be strategic to capture the best opportunities for growth and jobs.
Thank you very much.
Sean McCoy, Assistant Professor, Transition Accelerator Fellow, University of Calgary, as an individual: Thank you, Mr. Chair, for the opportunity to speak to you and the members of the committee today. My name is Sean McCoy, and I am an assistant professor at the University of Calgary in the department of chemical and petroleum engineering and a fellow with the Transition Accelerator.
My research focuses on understanding the economic costs and environmental impacts of climate change mitigation technologies and policies. I’m joining you today from Calgary and acknowledge I’m on the traditional territories of the people of the Treaty 7 region in southern Alberta, and, of course, the City of Calgary is also home to the Métis Nation of Alberta — Region 3.
There are many competing visions, as we heard, of how we achieve net zero in Canada, some that involve more hydrogen and some that involve less hydrogen. I don’t have the answers to know which is going to happen, and I don’t think anyone does. Rather than guessing about the future, I would like to focus on what we know about the role of hydrogen today and the associated near-term actions that, if we were to take them, would support our net-zero goals.
We know today that hydrogen is itself not a significant fuel or, as it is sometimes referred, an energy vector. Nonetheless, Canada produces about 3 million tonnes of hydrogen per year, the vast majority being used in the upgrading and refining of fossil fuels or production of ammonia-based fertilizers. Around 2 million tonnes of this hydrogen is produced in Alberta. Almost all of the hydrogen we produce in Canada comes from fossil fuels, and specifically, the reforming of natural gas. We produce it from natural gas because it’s based on a well-understood process, it’s convenient to do so in the context of its current use and it is less expensive today than the alternatives. For example, the production cost of hydrogen from a natural gas merchant plant in Alberta is estimated to be around $1 per kilogram. When measured by its heat content, this is the equivalent of $7 per gigajoule approximately. If we produce hydrogen from water electrolysis today, it is about five to six times more costly.
Producing hydrogen from natural gas without carbon capture and storage, or CCS, as is typically practised today, results in substantial direct and indirect life cycle emissions. For each kilogram of hydrogen produced from natural gas in Canada, using a typical 100-year global warming potential, researchers estimate the greenhouse gas emissions would be around 10 to 12 kilograms of carbon dioxide equivalent. When over 90% of the carbon dioxide generated from the facility is captured and stored, we expect life cycle emissions to be reduced by 70% to 80%. This is a substantial reduction, but it comes at a cost. Using existing technology, we think that this would increase production costs by maybe $0.50 to $1 per kilogram.
It is really important that we add carbon capture and storage, or CCS, to existing natural gas-based hydrogen production in the near term. Doing so will build confidence that, yes, CCS does work at scale and that such hydrogen could play a role in our net-zero future. This will help us get a better handle on the availability of geologic carbon dioxide storage capacity in places like Alberta and southwestern Ontario. This knowledge will help us better understand the amount of hydrogen we could produce in time and the relative economics between fossil hydrogen and water electrolysis over time.
That said, life cycle emissions of hydrogen production depend strongly on the amount of methane that escapes into the atmosphere during the production of natural gas. The good news is that, with low leakage rates at less than 1% of delivered gas, life cycle emissions from natural gas-based hydrogen production with a high level of CCS is comparable to that of hydrogen produced by water electrolysis using solar electricity. The bad news is that methane leakage rates from natural gas infrastructure look to be higher than our official estimates.
It is important that we get a better grip today on upstream emissions from petroleum systems, what it will take to drive them down and how we create verifiable natural gas supply chains. This will allow for accurate estimates of life cycle emissions from hydrogen production and, combined with well-designed life cycle-based incentives, drive emissions reductions.
Finally, we have limited infrastructure to connect supply and demand and, outside these traditional applications, little demand for hydrogen today. To meet our climate goals in a cost-effective manner, we need to understand in which end uses hydrogen is competitive with other low-carbon energy vectors such as electricity, biofuels or direct application of CCS.
As a thought experiment, think about what you would rather use for low-emission, high-temperature heat in industry. Would we be better off using hydrogen produced from natural gas with CCS costing the equivalent of $14 per gigajoule, $3-per-gigajoule natural gas with CCS applied directly or electrification at wholesale electricity pool prices of, say, $20 per gigajoule? Answering this question requires a system perspective. Such a perspective will allow us to understand how the different fuels and energy vectors we have available to us will interact as we seek to transform the Canadian economy to meet our net-zero vision.
Thank you for your time. I look forward to answering your questions.
Simon Moore, Vice-President, Investor Relations, Corporate Relations and Sustainability, Air Products, as an individual: Hello and thank you, honourable senators, for the opportunity to appear before you and speak to your study on the very exciting future hydrogen economy in Canada.
Air Products is the largest hydrogen producer in the world today, with over 60 years of experience in hydrogen production and distribution. We are proud to have over 40 years of safe operations in Canada. In the last 15 years, we have made significant hydrogen production and distribution investments in Canada.
I’m pleased to talk about our landmark Canada Net-zero Hydrogen Energy Complex and what makes Canada an attractive hydrogen opportunity. I’ll also talk about what governments can do to encourage more investment in clean hydrogen to drive the hydrogen economy.
We at Air Products believe that hydrogen plays a critical role in helping the world move forward with the energy transition and with building a cleaner, more sustainable future. Our company is playing a major role in making that happen with an industry-leading capital commitment to first-mover hydrogen projects; a portfolio of technologies, expertise and experience in hydrogen and the expertise and capacity for the timely delivery of clean hydrogen projects to help Canada and the world achieve 2030 and net-zero 2050 targets.
Our major project strategy includes our $1.6 billion Net-zero Hydrogen Energy Complex, which is under execution right now in Edmonton, Alberta. This first-mover project enables Air Products to contribute in a direct and meaningful way to accelerate Canada’s hydrogen economy and create a cleaner energy future.
This world-scale facility is a game changer for Western Canada. Not only will we produce clean hydrogen on a net-zero basis using natural gas, we will also demonstrate hydrogen-fired power generation and produce 35 tonnes per day of liquid hydrogen that will help enable the transition of the transportation sector to a zero-emission fuel. To give a sense of scale, there will be more than enough liquid hydrogen on day one of operations to replace every municipal bus in Alberta with a clean hydrogen-powered fleet.
Using modern technology and innovative design, this showcase facility will produce the cleanest hydrogen in Canada at scale. It will also leverage Air Products’ existing Heartland Hydrogen Pipeline network, setting the stage for this region to be home to the lowest-carbon hydrogen network in the world. We definitely see the potential for additional investments in Canada to further support hydrogen’s key role in the energy transition.
Let me now talk about why Canada is an attractive market for hydrogen investment. We are very happy with our existing investments in Canada and, as I said, we are looking at additional opportunities in other parts of the country to extend those investments.
We are investing in Canada because Canada has the natural advantages to lead in the hydrogen economy of the future. First, there are available feedstocks for both so-called blue and green hydrogen, including natural gas and renewable electricity. Also, there is excellent geology in Western Canada for carbon capture and sequestration. Canada also has the human capital to complement its natural resources, including a highly educated and skilled workforce; environmental awareness and concern among Canadian citizens, which continues to drive governments’ focused responses to addressing the challenges of climate change and a stable regulatory framework.
However, we see a few key opportunities for Canada to attract even more investment in hydrogen. Everyone must recognize the important role of government in the early phases of getting a new industry off the ground. We have been pleased to find supportive federal, provincial and municipal governments. I would like to personally express my sincere appreciation to the Government of Canada and the Government of Alberta for the strong partnership, as well as to the City of Edmonton for the continued, strong support for our net-zero project.
Federal-provincial collaboration is critical. The Alberta and federal governments are both closely involved in the Air Products project. Governments need to move quickly on regulatory frameworks and project approvals. The speed of hydrogen development around the world now is breathtaking. Let’s make sure that we keep up the momentum in Canada.
In closing, the energy transition needs real projects and leading companies who have the financial, technical and operational expertise to help drive it forward. These major projects take the very best of today’s proven technology, configured to supply clean energy safely to the mobility market and the industrial processes that drive our world.
At Air Products, we have over 21,000 employees around the world, including just over 200 currently in Canada, who are motivated by our higher purpose — to collaborate and innovate solutions that benefit the environment, enhance sustainability and address the challenges facing customers, communities and the world.
Once again, thank you.
The Chair: Thank you, Mr. Moore.
Senator Seidman: Thank you to our witnesses for being with us this morning. If I might address you, Ms. Samson, you wrote an article for Policy Options earlier this year entitled “LNG boom or bust?” In that article, you note, “The same global scenarios that drive down demand for natural gas simultaneously increase demand for green hydrogen.” You also say:
The best chance of success lies in leaving investment decisions to the private sector, rather than shielding projects from risk through government subsidies.
Senator Galvez referred to this in her question to our last panel, but clearly competitiveness with the U.S. has been a huge challenge and has led the government to a tax incentive program and targeting specific projects for investment. How are we going to reconcile these challenges and move forward in some realistic way without just spending a lot of money?
Ms. Samson: Well, the design of the policy tools and their implementation will be critical. In terms of government involvement, my own view is that it makes sense for governments to be involved in projects when the technology is developing, when the market is developing and when there is significant uncertainty. In a market like liquefied natural gas that we know is going to shrink over time, it makes less sense for governments to be involved in those projects that carry a higher risk of stranded assets.
In terms of hydrogen, with a growing market, significant potential and companies that face substantial uncertainty, it does make sense for governments to play a role, but they should play the minimum role possible to have the most promising projects move forward. That would be in the sectors that I identified, such as fertilizers and steel, and really focusing on those sectors as opposed to trying to apply it more broadly. If there is a project that has a long-term contract with a guaranteed buyer, it would make sense for the government to play a role in making that project happen.
Senator Seidman: I would like to know, from our other witnesses, how you would respond, and perhaps Mr. Moore specifically, given that your company is already involved in a very major way in the hydrogen field.
Mr. Moore: Thank you very much for the question. Again, we’re incredibly excited about the hydrogen business we have today in Canada, the project we have under execution today in Canada and the potential for additional investments. As a number of people have commented on, obviously, around the world governments are seeing the critical role that hydrogen plays in the energy transition. While the specific programs and policies may be different, fundamentally, governments around the world recognize the need to help drive hydrogen in the energy transition. Obviously, we talked about the U.S. Inflation Reduction Act of 2022 and we talked about opportunities in Europe.
As a company who is considering making investments, what is most helpful for us is to have clear policy and to have certainty about the frameworks. I would encourage that the quicker decisions can be taken and policies can be finalized and put in place, I believe that is what enables a high level of investment from Air Products and others in hydrogen in the future.
Senator Sorensen: Welcome to our guests. I think this question is open to everyone. I’m going to ask a bulk question and then if we have time to hear from everyone, I will ask you to keep that in mind.
It has been stated that Canada doesn’t yet have the infrastructure to produce large quantities of clean hydrogen or export it, not only at great distances but in great quantities. I’m looking for comments and thoughts on that concern. Mr. Moore, I appreciated all your positive comments about governments working together, but to everybody the question is: Do you feel the federal government is doing enough to support Alberta — if you didn’t hear the introductions, I am an Albertan — but also to support all of Canada in advancing their hydrogen strategies?
Mr. Moore: Let me take the first part of the question because we talk a lot about hydrogen infrastructure, and I think it’s important to recognize that there are a number of ways to move hydrogen. First of all, you can move hydrogen as a gas via pipeline. If you have a hydrogen pipeline network, as we do in Alberta, you can take hydrogen directly from your facility and deliver it to your customer. We were incredibly excited two months ago to announce a long-term hydrogen agreement with Imperial Oil for their renewable diesel facility. Again, as we talk about what’s needed to stimulate investment, there is one opportunity to move the hydrogen.
If you need to distribute the hydrogen on a more local basis but more broadly than you can from a pipeline network, turning the hydrogen into a liquid is an excellent solution. We’re going to turn some of the hydrogen from this new project into liquid to support the transportation market. I believe a previous witness talked about moving hydrogen via ammonia. That is an excellent transport mechanism around the world.
My point is that there is not one single answer. You need to look at where the production is, look at where the markets are, assess the pros and cons and come up with the right solution. We have projects around the world that are going to use each of those three solutions. I guess my summary is that there is infrastructure in place, but it depends on the situation and it needs to get built out.
On the second part of the question, we’re very excited to see in the Fall Economic Statement the potential, let’s say, for an investment tax credit for clean hydrogen. We would encourage that the sooner that can be turned into final rules and regulations, the better off that will be. Thank you.
Ms. Samson: I’ll quickly note that there should be some caution around moving extensively to ammonia. There definitely needs to be some regulations around that, considering some of the air pollution impacts and the potential for greenhouse gas emissions to be released, and toxicity is a concern too. I know that’s increasingly being raised internationally.
Mr. McCoy: I would agree with Mr. Moore that there are many uses for hydrogen and ways we can move hydrogen about and what we’re actually moving. This is one of the challenges when we talk about hydrogen. If you look at International Energy Agency reports, they will refer to hydrogen and then say, by the way, that’s methanol or ammonia or whatever vehicle they’re moving the hydrogen by.
There are all these different applications and combinations. To my earlier comment, depending on what we want, the incentives might look a little bit different in each of those applications. It is very important and incumbent on the government to understand what the priority applications are. We really want to be pushing those applications and target and design those incentives appropriately.
[Translation]
Senator Miville-Dechêne: Thank you to the members of our panel. I have a question for Ms. Rachel Samson. You were very diplomatic in your presentation. I would like you to be a little more direct in your assessment of the government’s current efforts to use hydrogen. You said that we should only target a certain number of sectors where hydrogen would really work. Our tax credits are not the same as those in the United States. Could you give us a brief critical analysis of what the government is currently doing in its strategy, and what you would like to see? It would be good to do it in clear and simple terms for a non-specialist like me.
[English]
Ms. Samson: From an economic perspective in terms of capturing the opportunities in emerging global markets, it’s challenging in markets where it’s not yet clear the technological winner. So we know in passenger vehicles that it’s going to be electric vehicles, so the government can move forward and build the charging infrastructure and invest heavily in that. In other markets, it’s less clear which technology is going to win out and that makes it a little riskier for making major investments and building the infrastructure around things when you’re not sure which technology will win out in the end-use application, which is why for hydrogen I would say we should probably be starting with those applications that are most likely and most certain. That would help make those investments more likely to pay off.
Senator Miville-Dechêne: Is that what the government is doing — prioritizing those applications you’re saying are safer or not?
Ms. Samson: They could do that with some of the funds. In terms of which projects they choose to fund, I have not seen them say that they will focus on certain applications or others. When they’re evaluating the Canada growth fund, for example, if it’s evaluating a project based on the likely return, which it says in the technical backgrounder, then it would presumably be considering that application and long-term contracts with a buyer. However, a broad-based tax credit would not be considering that; it would be available to anyone coming forward with those projects.
[Translation]
Senator Galvez: I would like to continue the discussion along these lines as well. Ms. Samson, I have a general question and a more specific one.
[English]
As you know, Canada is vast, and every province has its own ways of producing energy. Everybody will have a different path, but we all want to get to the same goal, which is net zero, hopefully before 2050. We also know that we shouldn’t be putting all our eggs in the same basket.
I’ve been hearing that the hydrogen option is already in scale and it’s working, but nobody can give me a price of production of hydrogen per megawatt hour. Do you think when the government chooses to assist this technology that it competes with geothermal or even with ocean waves and tides? We have three big oceans surrounding Canada. Is biomass or the combination of these competitive enough? That is my general question first.
Ms. Samson: The short answer is we don’t know whether it’s going to be competitive. Part of the challenge now in this early stage of market development is to set the standards of what we know we don’t want in terms of greenhouse gas emissions and air pollution, et cetera. Then we let the companies compete and see which ones — what type of hydrogen, what type of project — will be the most cost competitive in that market. So rather than governments determining the most likely successful companies or the most likely successful colour of hydrogen at this point, we can just set the standards and let the companies compete to meet them.
Senator Galvez: My more specific question is concerning the emissions. So we know that hydrogen vehicles have 15% to 45% lower emissions than internal combustion engines while electrical vehicles have 60% to 70% lower life cycle emissions. Are light-duty vehicles really going to help Canada meet its fair share of global emissions reductions?
Ms. Samson: From my perspective, I don’t think that hydrogen has much of a role to play in light-duty vehicles. It would not make sense to build the electric charging infrastructure as well as the hydrogen infrastructure. That would just be too costly for any country. So we would be looking at hydrogen in other applications.
Senator Galvez: Thank you so much.
Senator Yussuff: My question is directed to Mr. Moore. Clearly, the government is going to play an important role in the policy development, but we’re not the only country, of course, trying to tackle hydrogen development and make it competitive around the world. Given where Canada is at with policy development, how do we compare to other countries around the world that are equally supporting this industry development?
Mr. Moore: That is an excellent question. Thank you very much. I would say that the easiest point of comparison is that the U.S. recently enacted IRA — Inflation Reduction Act of 2022 — rules. Therefore, we are very excited about the investment tax credit proposed in the Fall Economic Statement. One of the reasons — just to build on what the previous witness said — is that it does not appear to contemplate where the government is going to make technology choices. We think it’s a mistake for governments to choose the right technology. What it appears to do, as the U.S. IRA does, is the lower the carbon intensity, the higher the value it is, which is, at the end of the day, what we want. We want and need more energy, and we want it with a lower carbon intensity. So we are very encouraged to see a similar construct likely to happen where the lower carbon intensity has more value and then, frankly, let companies sort out the right technology to use.
It seems likely that, directionally, the investment tax credit could make it competitive relative to the U.S., but, of course, that’s not a final program at this point in time. It’s a proposal; it’s an idea. Again, I would encourage moving toward making that real and creating certainty so companies can make long-term investment decisions. That’s what I would encourage.
I suppose right now, in our view, policy in Canada is a little bit behind the U.S., but the investment tax credit would seem to create a pathway to create a level playing field.
Senator Yussuff: My second question would be to all the other witnesses as well.
Recognizing that hydrogen development also has to be linked to the jobs that might be part of this new industry, and recognizing, of course, that a carbon tax is trying to dissuade investment in carbon-intensive industries, can consumers — and also from the employment perspective — see some long-term value and benefit in terms of the cost of using hydrogen, given that government is intensifying its carbon tax on the carbon industry? Equally, what would be the employment payoff in the long term, recognizing that we are going to lose some jobs in certain sectors? Is there a good trade-off at the end of the day?
Ms. Samson: Again, we don’t know how the market will evolve, and so the job implications are uncertain. I would emphasize that one goal is meeting Canada’s net-zero target, but if we’re thinking about concern regarding fiscal capacity, economic growth and job creation, that’s really about the export markets. The policy approach might be different when you are looking at those export markets and how to be competitive and the infrastructure that’s needed for accessing those markets. That’s what’s critical in hydrogen.
The job potential really depends on how those things are built out and how competitive Canada can be internationally. Many countries have hydrogen strategies, and they are trying to get into that export market. It really is a race. So how that will evolve in Canada and how many jobs we create really depends on how we do in that race.
Mr. McCoy: I would add a thought that Canada also has a synergy. We don’t necessarily just have to export hydrogen molecules. We can export other low-carbon products as part of the broader transition of our economy to net zero. We can export low-carbon steel or cement. That’s a little harder because these things are heavy and don’t move as far, but we can export other products. The way we produce those products can benefit from having a supply of low-carbon hydrogen.
So this, again, comes to this complexity of hydrogen as being such a Swiss Army knife. It’s about where we are going to apply it. Can we apply it in a way that makes other parts of the economy grow? Maybe that replaces some job losses in other areas of the economy. There are a lot of potential synergies for the way we use hydrogen. It doesn’t just have to be about hydrogen as a fuel, like liquefied natural gas — LNG — or something else that we have exported in the past.
Mr. Moore: I will take that last comment. Again, it’s a perfect example. Imperial Oil is investing in a brand-new renewable diesel facility. You produce renewable diesel because it has a low carbon intensity. You need hydrogen as a feedstock to do that, so obviously you would value low-carbon hydrogen. Exactly to the last witness’s point, here we have an example of Air Products producing net-zero, low-carbon hydrogen from our new facility, which is going to be supplied, under a long-term agreement, to Imperial Oil’s new renewable diesel facility. This is a perfect example of low-carbon hydrogen really enabling downstream investments for additional market opportunities.
The Chair: If you will allow me, I have a couple of questions. Mr. McCoy, we talk about carbon capture and storage, or CCS, a lot. Everybody is talking about CCS. Every industry player thinks it should be used for his purposes and, therefore, to reduce the cost of his product. But how much CCS space do we have? How many years’ supply do we have of this empty space, and should we put a price on it? Should we let the market decide who should make use of that space? Can you give us some comments there?
Mr. McCoy: Yes, we have been talking about CCS a lot. I started my PhD thesis on CCS in 2003, and I’ve spent a lot of time talking about it. I am happy to see that we are making headway and taking action on CCS. I think, in particular, the question you have is about geologic storage and space and cost.
What is clear, for example, is that actions are being taken — and this tends to be at the provincial level because this is a natural resource; the space in the ground is a natural resource — you see in Alberta that there is a process under way to pick carbon storage hubs. I believe there are 23 or 24 applications for these sorts of carbon storage hubs in Alberta at the current time. There are quite a few in the Edmonton region, and perhaps Mr. Moore wants to say more about that. But these hubs will use the space to store CO2 from the specific projects to which they may be tied, but the aim is to have them being larger, open-access storage hubs over time.
How much space is there? It is certain to say that there are theoretically hundreds of gigatonnes of CO2 storage space, so there are probably many hundreds of years of storage available, theoretically. But the key thing is we can take this theoretical potential and reduce it to actual capacity. That’s where these projects come in and that’s where the steps need to be taken to try to start building them.
We will know as we start doing this and we build more projects, and we will see over time how that resource develops, just like any other natural resource. We think it is there, we start developing and we learn more about it as we go.
The real challenge in Canada is while we know we have the resource in place in the western Canadian sedimentary basins — northeastern B.C., Alberta and southwestern Saskatchewan, and Saskatchewan a little more broadly, really — we don’t know nearly as much about southwestern Ontario. We have a lot of hydrogen currently produced for refining in southwestern Ontario — for example, in Sarnia. We don’t know nearly as much about offshore on the East Coast where there could also be storage capacity.
So there has to be work done in other places in the country to better understand that potential and to see how, for example, in this context, hydrogen from fossil fuels versus electrolysis might play out.
The Chair: Some people say that the debate about CCS, for many people, is a done deal and a certainty. But many people are still debating whether we should be using this space to delay a problem or defer a problem, or maybe that’s a long-term plan, because eventually that CO2 has to be dealt with. Can you give us your comments on that debate? Is it a done deal and we shouldn’t talk about it? Is it something we need to do? Or is it simply a deferral or laziness on our part to find a more permanent solution? Could you comment on that?
Mr. McCoy: Yes. I think the challenge before us is, if we were talking about this 30 years ago and saying that we have time to hit net-zero targets, and we didn’t think we needed to worry about net zero at that time, but we had a longer runway and we could adopt different technologies over time, and there is probably a broader range of things we could be doing to replace fossil energy demand, which is at the core of why we need CCS. We have demand for fossil energy, for producing energy and using it.
And if we had the time, maybe we could look for these other pathways, or see if renewables could do it all. I think there is merit in looking at these other things. Some of them have great potential, but if we need to do this tomorrow without causing great economic dislocation across the Canadian economy, we do need to be thinking about applications of CCS across many different sectors.
The second point I would like to make is there are things where it’s very difficult to understand how we get to net zero without them. An example is cement. When we make cement, we have two different types of emissions: we burn fossil fuels, so we have emissions from that combustion, and we also have emissions from the calcination of limestone — calcium carbonate to carbon dioxide. That’s just something we absolutely need to do. We need CCS there at some level. We can do many other things, but we still need CCS if we want to hit net zero.
Ms. Samson: There is a lot of uncertainty about CCS in terms of the cost competitiveness in certain sectors. Globally, there are a number of scenarios that are produced to reach the 1.5-degree target. Some scenarios include substantial CCS deployment, others do not. Some of the scenarios include learning rates, with cost declines for renewable energy. They really do not have as much CCS use, because renewable energy wins out and electrification wins out in many applications.
In those scenarios, CCS would play a more limited and niche role around things like cement, but it would be less used to produce oil or natural gas power generation, for example, and meet global demand that way. It depends on the scenario and how things play out, and cost competitiveness will be part of that.
Mr. Moore: I think it is important to recognize that carbon capture is a proven technology. We have two hydrogen plants in the U.S. Gulf Coast where we have been capturing a million tons a year of carbon for 10 years, so it is a proven technology.
Our view is this is about an “and,” not an “or.” We can’t decide if we want blue or green hydrogen. They both play a critical role in the energy transition. We at Air Products, in addition to the Canadian project we are talking about, are doing a $4.5-billion green hydrogen project in the Middle East. We are doing a $4.5-billion blue hydrogen project in Louisiana. Again, the goal is more energy with lower carbon. Create frameworks that value the lower carbon energy and there will be different solutions in different places.
Again, for example, we just announced a half-billion-dollar, hydro-powered green hydrogen project in New York State recently. That’s because, of course, there is hydro power there and it is not an appropriate place from a natural gas carbon-capture standpoint. It is our opinion, and we are putting billions of dollars behind this belief, that it is absolutely part of the solution going forward.
The Chair: On those projects you named, what is the methane problem? Are you capturing 100% of the methane or is there a certain percentage you’re not capturing?
Mr. Moore: Of course, on the green hydrogen projects, there is no methane and no CO2, so those are 100% carbon free, including the vehicle has no CO2 emissions.
When we talk about the so-called blue projects, looking at the project itself, we are directly capturing over 95% of the CO2 emissions. In terms of the project in Canada, we will also use some of the hydrogen to make very low-carbon electricity and offset the remaining standpoint.
Now, if you look upstream outside of the plant — the production of natural gas as has been referred to before — the leakage of methane in the production of natural gas is something the industry is very focused on.
We, of course, would be buying natural gas from somebody who would be responsible for producing the natural gas, so not directly involved in it, but obviously there is a pressure on those companies to reduce their CO2-equivalent footprint in terms of reducing methane emissions.
The Chair: For the end product, what percentage of the methane is being released?
Mr. Moore: That depends on the type of project. On green hydrogen projects, there is no methane. It is zero. If we are talking about blue hydrogen projects, it literally depends on the production of natural gas and the people producing that, and that number varies in different places around the world.
The Chair: That brings to an end our panel discussion. Thank you, all three of you, for having this debate, for being available to educate us and share your knowledge. We very much appreciate it.
(The committee adjourned.)