THE STANDING SENATE COMMITTEE ON NATIONAL FINANCE
EVIDENCE
OTTAWA, Tuesday, November 29, 2022
The Standing Senate Committee on National Finance met with videoconference this day at 8:32 a.m. [ET] to study the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022.
Senator Percy Mockler (Chair) in the chair.
[Translation]
The Chair: I welcome all the senators and all the Canadians who are watching us on sencanada.ca.
[English]
My name is Percy Mockler, senator from New Brunswick and Chair of the Standing Senate Committee on National Finance. Now, I would like to do a round table and ask my colleagues to introduce themselves.
[Translation]
Senator Gignac: Senator Clément Gignac from Quebec.
Senator Moncion: Lucie Moncion from Ontario.
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Senator Omidvar: Ratna Omidvar, independent senator from Ontario.
Senator Loffreda: Tony Loffreda, Quebec.
Senator Duncan: Pat Duncan, Yukon.
Senator Marshall: Elizabeth Marshall, Newfoundland and Labrador.
Senator Smith: Larry Smith, Quebec.
[Translation]
Senator Dagenais: Jean-Guy Dagenais from Quebec.
[English]
Senator Bovey: Patricia Bovey, Manitoba.
The Chair: Thank you, honourable senators. Today we continue our study on the subject matter of Bill C-32, An Act to implement certain provisions of the fall economic statement tabled in Parliament on November 3, 2022 and certain provisions of the budget tabled in Parliament on April 7, 2022, referred to this committee by the Senate of Canada on November 17, 2022.
[Translation]
We have two witness panels today. We will first welcome, from the Canadian Chamber of Commerce, Alex Gray, Senior Director, Fiscal and Financial Services Policy.
[English]
And from the Canadian Federation of Independent Business, Mr. Dan Kelly, President and Chief Executive Officer, also by video conference.
Welcome to both of you and thank you for accepting our invitation to appear in front of the Standing Senate Committee on National Finance on Bill C-32.
[Translation]
We will now hear opening remarks, starting with Mr. Gray, to be followed by Mr. Kelly.
[English]
Then we will move on to questions from the senators.
Alex Gray, Senior Director, Fiscal and Financial Services Policy, Canadian Chamber of Commerce: Thank you for the invitation today. The Fall Economic Statement presented the government with an opportunity to lay out its vision for creating and sustaining the conditions necessary to grow our economy and raise our future generations’ standard of living. Although we welcome the government’s commitment to moving toward a balanced budget, we see the lack of a decisive strategy to generate the investment required for strong, sustainable growth as a missed opportunity at a time when the world needs Canada as much as ever.
While we hold the view that the Fall Economic Statement essentially amounts to a placeholder for Budget 2023 in this regard, the Canadian Chamber of Commerce welcomed the announcement of measures to increase the supply of skills needed in our workforce to achieve net-zero emissions, as well as the commitment to reducing regulatory obstacles to investment in major projects. We eagerly await further details on these initiatives.
In the meantime, there are still commendable measures in Bill C-32. The critical minerals exploration tax credit will help kickstart the mining projects that are essential to achieving a low-carbon future. Increasing the access to the preferential tax rate for small businesses removes an obstacle to small-business growth. Incentivizing investment in efficient air source heat pumps, which can extract heat from air as cold as –30 °C, seems like a smart Canadian solution.
Yet ultimately, these measures fall short of meeting the moment we find ourselves in today. Geopolitical conditions are stark. Countries throughout the world are experiencing inflation not seen in a generation, and the global economy will almost certainly stagnate or contract. Russia’s war against Ukraine is straining global supply chains, and the world’s breadbasket no longer has safe access to international sea lanes, causing food shortages for those even far removed from the conflict.
Canada is not immune to these challenges, but we are unique among free societies in our potential to underwrite global economic security through our natural resource inheritance — food, fuel and fertilizers the world desperately needs. Canada now has an opportunity to show the world that we can, quite literally, deliver the goods. Indeed, we must do more in this turbulent time. Deputy Prime Minister Freeland indicated as much in a recent speech in Washington, noting that Canada can reciprocate the generosity Europe showed in honouring vaccine contracts to non-EU nations by fast-tracking the energy and mining projects the world needs.
The Canadian Chamber of Commerce hopes the government will partner with business to create a clear, coherent strategy to meet this moment. However, strategy without execution is pointless, and there are many obstacles for Canadian businesses to overcome.
First, we must lower the cost of doing business in Canada by reducing the regulatory burden, avoiding new taxes and eliminating interprovincial trade barriers. In particular, we must reassess the manner in which we permit and approve major infrastructure projects. We must also reconsider regulations restricting the use of fertilizers and other crop inputs, which hold back our efforts to strengthen global food security.
Let us also recognize the important role Canadian energy plays in global markets. Our energy projects can replace those in undemocratic nations while helping replace coal used to generate electricity abroad, which benefits global security and serves as a bridge in our efforts to reach net zero.
We had hoped the Fall Economic Statement would contain several of those low- or no-cost growth measures. Canadian businesses are eager to partner with the government to create a strategy to meet this moment. Given the headwinds we face, that is clearly needed more than ever. Thank you.
Dan Kelly, President and Chief Executive Officer, Canadian Federation of Independent Business: Thank you, senators. It is great to be with you, as always.
There is still huge concern among small- and medium-sized enterprises, or SMEs, as to where things are going in Canada right now. Like the Chamber of Commerce, we view many of the measures in the Fall Economic Statement as a missed opportunity to try to address some of the significant concerns facing Canada’s small- and medium-sized business population.
We have 95,000 small- and medium-sized companies as members and we survey them regularly on their top concerns. To set the context as to the moment we’re in right now, only half of small businesses are back to normal, pre-pandemic sales levels. That is half of Canada’s business community that are still underwater and not earning the sales they typically have at this time of the year. That is particularly worrisome as we move into the holiday season.
Two thirds of Canadian small firms are still facing additional COVID debt that they didn’t have before the pandemic and which they took on in order to get through the pandemic. On average, that is now $110,000 in additional debt facing business owners. Some of that is in the form of a government-backed Canada Emergency Business Account, or CEBA, loan, and 17% of small businesses — almost one in five — are at risk of permanent closure due to the damage they have taken on over the course of the past couple of years.
So the economy has not moved on; we’re still way behind pre-pandemic levels. Then when you add to that the new pressures that businesses are facing, the debt they’ve taken on and the rising costs they are facing — we’ve talked a lot about the inflationary pressures on consumers, but we haven’t spoken much about the inflationary pressures that businesses themselves are facing on almost every line of their budget.
Part of that are some tax increases the government has decided not to veer from. This year, there will be an increase, as of January 1, in Employment Insurance, or EI, premiums — the first time in three years that this will happen — and a significant increase in Canada Pension Plan, or CPP, premiums. Those are two payroll tax hikes, followed by another carbon tax increase in the spring and a liquor excise tax increase in the spring as well.
There were some measures that we liked in the Fall Economic Statement. One, of course, as was just cited by the Chamber of Commerce, is allowing more small businesses to access the lower small business corporate tax rate with taxable capital up to $50 million on a phased basis. That’s a very good measure, which was announced in the budget and repeated again.
Second, there was discussion in the Fall Economic Statement of finally moving forward with a reduction in credit card processing fees. Those fees, often 1.5% to 2.5% of the sale, do bite pretty hard. Many small businesses tell us they spend more on credit card processing fees than they are able to take out of the business as the family that owns it. We need some help on that front, and Ottawa has suggested in the Fall Economic Statement that there will be help coming. We need that help now and we believe these measures are not going to be put in place really quickly.
We view this as a missed opportunity. Another thing we wished were in the Fall Economic Statement was some further relief on the CEBA loans we just discussed. Government has announced that up to $10,000 of a $40,000 loan will be forgiven, and $20,000 of a $60,000 loan will be forgiven. We suggested that that be raised to 50% of the CEBA loan.
There are also about 50,000 small firms that are having their CEBA loans recalled. Two years later, businesses are finding out they were never eligible for the loan in the first place and are being asked to repay the entire amount, without the forgivable portion. We believe that policy needs to be revisited such that there was no change there.
Further, we have asked for freezes on some of the key rates of payroll-based tax, such as EI and CPP. If government wants to go ahead with the plans — we understand that many of those things are election commitments — it does seem odd in this time of inflationary pressures that we are to go ahead with tax hikes at a time when businesses can ill afford it.
I have many other things to comment on, but perhaps those will come up in the questions. Thanks very much, senators, for your time.
The Chair: Thank you, Mr. Gray and Mr. Kelly.
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We will now proceed to questions.
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Senators will have five minutes each for only one round of questions. We do have another panel appearing at 9:45 a.m. Therefore, please ask your questions directly. To the witnesses, please respond concisely. The clerk will inform me when the time is over.
Senator Marshall: Thank you, Mr. Gray and Mr. Kelly, for being here today.
I’m going to start with Mr. Gray. You said something in your remarks — and I can’t remember your exact wording, so I hope I’m not misrepresenting what you’ve said — but you said you didn’t see the budget as encouraging investment. The government is actually going to implement a stock buyback program, and the objective is to encourage investment in Canada. Could you comment on that, please?
Mr. Gray: Thank you, senator. There was no misrepresentation of my words there whatsoever.
Indeed, the government’s stated intent of the stock buyback tax is, in its own view, to encourage investment. I don’t see quite how that would necessarily deter a company from deterring investment. It’s a rather low tax. Frankly, if a company were going to buy back stocks, that’s not really going to deter anything. The main reason companies buy back stock in Canada is because they don’t see a more efficient way to deploy their capital. It is because there is regulatory uncertainty, and they don’t see any other avenues for higher yield.
I would imagine that most Canadian companies that do buy back stock would, in fact, have other plans for it if there were higher-yielding alternatives. Given the regulatory environment we live in, with high interprovincial trade barriers and all that, there are relatively few other options for deploying capital.
Senator Marshall: When I heard the announcement, I thought it was rather ironic. Basically, the government is saying, “We want you to invest more, so we’re going to tax you more.”
The government is anticipating raising $2 billion as a result of this tax. Do you think that’s going to be the extent of the revenues? They’re counting on those revenues to help balance the budget a few years down the road. Do you have any comments on that?
Mr. Gray: The analysis that we’ve undertaken at the chamber on revenue from stock buyback taxes is quite inconclusive. I would like to see some facts and figures behind that number, but I was not able to replicate the finding.
Senator Marshall: Thank you very much.
To you, Mr. Kelly, thank you very much for being here. Are you able to tell us how many small- and medium-sized businesses have closed?
I have several questions here for you, and that would be my first.
Mr. Kelly: Sure. Yes, StatCan does record data on business closures. In 2020, there were 60,000 businesses that shut their doors altogether.
During the pandemic itself, interestingly, bankruptcies, one measure of business failure, were actually lighter than is normal. That was, in part, because the process to make that happen was closed; many of the offices you would need to visit to declare bankruptcy were closed.
What’s happened since, though, is we’ve seen an uptick in business bankruptcies above normal levels. I don’t have the numbers, unfortunately, senator, in front of me, but bankruptcies post-pandemic, certainly in 2022, have been higher than is normal. What I worry about, though, is our finding that 17% of businesses are thinking that they might close their doors forever. Those are not all bankruptcies. Many businesses, as you know, close from an orderly wind-down of the business because they don’t see an economic future any longer. That would be a significant uptick from what is normal.
We believe that a lot of the failures will be back-end loaded post-pandemic as businesses realize they don’t have a path back to profitability. I think those days are starting now.
Senator Marshall: A number of businesses where I have shopped are closed. The storefront is closed, but you can still do online shopping. Do you think that compensates for some of the numbers you’re seeing?
Mr. Kelly: It does to a degree. Businesses made major pivots; about 150,000 businesses that were not online pre-pandemic set up e-commerce sites over the last couple of years. Small firms were caught short. The government has put in place some programs to help small businesses with their digital transition. We’re not finding those programs super helpful just yet. There was $4 billion set aside for a digital transformation program.
But I will say that online sales have not, unfortunately, replaced the in-person sales. For small firms, that’s even more challenging. As you know, the reason people go to small firms is often for a higher level of service than they’re able to get at a larger firm. That has also prompted a trend where consumers will go to a small business, try on the shoes, test out a new product and then go online and buy it from Amazon or the big guy to get a lower price.
Senator Marshall: Thank you, sir.
Senator Moncion: My first question is for Mr. Gray. Could you speak of the regulatory burden? You spoke of the regulatory burden in your statement. How does this bill impact regulatory burdens for your group?
Mr. Gray: The Fall Economic Statement mentioned eventually making some progress toward reducing the regulatory burden.
The bill, as we see it within what’s laid out in Bill C-32 does not quite go as far as we had hoped. Within the text, I don’t see much, frankly, that will reduce the regulatory burden within the subject matter of the bill.
I’m happy to speak to some of the regulatory burdens we would like to see addressed, however.
Senator Moncion: Please do.
Mr. Gray: Interprovincial trade barriers — the fact that we have one prosperous country and still have hundreds of different interprovincial trade barriers that continue to hinder our economic development is frustrating.
I would point to the transportation sector, where certain truck configurations must be driven by night in one province and by day in another, thereby limiting the time that one can cross from British Columbia into Alberta.
I would also point to labour mobility. There are high administrative burdens in some provinces, for example, obtaining insurance required to enter a certain profession, or different educational criteria for nurses and social workers.
An example I would point to that is quite effective is the Red Seal Program, which is more or less a national standard, a national accreditation.
There really shouldn’t be as many burdens as there are.
Senator Moncion: Thank you. You spoke of some of these barriers because of provincial barriers. Am I correct?
Mr. Gray: Right.
Senator Moncion: What would be the government’s implication in this to correct some of these barriers? I will add that it is interesting for us to learn about these barriers and maybe, at some point, work with you on some of these items.
Mr. Gray: I think the federal government’s main role in this obviously is to collaborate with the provinces and to be able to establish a registry of these interprovincial trade barriers. Essentially, what we’re looking for from the government is leadership to reduce the over 100 barriers and exemptions that were made in the Canadian Free Trade Agreement.
We would hope that a public registry of regulatory exemptions highlighting existing barriers would educate Canadians on said barriers and compel governments to defend why they exist within our national economy.
Senator Moncion: My next question is for Mr. Kelly. You talked about the excise taxes. How do the excise taxes impact your SMEs?
Mr. Kelly: Well, the excise tax that I was speaking of more than others was on liquor. Of course, there are small businesses that are producers of beer and wine that are facing these high rates of taxation. The restaurant sector is made up of many or most independent businesses, and they too then have to pass that on to their consumers. Increasing the costs that they have to pay — the increases they have to pass on to consumers — obviously doesn’t help a small firm in making a profit themselves.
Senator Moncion: All right. The other question is about cannabis. What I have seen in the past few months is a proliferation; there are so many of these stores opening everywhere. How is that helping your producers or the businesses that are already out there, or is it?
Mr. Kelly: Any new sector of the economy, any time there’s a rush to get into a line of business, often there is an abundance of entrepreneurs who wish to jump into that sector with a view that they are going to have a pathway to earn an income.
Often, when that happens, there are too many that go into a sector, which then starts to flatline, and businesses realize that’s not going to happen. Some consolidation happens. These are typical things that happen from a franchise perspective and really in any part of the economy, particularly newer developments. That’s not entirely surprising. I don’t know that the government has a role in that. That is the private sector sorting itself out.
Where governments, of course, do have a role to play is ensuring that the regulatory burdens to get into a particular sector are not too high, that the tax rates that entrepreneurs are faced with are not overly significant and keeping a level playing field for all producers.
The cannabis industry does have some challenges in that respect in that there is a combination of large, very large and some smaller players. On the retail side, candidly, as an observer, I do think there is likely to be a shakeout where many of these small retail locations end up not finding a pathway to profitability and close their doors.
[Translation]
Senator Gignac: My question is for both witnesses. I thank them for being here today.
In the 2022 Fall Economic Statement, the government announced $81 billion in spending for new measures, including $50 billion for new programs. The government claims this is to stimulate growth and accelerate the energy transition.
I’d like to hear your comments on whether this is the right direction or whether the government should have reduced its deficit much faster to achieve a balanced budget.
Perhaps Mr. Gray could start answering my question.
[English]
Mr. Kelly: I can jump in. We are worried about the aggregate level of government spending. We certainly understood that governments during the pandemic needed to spend significantly more. My organization called for support programs for small- and medium-sized firms, like wage and rent subsidies, et cetera. We are not critical of government for moving and providing such relief measures for consumers and businesses. Deficits, we understood, were a necessary part of the response to COVID.
But there was a lot of spending that was ramping up fast prior to the pandemic, and it certainly has continued post-pandemic in almost every line of the government’s budget, nothing to do with pandemic-related concerns.
Ottawa has been slow to bring back civil servants to offices and, as a result, productivity challenges are quite significant, particularly for newer staff.
We’ve seen struggles for government to deliver on some of the core government services. In part, I think that’s because the money has not been shifted from department to department properly and government, I believe, has been slow to bring back civil servants to make them most productive in office locations, especially in key departments such as passports.
I was pleased, though, to see the government finally put a pathway back to a balanced budget. It is many years from now, but it is the first time that we’ve seen from this government at least an acknowledgement that a balanced budget might be an important thing. That was positive news. Is the speed by which the government is looking to get there quick enough? No.
We certainly would advise government to look for greater efficiency in the public service. If we think that tax hikes are bad right now, some of the payroll tax hikes, just wait until we see some of the public sector union agreements.
We know that there are huge pressures, and we’re advising the government right now to stay firm on public sector agreements because many of the unions are going to be pushing for much larger increases, and that’s a big worry for us right now.
Senator Gignac: I will have another question. I don’t know if Mr. Gray wants to add anything.
Mr. Gray: I would just add that we saw in yesterday’s House of Commons Standing Committee on Finance that the Parliamentary Budget Officer indicated it was not quite a fiscally prudent budget, even though, as we noted — as both Mr. Kelly and I have noted — we are happy to see a return to budget balance, albeit many years in the future. Many things can happen in that time. I am sure that five years ago the budget projections for 2022 looked very different than they look today.
One concern I would raise within this, as mentioned in the Parliamentary Budget Officer’s report, is that about $14 billion in spending was not really expanded upon; that causes concerns as to the quality, nature, scale and scope of the investments.
[Translation]
Senator Gignac: My second question is for Mr. Kelly.
You rightly mentioned that businesses are facing an increased tax burden, owing to increased Employment Insurance and Canada Pension Plan premiums. You also mentioned the carbon tax.
What is your organization’s position on this? Are you for or against the carbon tax?
[English]
Mr. Kelly: Yes. We have surveyed our members several times on carbon taxes and other environmental measures. Like Canadians, small firms are quite split on that issue.
There is one thing that unifies small businesses, and that is a dislike for the way that the federal government has administered Canada’s carbon tax.
The way the carbon backstop works will now be expanded. It will not be just Alberta, Saskatchewan, Manitoba and Ontario, but three of the four Atlantic provinces will now be included under the carbon backstop. This tax provides rebates to consumers of the taxes they pay.
Little known from that, if we believe that is actually happening, the reason it is allowed to happen is because other taxpayers are paying far more than they are able to get back. If you can believe it, when the government first announced its carbon backstop, almost half of the carbon tax revenue comes from small- and medium-sized businesses, together with municipalities, hospitals and schools, et cetera. They pay almost half of the carbon tax, yet only 7% of the rebate scheme was targeted back at them.
Making it worse, of that 7% of the rebates that were supposed to come back to small- and medium-sized firms, almost none of it actually came back to small- and medium-sized firms because the government dithered and didn’t put in place any workable program to rebate the dollars back to the small businesses that were paying them.
So while there are mixed views on whether a carbon tax is a good idea among members of the Canadian Federation of Independent Businesses and small-business owners across Canada, the way in which the federal government is administering it is deeply unfair and should be reconsidered at a minimum, we believe.
Even for those who are fervent believers in the carbon tax, pressing pause for one year while businesses are facing massive increases in their costs seems like a good idea, at least until inflation is under control.
Senator Gignac: Thank you.
Senator Duncan: Thank you, again, to our witnesses today. My question is for both Mr. Gray and Mr. Kelly. Welcome back, Mr. Kelly.
In the Fall Economic Statement, there were also several statements regarding improving service delivery as well as the immigration system. There was an immigration levels plan, and there is money set aside for taking action to reduce wait times in the immigration system.
Many small businesses I encounter are facing a labour shortage and are looking to immigration. My question is this: Do you have any direct input to the government on where we might be encouraging this immigration to take place? For example, when my parents immigrated to this country, the immigration officer suggested that they go to Edmonton, go to Alberta. Is there any input by your organizations in terms of immigration to Canada?
Mr. Kelly: Senator, thank you for the question. We certainly agree that immigration is one — not the only but one — of the key solutions to addressing Canada’s skills and labour shortage. As you well know, we are not just facing a skills shortage any longer; it is not just that we are running out of doctors, welders or a particular profession. We are moving into an environment where there is a general labour shortage, and that is particularly punishing on small- and medium-sized firms in the retail and hospitality sectors.
One of the challenges of Canada’s immigration system is that it is heavily tiered toward the highest skills in Canada. And while we do need a lot of people with higher-level skills, such as PhDs, doctors and others with significant training, we also need to ensure Canada’s labour pool is filled with people who want to come to Canada for work in some of the more junior occupational categories, where wage levels are not quite so high.
We do have input into government policies. I will commend the government for increasing overall immigration levels. That’s part of the solution.
They are moving toward having provinces play a greater role, and I think that addresses the centre of what you are talking about. It would be difficult for the federal government to identify the full basket of skills that are necessary and target them to the various regions across Canada where immigration is needed. But Provincial Nominee Programs have been quite good at doing that, so it is important to grow those programs and perhaps reconsider the points system to make sure we welcome immigrants, temporary and permanent immigrants, into all skill categories.
Those are some of the suggestions we have made to the government. I would say they are listening to pieces of that, and there has been progress, but much more is needed.
Senator Duncan: Thank you.
You addressed that there was some input to government. What is your position on improving the service standards? There are also comments in the Fall Economic Statement on initiatives by government to improve service standards. What has been your organization’s specific position on that?
Mr. Kelly: This is needed in a whole bunch of areas of government — greater service standards focused on the consumer, on the customer and, in the case of immigration, on the prospective immigrant or the business that is trying to bring them into Canada and sponsor them in some way. We are finding that is lacking all over the place. I believe that working from home has made that worse. I think getting civil servants back into office locations, working with their colleagues and with all the security measures in place is absolutely necessary right now and contributes to some of the challenges that are being faced.
We need to ensure an immigration function, that businesses can get answers quickly — that doesn’t happen — that immigrants can expect a response in a certain amount of time — that doesn’t happen either. There is a huge backlog we need to chew through. We certainly welcome government’s further investments into building the staff and the competencies to get decisions out more quickly, but there is a lot of heavy lifting to make that happen.
Senator Duncan: Thank you.
Senator Smith: I have a question for Mr. Gray.
In your opening remarks, you noted the massive opportunity for Canadian energy in the current geopolitical climate. However, federal government policies over the last several years seem to have shifted away from the energy sector. We can see Bill C-48 and Bill C-69 as examples.
Are you confident that the federal government will enable growth in our energy sectors to meet the extraordinary demand from Europe and elsewhere?
Mr. Gray: I hope that Deputy Prime Minister Freeland’s recent speech in Washington is indicative of a new approach to government in that we must and should reciprocate European generosity with the gas they need to heat their homes and with the critical minerals they need for electric vehicle batteries to build a low-carbon future.
We await further progress on that file is the bottom line, but we hope it does mark a tone shift.
Senator Smith: If you were in a position of leadership, what would you do? What would be your top two priorities?
Mr. Gray: I would enable the sort of infrastructure that allows Canadian energy to get to market and to ports to be ready for export by reducing the regulatory burden to, say, — railways or the building of export facilities, building industrial lands around airports. There are a lot of measures that get into the nitty-gritty that have the ability to tremendously improve the robust capacity of the energy sector from a logistical sense.
Senator Smith: Thank you. I have a quick question for Mr. Kelly.
Mr. Kelly, what are your two of three top priorities? What is the most pressing thing you want to see improved upon or at least taken a stance on by the current government?
Mr. Kelly: There are many, but to narrow it down to two, the first is that we need to have fresh eyes applied to the skills and labour shortage issue more broadly. We spoke a moment ago about the immigration streams, but we are facing a giant demographic challenge and we need to be able to respond to that properly. We might get a break from the shortage of labour in the weeks ahead if Canada slides into recession, and unemployment rates tick up, but even if we do, I’m really worried about who is going to be able to provide services, both government and private-sector services, in the many years ahead, given our aging population.
We need to make sure that all government policies are revisited to see what can be done to try to encourage more people to participate in the working economy. I think seniors can play a big role in that. I would suggest we look at some of the measures that we could put in place to encourage longer participation and longer working lives as opposed to shorter ones, and so reversing some of the policies that were taken at the very start of this government’s mandate. But what measures could be taken? For example, eliminating some of the payroll taxes that seniors or their employers pay to try to encourage them to stay in the workforce. Facing demographic challenges would be one of them. The other would be to try to address the shortage of labour.
Second, I would say we need a comprehensive review of our tax system to ensure it is working for all Canadians and Canadian businesses. We need to make sure that some of the pressures that businesses are facing are relieved. Right now, one of the things I worry most about are the dramatic increases that businesses are facing in costs, and there is a tax component to that. At least pressing pause until we can do a comprehensive review would be welcome.
Senator Loffreda: Thank you, Mr. Kelly and Mr. Gray for being with us this morning. My first question is for Mr. Gray of the Canadian Chamber of Commerce. You mentioned that in Bill C-32 you had hoped to see more regulatory burdens addressed, and interprovincial trade barriers were a major obstacle in growing our economy.
What should the role of the government be in helping to remove trade barriers among provinces? Some have suggested that the federal government should provide substantial financial inducements for provinces to eliminate these trade barriers. Do you agree that should be the case? Do you see this as a possibility? How optimistic are you that premiers will work together to reduce trade barriers? Do they all feel that this is a major issue?
Mr. Gray: Speaking to the last part of your question on whether it is a major issue, I think the figures on the extent to which interprovincial trade barriers hamper provincial economies should flag this as a major concern for premiers, and I’m sure they’re well aware of it.
To answer your question about financial inducements, I’m not sure that’s necessary, frankly. As I have said, we proposed creating a public registry of these interprovincial trade barriers that still exist for two reasons. One, to make it clear to Canadians what is hindering interprovincial trade, and two, to hopefully encourage provincial governments to defend why they exist. As I mentioned before with a prior example, that neighbouring provinces can have wildly different educational standards for socially critical professions such as nursing and social workers is a continuing drag on the economy and on Canadians’ mobility, which further hinders our GDP.
Senator Loffreda: Thank you for that. Beside what you have mentioned, what would be the most difficult sticking points, and who would object most strenuously to eliminating these interprovincial barriers, which, we often hear, are a large hindrance to our economic prosperity?
Mr. Gray: I’m not sure who would object most loudly. That is an open question depending on the government of the day in each province. In industries that are particularly sensitive to certain provinces, opening interprovincial trade barriers would cause some significant problems. There is, frankly, a lot of work to be done. This is an old saw in Canadian politics. You can go back to Senate reports from the 2010s or from the 2000s. I think what the federal government’s role could be is to provide that leadership. It doesn’t necessarily have to be backed with financial inducements. I believe it can be done at low or no cost. What is most important is that it is raised as a prominent issue in the Canadian political discourse that needed to be addressed yesterday.
Senator Loffreda: Thank you.
Mr. Kelly, you mentioned 60,000 businesses have closed since the pandemic, and 17% risk permanent closure because of the increased risks. Many see no pathway back to profitability. You mentioned high debt and rising costs. Are there other reasons? How can they be helped?
You also mentioned that you are worried about aggregate levels of government spending. We have free markets. You have 95,000 members. Some 8,000 Canadian-controlled private corporations will be affected by the preferential tax rate modifications in Bill C-32. What else would you add?
I know, based on your comments, that you were consulted, and many of your members, as you mentioned, are surveyed on a regular basis and have been consulted through you. What would you add or do? How can we save those businesses?
Mr. Kelly: One of the most immediate things the government could do to try to lessen the number of businesses that fail and increase the number that survive the damage they have taken on is looking to the Canada Emergency Business Account loans. The program was very successful. I have to admit when the government first announced it, we had some concerns, but they did listen and make reforms to the program as the pandemic went on. It turned out to be one of the biggest saving graces to many businesses. They borrowed $40,000 or $60,000 from their bank, delivered quickly.
Many businesses didn’t qualify, but almost one million did get these CEBA loans. Almost every business with paid staff in Canada has a CEBA loan of either $40,000 or $60,000. It doesn’t seem like a giant amount of money. Obviously, in aggregate, it was an expensive one. But this is a loan. Most of the money needs to be repaid. The government set up a percentage, either 25% or one third that is forgivable. My view is that if the government increased the forgivable amount to 50% of the loan, we would have a greater number of businesses make it across the finish line. That would be step one. I’m happy to continue if we have more time. I have a few other thoughts, senator.
Senator Loffreda: And I have a few more questions, so we should continue this in the second round.
Senator Boehm: My first question is for Mr. Gray of the Canadian Chamber of Commerce. In a November 3 news release on the Fall Economic Statement, your organization stated that the government needs to produce an integrated plan to get desperately needed food, fuel and fertilizer to global markets. You have touched on the fuel element, and obviously, this is more of a long-term issue. On food and fertilizer, I would be interested to know how you see the government doing this, recognizing that this is all about global supply chains, the blockages and that small matter of the war in Ukraine that presents a problem in terms of getting Canadian products out to customers around the world.
Mr. Gray: You are absolutely correct, senator. I believe that natural gas accounts for something like 80% of the price input in fertilizers and other crop inputs. It is completely problematic and not entirely within the remit of every government. What we have seen are restrictions regulating the use of fertilizers and other crop inputs in place in Canada. While we do understand that there is a laudable climate change goal there, at this time of comparative economic and geopolitical precarity, we would hope that the government would reconsider these restrictions in order to strengthen global food security.
Senator Boehm: Thank you for that. I wanted to drill down a littler further into what my colleagues Senator Moncion and Senator Loffreda have asked about, interprovincial trade barriers, and particularly whether you think this logjam could be broken by some sort of catalytic event. Back during the Harper government, I was involved a little bit in the negotiations on the Canada-Europe free trade agreement. The provinces were around the table. Ditto on NAFTA 2.0. It was thought that these big trade agreements would provide a sort of catalytic pressure that would bring down interprovincial trade barriers. It hasn’t happened. You referred to previous Senate reports, and there are reports from the late 19th century about interprovincial issues. Do you think there is something out there that could really bring people to the table, federally and provincially, to hammer out some solutions to this?
Mr. Gray: What we would hope for is a full review of the Canadian Free Trade Agreement with a view toward further eliminating barriers to trade, investment and labour mobility, in order to ensure the agreement covers all sectors of the economy and all government entities, including ministries, Crown corporations, you name it. Instituting a dispute resolution mechanism, which is sorely lacking in the Canada free trade agreement, has the capacity to get provinces together and better understand why different barriers exist.
Equally, we would advocate to ensure the government includes the elimination of all non-tariff trade barriers to encourage competition and a level playing field for all signatories.
That’s more or less the outline of what we would hope: that a general review would serve as the catalyst to raise the stakes and underscore the perils of barriers to interprovincial trade.
Senator Boehm: Mr. Kelly, I wanted to ask you about the staffing of small businesses. Colleagues have asked about the labour shortages. We know about high taxes for small businesses and the difficulty in hiring people, but I think we could argue that some of these factors are societal as well as economic. We are talking about immigrants coming in.
Is there a way to convince people that they would want to be hired in the first place? How would you address the root causes of that particular element of the labour shortage?
Mr. Kelly: Are you speaking of within the immigrant population specifically, or more broadly?
Senator Boehm: I mean generally, yes.
Mr. Kelly: We do worry that we continue to upskill the Canadian economy for all sorts of good and appropriate reasons, but what we are lacking is, of course, the new entrants into the labour force who typically took jobs in the more junior occupational categories — in retail, hospitality and the service sector — where some of the general labour shortages are most acute right now. That was often viewed as the first foot in the door of the labour force, and then you moved on. I myself started washing dishes in a pizza restaurant in Winnipeg.
But it seems, first, there are fewer of those new entrants into the economy, fewer teenagers who are taking some of those jobs to fill those roles. Second, as we push more and more people to the university stream, there are fewer who are looking toward some of the more junior occupational categories where university education may not be required immediately to take those jobs.
We need to ensure that we are employing fully every available resource in Canada. We in the business community have some work to do to try to improve that, but we also want to make sure our education system is not discouraging people from participating in that part of the labour force and then pushing everyone, whether they’re well equipped or not, into a university education.
Some of the provinces are focused on trade education right now, and that’s an awesome thing. There is quite a bit of work happening in Ontario on that front, and we are encouraged by that. A lot more needed to be done.
Senator Boehm: Thank you. Apprenticeship programs, I think, are of interest as well.
Senator Omidvar: Thank you to our witnesses. I’m going to stay with the question of low-skilled workers. At another committee in the Senate, we are studying the interplay between temporary foreign workers in the lower-skill category and the demands of the labour market. We have heard from employers and industry — as we are hearing from you — how essential it is to keep that pipeline of talent growing because of the unmet needs of the labour market.
However, economists have a different point of view. They believe that the flow of temporary workers — mostly farmers and cooks; those are the highest categories — represents a de facto wage subsidy for employers because it gives them an easy out as opposed to meeting the natural response to supply and demand, which in this case would be to simply raise the wages in those particular jobs so that unemployed Canadians would apply. What is your response to what they are saying?
Mr. Kelly: Often, there is a view that some of the academics need to go and visit the pizza place in Olds, Alberta, that is rapidly increasing their wages and yet has zero applicants from the domestic population. They are advertising across the country, doing everything they can to try to welcome a new worker, a new Canadian worker, somebody who is already here, to relocate and move to rural, remote locations where many of the job shortages are particularly acute, especially in the resort settings.
Wages absolutely play a role in this, and employers are doing what they can — under incredibly different circumstances, given the two years they have just been through — to try to ramp up wages and benefits in order to attract workers. Small firms have some work to do in some locations.
I can tell you, though, that there are millions of people around the world who would love to come to Canada for some of the jobs that Canadians seem to be taking a pass on altogether and work in some parts of Canada where Canadians are not lining up to move themselves. Some of the programs, particularly Provincial Nominee Programs, that have been used to try to fill some of these gaps have been incredibly successful.
It is a wonderful thing in Canada that the benefits of immigration are no longer just being seen by people in Toronto, Vancouver and Montreal; that we are seeing smaller cities, and now smaller rural and remote locations, increase their immigrant populations. Many times, yes, the immigrant may leave to go to one of the larger centres, but that’s happening less often as well. We are seeing more signs that people are throwing down roots, and the Temporary Foreign Worker Program can be used effectively.
Our biggest recommendation on that front — and the government has moved on this to a degree — is that we used to have a Temporary Foreign Worker Program that was entirely temporary. At the end of your term, you would be sent home whether you wished to or whether the employer wanted to hang on to you. I believe that the Temporary Foreign Worker Program as a step toward permanent immigration is the solution for the long term. We have moved a bit in that direction, but we need to do more. That will allow the temporary foreign worker to throw down some roots in that local community and then have full labour market mobility, perhaps after one or two years, and at the same time perhaps then have a greater likelihood of staying where they are.
Senator Omidvar: Thank you very much.
[Translation]
Senator Dagenais: My first question is for Mr. Gray. Two weeks ago, some observers were predicting a warming of relations between the United States and China. Of course, given Prime Minister Trudeau’s recent statements, we all understand that this is far from being the case for Canada. How do you think Canada’s new policy of promoting trade with Indo-Pacific countries — obviously without including China — will impact Canadian companies?
[English]
Mr. Gray: I think the best way to strengthen ties with our international allies and those whose views we agree with — not just economically but politically — is through free trade. So any strategy, commitment or trade deal that reinforces our commitment to “friend-shoring,” to working with the international allies who share our values — and share our market values, perhaps just as importantly — is a positive step in the eyes of Canadian business.
[Translation]
Senator Dagenais: Mr. Kelly, as you know, cash is being used less and less in favour of credit cards, especially, as has been mentioned, when it comes to e-commerce. You also talked about the fees that businesses are paying for credit card payments. Is this unique to Canada? What could the government do to reduce this burden? It is a burden, after all. If the government was to reduce that burden, could consumers benefit from it, as well?
[English]
Mr. Kelly: Thank you, senator. It’s a really important question and something we’ve spent a lot of time working on. It is encouraging that the government has talked about a further reduction in credit card processing fees in this Fall Economic Statement.
To set a bit of context based on your question, Canadians pay somewhere between $5 billion and $10 billion in credit card merchant fees they are unaware of. These are costs that are embedded in the prices of everything we buy but cover the merchant fees, 1.5% to 2.5% of the sale. But the merchant is required to pay for accepting that card.
You are quite right that during the pandemic the volume of credit card transactions went sky-high. At the beginning, consumers avoided cash because we thought we could catch COVID by touching physical bills. We started moving to credit cards because of online purchasing and fears of transmitting the disease. That has meant that even more of a business’s sales are exposed to credit card merchant fees.
Canadians pay what is generally regarded to be about the second-highest rate in the world. Many interchange rates in other industrialized countries are a third or perhaps a quarter of the rate that is charged in Canada, if you can believe it. I think we’re second only to the United States.
To be fair, the Conservative government and the current Liberal government did move to negotiate a reduction in those fees for small businesses — a very small one — over the course of the last decade. A third reduction is being promised right now. That needs to happen fast. As I said, the amount of money being spent by businesses is rising simply because the rates for e-commerce are even higher than the rates for in-store commerce, and for in-store commerce, more and more of those sales are going through the credit card route than debit or cash.
[Translation]
Senator Dagenais: Mr. Kelly, I want to come back to the labour shortage issue.
To what extent can we attribute small business closures or bankruptcies to the labour shortage, since the pandemic?
[English]
Mr. Kelly: There are businesses that are telling us that when they look at the full gamut of what’s happening — the fact that their sales are below COVID numbers, they’re facing COVID and the debt they took on during the pandemic that they’re unable to repay — their costs are going through the roof. They’re also not able to find the people they need. Those are some of the root causes that are prompting business owners to hang up their keys.
It is difficult to disaggregate that and say which straw is breaking the camel’s back. However, the shortage of labour is a significant element of that from two perspectives. First, if you don’t have anybody to serve your client, regardless of whether the business is there or not, you’re not going to be able to capitalize on it; and second, to the extent you are increasing wages, that leads to further inflationary pressures that the business is taking on, making their pathway to profitability further out.
Right now, many business owners are faced with the fact they haven’t earned a profit since the pandemic began, and they see that they are many months away from making their business profitable once again. With the risk of a recession coming up, they wonder if they are foolish to borrow more to keep the business afloat or should they wrap it up now. Those are very live discussions happening in the small- and medium-sized business population today.
[Translation]
Senator Dagenais: Thank you.
[English]
Senator Bovey: Thank you to our witnesses. I’m interested in a couple of clarifications. I’m a little bit confused, if you can forgive me for that.
Mr. Kelly, you mentioned the importance of university education and how we needed more PhDs, doctors and so on. On the other hand, you said that perhaps education was a problem in that too many people are going on to university and are therefore not taking the lower-paying jobs.
Where is your balance in those two statements? I see them as a dichotomy.
Mr. Kelly: Forgive me. That might have been poor communication on my part, senator.
I was trying to say that, yes, the Canadian economy needs more workers at all skill levels, but the current immigration program is pretty good at focusing on the highest echelons of the labour force. The points requirements for people with high levels of education are already there. We need to improve the process to make sure we can get those folks in faster. We need some of those folks in Canada too.
But the real gap is at the junior levels of the labour force, where the immigration system is not performing well, other than through the Provincial Nominee Program.
I was acknowledging that, yes, we need people in the higher-skilled categories, but for my members in particular, the gaps are in the junior occupational categories, including trades, agricultural operations and low-skilled and semi-skilled occupational categories. Those are the ones the current immigration system doesn’t serve particularly well.
Senator Bovey: The other clarification I would like to get is that as we peel back the layers of this onion, I’m going to go back to provincial regulations. My question is really for Mr. Gray, but I would be interested in both of your perspectives on it.
Mr. Gray, you mentioned that one of the problems was that some training programs and education programs like nursing have different standards and criteria in different parts of the country. As someone who comes out of the education system, I’m well aware of how provinces guard their responsibilities and leadership in education.
Can you tell me how you think the federal government can resolve those differences to affect employment across the country?
Mr. Gray: As I mentioned before, the federal government’s main role in this is convening a review of the Canada free trade agreement with a specific focus, possibly, on labour mobility issues in order to have provinces justify why there are such wide discrepancies.
Senator Bovey: Will the provinces let that happen?
Mr. Gray: I don’t know. I sure hope so.
Senator Bovey: Where I come from, there is absolutely no appetite in opening a door for the federal government to tell them how to do what they’re doing.
Mr. Gray: That very well could be.
Senator Bovey: I think there is a reality we have to accept.
Mr. Kelly: Senator, If I could jump in, there is a magic wand here, believe it or not, and getting there will be a challenge, as you rightly acknowledge. But the magic wand is mutual acceptance of various regulatory regimes and certifications across Canada. If there were one thing we could do, it would be to have a champion at the federal level whose mission is to encourage provinces to move to a negative-option list as opposed to the current method where you have to harmonize every single rule and standard across 10 provinces and 3 territories.
What we need to do is say that if a regulation or a certification is suitable in Manitoba, it will be automatically accepted in Saskatchewan and Prince Edward Island, unless the provincial government has specifically said this standard does not measure up because of unique circumstances.
I don’t think there is that big of a debate. Yes, there are some who are very protective of their turf in some key areas, but we have made it such that those few examples where it is tough prevent us from making progress on thousands and thousands of rules, regulations and certifications across the country. If we were to flip that and say that we’re only going to put in place prohibitions or lack of acceptance of each other’s certifications and standards on those key areas, and here is the list, that would be the way to do it.
There has been some interesting work happening in Atlantic Canada and Western Canada on that front, but much more progress needs to be made across the country.
Senator Bovey: I have one quick question for you. You said 60,000 small businesses closed in 2020. Were those closures proportionately equal across the country?
Mr. Kelly: For whatever reason, Quebec always has higher business failures and bankruptcies than the rest of the country, and that was the case in that data. That was just the 2020 data, but typically, these things are disproportionately heavy in Quebec through the Bankruptcy Act.
In terms of business wind-downs, though, the numbers are fairly consistent across the country.
The Chair: Honourable senators, we’ll maximize our time with the first panel, and we’ll do the same with the second panel. I will ask senators in the second round to each ask a question. In the event of being out of time, I will ask the witnesses to please send their answer in writing to the clerk.
Senator Marshall: My question is for Mr. Kelly.
In several of your responses, you referenced the loans that are outstanding that businesses are going to have to pay at some point. I’m thinking of it from the aspect of the government. If it doesn’t get that money back, it’s going to increase their deficit. What’s your take on the likelihood of those loans being repaid? I realize that part of it is forgivable. Can you just give your opinion on that?
Mr. Kelly: Yes. Thank you, senator. That is a very important question. The CEBA loan program originally required the loans to be repaid by the end of 2022.
To her credit, the Deputy Prime Minister did extend that, after a request from us, to the end of 2023. Businesses now have one additional year to repay those loans.
It was smart that the federal government structured this as a loan program with a forgivable component because for you to access that $10,000 or $20,000 forgivable portion, you have to have repaid the balance by the end of 2023. That will be very motivating for many businesses, to get to keep that forgivable component by repaying those loans.
I do worry that if we’re too strict about this policy, the federal government may not get — let’s say of the $40,000 loan — may not get the $30,000 back because the business is unable to meet the deadline. We believe that a couple of our suggestions — one of them is to add an additional year for businesses to repay those loans.
Remember, when the pandemic first started, it was two weeks to flatten the curve, and we provided two years for them to repay those loans. Well, the pandemic went on for two years. I still think they need an additional two to get out of debt.
[Translation]
Senator Moncion: I understood, Mr. Chair, that we were asking our questions and that the witnesses would answer in writing.
The Chair: They can do that, yes.
Senator Moncion: I thought that’s what you said, which is why there were four of us, as I would have given up my question. If that’s the case, I don’t need an oral answer.
Mr. Kelly, you talked about increases in public sector wages. I believe that was your comment. And then you talked about caution with respect to that sector. I think you were referring to inflation. I’d like you to talk about that in addition to the staff productivity aspect.
The Chair: We can get the answer in writing.
[English]
To the witnesses, would you send it in writing, please?
Mr. Kelly: Of course.
[Translation]
Senator Gignac: I would like to offer my time to the sponsor of the bill, Senator Loffreda.
[English]
Senator Loffreda: My question is for both Mr. Kelly and Mr. Gray.
Since the beginning of the pandemic, we have often heard how the government should have and could do more. I’ve heard that from so many senators from all parties. Bill C-32 is no exception.
However, as mentioned this morning, there is often concern around the aggregate level of government spending. Do we really want our cake and to eat it too? The government never does enough, but we hear about the inflationary concerns and overspending. We all agree that a solution is being more agile, providing targeted and temporary support.
How much more can be done in Bill C-32, if you do have some last-minute recommendations? Both Mr. Kelly and Mr. Gray seem to have many recommendations they wanted to add this morning.
Another concern, the fact that 17% of our businesses risk permanent closure and see no pathway back to profitability is worrisome. Can they still be helped? Are their difficulties and issues mainly due to market habits, consumer needs and preferences?
In my previous life as a banker, we would — how can I say it — some businesses could not be helped because the change was permanent. I’ve had clients say to me, “This is a loan I cannot take and I can’t use help. The business world has changed.” You mentioned forgiveness of CEBA loans. There is some forgiveness, but it’s not enough.
Demographics. Last question: Is it because of demographics? Do we have the same issues in our business owners with respect to the general population? Sometimes the business owners, because of demographics — a mature business, a mature person who has seen and done it all — don’t want to put in the effort; can we sell some of those businesses? Are there some angel investment funds that would help?
There’s a lot to unpack there. These are all questions going forward. I await your response. Thank you.
The Chair: Again, to the witnesses, in writing please. Thank you.
Before we close with the first panel, I would like to remind with all due respect, with respect to all parliamentarians in the other house as much as across the country, there is a mandate letter to the minister that I have a lot of confidence in, Minister Dominic LeBlanc.
I’d like to bring his mandate letter to the attention of the witnesses. If you want to follow up with comments, I would appreciate that as chair of this committee. In the mandate letter given to Minister LeBlanc, it says:
Work with provincial, territorial and industry partners to accelerate the removal of internal trade barriers and build capacity to generate open and accessible pan-Canadian data on internal trade barriers.
This is directly in his mandate letter. Therefore, if you want to add to that with additional information, if you have been consulted and/or if you have partaken in that specific area of his mandate letter, please do not hesitate to provide us with that information.
Honourable senators, this brings us to the end of our first panel.
To Mr. Gray and Mr. Kelly, thank you very much for participating.
Honourable senators, we will now continue with our second panel. We have with us, from the Canadian Hydrogen and Fuel Cell Association, Ms. Ivette Vera-Perez, President and CEO, by video conference. We also have, from Energy Storage Canada, Mr. Justin Wahid Rangooni, Executive Director, by video conference.
I would like to share with you, senators, an item of information. I have received the information that the Canadian Nuclear Association, which was added to the meeting notice yesterday, had to cancel this morning. I am told that they will be submitting a written brief in the coming days. So we will have two panellists, one from the Canadian Hydrogen and Fuel Cell Association and one from Energy Storage Canada.
Welcome to the witnesses and thank you for accepting our invitation. I will now recognize Ms. Vera-Perez to give comments; then we will connect with Mr. Rangooni, and then we will proceed to questions from the senators.
Ivette Vera-Perez, President and CEO, Canadian Hydrogen and Fuel Cell Association: Good morning, Mr. Chair and members of the committee. Thank you for the invitation to be with you today as you undertake this important study on Bill C-32. My name is Ivette Vera-Perez, and I am the President and CEO of the Canadian Hydrogen and Fuel Cell Association, CHFCA. We represent over 160 companies at all stages of the hydrogen supply chain. Our members export clean technologies to over 42 countries, which account for 65% of the world population.
According to a recent report by Ernst and Young, hydrogen’s total Canadian annual market potential could reach $100 billion and create up to 350,000 jobs by 2050. That is in addition to the Government of Canada’s estimate that the sector will assist with reducing Canada’s emissions by 45 million metric tonnes annually.
With a 100-year legacy of industry and research expertise, Canada’s hydrogen and fuel cell sector has, until recently, been a global leader in the space. But, unlike 100 years ago, we have competition for this leadership position. Countries around the world have rolled out policies and funding for the advancement of their domestic hydrogen and fuel cell industry. One of these policies, the United States’ Inflation Reduction Act, IRA, triggered government measures under the recently released Fall Economic Statement and brings us all here today as we discuss Bill C-32.
There are two major measures relevant to hydrogen in the Fall Economic Statement. First, investment tax credits, or ITCs, for hydrogen and clean technologies. The potential of the clean hydrogen tax credit cannot be understated. A 30% ITC for clean technologies and a 40% ITC for hydrogen technologies will help incentivize domestic production of low-carbon hydrogen. The CHFCA and our members hope that the implementation of the investment tax credits can begin without delay following the tabling of Budget 2023. We should focus on rapidly deploying a fully functional and clear investment tax credit, with clear guidelines in terms of boundaries, eligibility criteria, processing timing and how these credits will interact with other programs. This will give investors and project proponents much-needed clarity as they develop their projects and secure financing.
Second, and possibly most pertinent to the discussion today on Bill C-32, the Canada growth fund. We were happy to see the details on the Canada growth fund, which includes contracts for difference and other incentives, and that the government has set an aggressive timeline for setting up the investment body. Financial and investment support is essential to rapidly scaling and constantly innovating industries like hydrogen. Same as with investment tax credits, time is of the essence. We must ensure that the Canada growth fund and the contracts-for-difference mechanism and other mechanisms within it are effectively designed and are up and running as soon as possible to prevent investments to be drawn to other countries. We look forward to working with the government and this committee in the effective implementation of Canadian investment tax credits, the Canada growth fund and any other future initiatives.
In closing, Canada has always been at the forefront of the global hydrogen industry, but with the rapid development of the sector and our lack of action at home, Canada is falling behind. The Fall Economic Statement and the implementation of hydrogen-relevant Bill C-32 items are a solid first step to help us reclaim our leadership position. The devil, however, is in the details. We must invest smartly, heavily and rapidly to reclaim our leadership position in the hydrogen sector. Thank you. I look forward to your questions.
The Chair: Thank you. From Energy Storage Canada we have two representatives, Mr. Rangooni and Mr. Jim Fonger.
Justin Wahid Rangooni, Executive Director, Energy Storage Canada: Thank you for the opportunity. I am Justin Rangooni, the Executive Director of Energy Storage Canada, or ESC, and I am here with our past chair and VP of Canadian development for Ameresco Canada, Jim Fonger.
Energy Storage Canada is the voice of energy storage across Canada. We represent all energy storage technologies of all durations. Currently, Canada has about one gigawatt of energy storage installed, but with recent announcements in Ontario and Nova Scotia as well as the projects in the Alberta connection queue, that number is about to increase substantially.
One of the main drivers of this increase in energy storage development is its ability to help achieve federal and provincial net-zero goals. In October, we released a report that, for the first time, quantified the amount of energy storage needed to achieve a net-zero electricity grid by 2035: 8 GW to 12 GW, with most activity being in Ontario and Alberta. Federal programs, namely the Smart Renewables and Electrification Pathways Program, or SREP, have been supportive of energy storage development and will play an even bigger role with the projects in development. It was great to see a commitment to matching the U.S. and continuing to ensure Canada’s policies continue to enable the development of energy storage and other clean technologies in the Fall Economic Statement with an energy storage investment tax credit.
The U.S. IRA ITC for energy storage has spurred significant growth in the sector. Our concern is that if Canada does not act quickly enough to keep pace with other storage developers, the country will lose its place in line in terms of supply chain and investment to meet the upcoming demand for energy storage. ESC is pleased to see that the Fall Economic Statement indicated that the ITC is refundable and covers all energy storage technologies, not just lithium batteries.
Details are now critical to keep pace with the U.S., so Canadian-specific “adders” will be required. Canada’s energy storage ITC should follow suit with the inclusion of adders to promote our net-zero objectives and a diversity of ownership/partnership models, with additional adders for longer duration energy storage projects. We will be asking the Minister of Finance to commence consultations as soon as possible.
Jim Fonger, Canadian Vice President, Asset and Advanced Technology Development at Ameresco, Energy Storage Canada: Good morning, senators. This morning I’m speaking from Richmond Hill, Ontario, which is the original Indigenous territory of the Huron-Wendat, the Haudenosaunee and the Anishinabek. Our land in Richmond Hill is covered by Treaty 13 and the Williams Treaties.
One of the things I wanted to mention this morning is the fact that the refundability of the program to the ITC is an excellent component of what has been proposed under the act. One of the things that we are hoping for is that it can be retroactive to the original announcement date of the Fall Economic Statement. Essentially, there are many projects in place now. Ameresco and others are working with many companies that are focused on trying to find a way to decarbonize and electrify their systems. One of the things that will make these projects move forward is the implementation of the ITC. The last thing we would want to see as a company is for those projects to come to a halt in terms of their implementation due to a lack of understanding of when the ITC is going to move forward. We want to make sure those projects continue with their current momentum.
Canada has already done a lot in the climate space and its focus on reducing carbon emissions. We need to ensure that leadership continues. This particular bill will allow that to continue and expedite. Especially in the area of carbon pricing and programs like SREP, the reference on the clean electricity regulation, all of these things are important on a move-forward basis. In addition do the ITC, we would also like to see in the upcoming budget a recapitalization of programs like the SREP, as well as funding for demonstration projects going forward.
Finally, we would like to thank you for the opportunity to speak today. Mr. Rangooni and I would be happy to answer your questions.
The Chair: Thank you very much for your comments. I would like to remind senators that you will have a maximum of five minutes each in the first round of questions.
Senator Marshall: I’m going to start with energy storage. What kind of storage are you talking about? Is it just batteries, or are you working toward something else?
Mr. Rangooni: That is a very good question. We cover all energy storage technologies. We advocate for beyond just lithium batteries. There are actually very different battery chemistries in development, such as zinc-based, cobalt. We also advocate for, and our members represent, other energy storage technologies, like compressed air and thermal storage, which is using geography. There is also pump storage, which has been in place for decades now. There are also flywheels and other mechanical ones. A lot of other technologies are being developed right now in addition to lithium batteries. When we speak about energy storage technologies, we are speaking about the entire gamut of energy storage technologies that are out there and being developed.
Senator Marshall: What are you working toward? Do you have a group of companies or people that are working on different projects, and who is going to bring it all together? What’s the objective? What’s the short-term objective? What’s the date? Is it just people working on research and trying to look at different options? Because there is a significant amount of money going into these tax changes. How will we know we are making progress in two or three years’ time? What’s the end game? What is the plan?
Mr. Rangooni: Energy Storage Canada’s vision is for energy storage to be seen as a mainstream resource or tool for system offerings. We are seeing this right now in Ontario, which has around a four-gigawatt capacity gap that they need to fill by mid-decade. What they have done is announce a procurement for up to 2,500 MW of energy storage technologies, which in the short term will be lithium batteries, to fill that capacity gap. Through this ITC, through the SREP program and other programs, you are seeing that being used to help lower the cost and make energy storage projects even more economical in Ontario.
In Nova Scotia, we just saw a recent announcement that Nova Scotia Power will be introducing four battery storage projects of 50 MW each to be installed this decade. This is not to mention that 200 MW of behind-the-meter storage, which Mr. Fonger can speak to, is already installed in Ontario.
For energy storage technologies, we are beyond a demonstration or pilot. We are ready now, and you are seeing that come to fruition this year and next year in the short term.
Senator Marshall: I read a lot of the material on your website. You are saying the gap for the amount of energy you want to store and where you are at now is quite significant. But from what you are saying here, you make it sound like we are on the cusp of closing that gap. I’m not convinced, because the gap is so big. You are saying you have all these projects on the go, but they are projects, aren’t they? They may be successful or they may not be successful, isn’t that correct?
Mr. Rangooni: You are totally correct. What I meant by what we are seeing as a gap is the capacity gap in Ontario. The gap from our paper of 8–12 GW — there is still a lot of work to be done. But seeing what Ontario has committed to in terms of this current procurement of up to 2,500 MW is an excellent first step toward achieving that 8–12 GW marker that we put out in our report.
Senator Marshall: For the Canadian Hydrogen and Fuel Cell Association, the investment tax credit for clean hydrogen, is clean hydrogen the green hydrogen? Can you talk about green hydrogen and blue hydrogen? Is that clean? Could you make that distinction? I’m interested in the cost of producing green hydrogen compared with the cost of the blue.
Ms. Vera-Perez: Thank you for the question.
Before I answer the question, Justin, you forgot hydrogen is an excellent storage medium.
Thank you for the question, Senator Marshall. The best way to look at hydrogen is by its carbon intensity. Clean hydrogen and the ITCs would look at developing a carbon intensity scale and methodology. We are very interested in participating in that consultation as well. Best returns will be provided to the lowest level of carbon intensity.
There are many colours — pink, turquoise and others — I must confess that I am a little colour-blind. The absolute best way is to measure them by their carbon intensity. Typically, the most common colours would be blue, which would be hydrogen from fossil fuel sources — that includes carbon sequestration — and green, which is hydrogen produced via electrolysis from sources like wind and solar.
Then you asked about price. With IRA, the price of green hydrogen — let’s focus for a moment on hydrogen from electrolysis — is bound to go down dramatically because it depends on two things: one, the price of the electrolyzer and, two, the price of electricity.
Senator Marshall: When you say it is going to go down, what is it now? When people start telling me about the plans and projections, I’m an accountant and I like actual numbers.
Ms. Vera-Perez: That is a very good question. Actually, it is site-specific. McKinsey estimates that by 2050, which is not today, the countries that are going to be exporting will be exporting at a level of €1.2 per kilogram. I have members who have done estimates of projects today.
Senator Marshall: I think my time is up. Perhaps you could send that information in writing.
Ms. Vera-Perez: Absolutely.
Senator Marshall: The chair has told me my time is up. Thank you.
Ms. Vera-Perez: I will. Thank you.
The Chair: Senators, we have problems with the technology used for translation.
For your information, senators, we are at the mercy of technology. We will ask Mr. Fonger to answer the questions for Energy Storage Canada. We had to drop Mr. Rangooni because of technical difficulties.
Ms. Vera-Perez, you are coming in clearly.
We will move to questions.
[Translation]
Senator Moncion: My first question is for the representative of the Canadian Hydrogen and Fuel Cell Association.
[English]
I would like you to talk about the tax credit and the Canada growth fund. You said in your comments that the devil was in the details. Could you just mention some of these details so that we have a better idea of the caveats that these two programs are bringing to your company?
Ms. Vera-Perez: Absolutely, I’ll provide some examples. What are the boundaries? In a comprehensive project, what can be considered part of the clean-tech tax credit? What can be considered part of the hydrogen-specific tax credit?
Knowing that many projects have perhaps a renewable energy component, a hydrogen component — in a transportation project, for example — again, what are the boundaries? Does it end at the spigot or the pump? Are all these elements eligible?
What constitutes capital expenditures? Are we talking about an electrolyzer or are we talking about the other pieces of equipment?
Another important point is the claiming and processing time. For example, is the claim on a tax year-end basis? Then, would there be, for example, a six-month wait period? That may see a company waiting for 18 months. If that is the case, are there any mechanisms to help bridge that 18-month gap, for example?
Also, for example, questions around stackability. Is the ITC relevant to 100% of the project, or is it after a grant or a repayable contribution?
Another important question would be when the ITC kicks in. For example, we don’t want to penalize early adopters and early movers. Would there be a way of making the ITC applicable retroactively, for example, 12 months from the date of the announcement? That is a question as well.
The idea for the members and for the CHFCA is that we really would like to be part of the conversation and the discussions to make the best functioning ITC that we can develop to make it as effective as we can.
The final point: How do they coordinate with other groups like the CIB, or Canada Infrastructure Bank; CIF, or Canada Infrastructure Fund; Natural Resources Canada funding? The overarching need of the sector is around de-risking. How do all these different initiatives we have in Canada play together like pieces of a puzzle?
Senator Moncion: Thank you. Mr. Fonger, you talked about refundability. Are we talking about the ITC also, or were you speaking of another program when you were asking that it be retroactive to the Fall Economic Statement?
Mr. Fonger: Thank you for the question. I was referring to the concept of the ITC being refundable as an important piece of this. It also makes it simplified relative to other programs. One of the things we see in this particular bill is that not only is it allowing us to keep up with what’s happening in the U.S. but it provides some leadership in terms of making our program simpler than what is happening south of the border.
Senator Moncion: Thank you.
Senator Gignac: Thank you to our witnesses.
Governments will invest a lot because the proposed refundable tax credit is reputed to cost $2.6 billion over the next five years. In addition, you have highlighted the Canada growth fund. This is a measure that was presented in the last spring budget.
Last summer, President Biden passed the Inflation Reduction Act, which includes a US$369-billion package to fight climate change. The effort by the Canadian government to fight climate change is a step in the right direction, but it appears to me to be peanuts compared to the U.S. initiative.
In terms of competitiveness, do you believe that Canada has to do much more in the upcoming budget to match what is going on on the U.S. side? Do you have any reaction to that?
Ms. Vera-Perez: Thank you for the question. The ITC, for example, for clean tech has $6.7 billion earmarked for this. The amount of $6.7 billion for renewables does go very fast. This is something that a number of the members have acknowledged and flagged. Yes, this is a great start, and more will be needed.
I do acknowledge, however, that we are not the same market size as the U.S. and perhaps we cannot match it dollar for dollar. It is about being smart and thinking about all the tools we have in the tool box.
Perhaps a good exercise for the federal government would be to look at both sides and then say that in Canada we provide 30% ITC for clean tech, 40% ITC for hydrogen. We have contracts for difference. We have offtake agreements. This takes us to a cost of hydrogen of this much vis-à-vis what ITC and MPTC, or Advanced Manufacturing Production Tax Credit, do in the U.S., which takes us to this much. Then we can say if we’re comparable, if we’re competitive. Again, we have different initiatives and a different market size. That’s where I talk about developing the most effective ITC mechanism and the most effective contract-for-difference mechanisms.
Senator Gignac: Any reaction from Mr. Fonger?
Mr. Fonger: Thank you. I think Ms. Vera-Perez has hit many of the main points. In terms of what needs to happen right now with the ITC, we need to get started. There is a way to line up the clean electricity standard that the federal government has put out in terms of what will be needed to get there.
There are also the carbon reduction goals in terms of where the Canadian government is leading Canada to. There are certain things we have to do in terms of getting off our fossil fuels. The technologies that allow us to do that at this particular stage will need more funding than they will at some point down the road when they become more efficient.
I think it is a great start. We should start with what we have, and then the budget needs to keep up with the demand as we achieve our objectives.
Earlier, Senator Marshall talked about how we can judge what is happening. It will be about the projects that hit the ground and about the carbon reduction and electrification that take place. The government needs to keep a close eye on that progress.
Senator Smith: To follow up on Senator Gignac’s question, the U.S. has taken a major step forward with the Inflation Reduction Act. To both panellists: Where do you see yourselves positioned at this time? You’re talking about developing projects and trying to create a position. What other countries throughout the world have similar policies, and where do you see Canada positioned? Are we just a minor player or just starting in the infancy program or stage? Where are we right now and where do you think we can go? What can we achieve if you look 5 to 10 years down the road? Because everything is changing quickly.
Mr. Fonger: In terms of what we can achieve, it is hitting the objectives that have been set for us as a country. Energy storage helps the efficiency of all the existing assets in the electricity system to allow them to provide more electricity into the system. That includes generators, transmitters and distributors. It also facilitates greater proliferation of solar and wind energy, along with nuclear energy. In terms of all the electrical generation devices that we need to have in the system in order to electrify, it makes them more efficient and cost-effective across the whole chain.
In terms of other countries, I can speak to what’s happening in the U.S., working for a company that is both in Canada and the U.S. Our primary objective right now for supply chains and for labour is that we need to make sure we are on a level playing field with the U.S. so that the opportunities for us to deploy projects here in Canada to decarbonize are at least on the same playing field as in the U.S.
Senator Smith: Do you see at this particular juncture that the U.S. or other countries have policies that are more aggressive than ours for clean energy and storage? If so, how does that position us going forward?
Mr. Fonger: I think Ms. Vera-Perez touched on something earlier, which is that the devil is in the details. Conceptually, what Canada is considering as its ITC, at a high level, will put us on an equal footing, and possibly a better footing, than our friends in the United States to move projects here in Canada. It aligns with how that’s all going to come together and how the program is going to be organized. It’s important that we have an opportunity to work with the government in terms of making sure the details in this program are such that we can ensure this works.
Maybe, Ivette, you want to add to that.
Ms. Vera-Perez: I completely agree with everything that Jim said. I will not repeat that but just add a bit.
You asked about what other countries are doing. We have all studied the IRA quite well, of course, but there are other initiatives in Europe as well. For example, France is investing $1.2 billion to build an electrolyzer “gigafactory.” China is at a different level of investment, heavily investing in electrolyzers as well, because those have been flagged to be one of the biggest bottlenecks in the supply chains.
Again, we can be very smart. We don’t have the same size of market or the same budget, but hydrogen is an element that can provide resilience to the overall grid, electric and gas. Mr. Fonger mentioned this: Nuclear plus energy storage and hydrogen, nuclear plus renewable energy sources plus hydrogen and energy storage — that is a winning proposition. Canada is blessed in terms of geography, for example, depleted salt caverns, natural gas caverns — not only in Ontario but in other provinces.
It’s about getting creative with what we have and maximizing the value or effectiveness of the tools we have right now that are proposed in the Fall Economic Statement. That would be key.
Senator Smith: Thank you very much.
Senator Boehm: My first question is for Ms. Vera-Perez.
In a news release from November 7 regarding the Fall Economic Statement, your association states that it was pleased that “many” of its recommendations for clean hydrogen made it into the statement.
That begs the question of which recommendations did not make it in there.
Ms. Vera-Perez: Thank you very much for that question, senator.
Yes, we are pleased. We were advocating for a refundable ITC. We were very pleased to see that. We were also advocating for a production tax credit, PTC, that can address the operational costs of hydrogen projects and the variable electricity cost. That did not happen. The contract for difference is happening, so I’m very keen to see how the contracts for difference and offtake contracts, et cetera, could fill that gap.
We continue to think the production tax credit could be a winning proposition, but we’re willing to work with what we have.
Lastly, we have been advocating for the creation of a hydrogen office. I would really like to see that happen. It has happened in the U.S. and in a number of countries in Europe. British Columbia has also already launched their own hydrogen office. That would be to look at everything, including projects such as storage, nuclear, renewables, and to look at the regulatory and permitting situation and the codes and standards situation.
We are trying to have a human at the end of the line, if you will, who will help those very complex initiatives and projects work through and get to the finish line.
Senator Boehm: Thank you.
My second question is for Mr. Fonger. In an overview on energy storage on your website, it is noted that:
Energy storage can also serve as a backup if power generation is interrupted, boosting the reliability and resilience of the system . . . .
We’re seeing this in Ukraine. Russia’s been attacking the country’s power infrastructure. Ukraine is largely without electricity and heat as the weather gets colder, and European countries that rely on Russian oil are in for a difficult winter, despite the amount of storage of LNG that they’ve managed to secure. There are winters after this one, of course.
How can energy storage technologies be used effectively in longer-term emergency situations such as those? Are you working with the federal government and international partners in Ukraine and/or other conflict zones around the world? Also, can this technology be used in humanitarian and development contexts? To make it more domestic, can energy storage be used effectively in our country in the aftermath of a severe winter storm or hurricane like the one we saw on the East Coast?
Mr. Fonger: Senator, that is a group of great questions. I hope I can get to all of them.
The first was whether energy storage can last to be able to provide during longer outages. One of the things that we would like to work with the government on is an adder on to the ITC credit for long-duration energy storage projects, of which hydrogen can be one.
There are many technologies that are on the cusp of development. Some of them, I think as Mr. Rangooni talked about earlier, such as pumped hydro, have been around for many years. For pumped hydro, the geological formations required to deploy that technology are limited. There are many other long-duration storage technologies that can actually help provide capacity to the grid for long periods of time, but they’re under development and need an extra incentive to make sure they can be deployed in order to help the areas of Canada that need that particular service.
With respect to our organization connecting with other countries to find ways to help them with their utility grids to be able to provide long-duration storage, it’s not something that we’ve done a great deal of now. However, maybe I can ask Mr. Rangooni to provide the committee with some additional information with respect to where that’s going.
I believe another question was around how we do this so it makes sense in the Canadian marketplace. Utilities all across Canada now are looking at energy storage to add into their grid to be able to provide resiliency during power outages, both large scale on the transmission grids but also small scale with behind-the-meter distributed energy storage technologies that can actually be placed in the distribution grid right at the customer site in order to provide longevity.
The technologies themselves, be it for short-term small energy storage or very long-term grid-scale storage, are all under development, but they all need the help of what’s in the Fall Economic Statement with respect to help from the ITC.
Senator Boehm: You’ve answered the four. Thank you very much.
Mr. Fonger: Thank you.
The Chair: Senator Loffreda, the sponsor of the bill, will now ask his questions.
Senator Loffreda: Thank you to our panellists for being here this morning.
My question is for both panellists, but Ms. Vera-Perez, the President of the Canadian Hydrogen and Fuel Cell Association, did mention the Canada growth fund, and timing is of the essence. One of the objectives of launching the Canada growth fund is to incentivize companies to take risks and invest in cutting-edge technology in Canada. Do both of you feel that Canadian companies have the necessary tools and supports to fulfill such a mission? How do you see the Canada growth fund supporting them in accomplishing that goal and objective?
Where do we rank with respect to our global competitors? There was mention of the support in other countries and our major trading partner, the U.S., in which the amount being invested is significantly higher than Canada.
Private capital is always a key element of success. To what extent do you feel that the Canada growth fund will succeed in unlocking private capital by making investments that will offset the risks? If so, why and how?
Maybe we could start with Ms. Vera-Perez.
Ms. Vera-Perez: Yes, thank you. Those are very good questions. I wrote them down; I hope I can answer them all.
Part of the concern with the Canada growth fund is how quickly it will be launched. The launch is going to start as part of CDEV, the Canada Development Investment Corporation, so hopefully that will be up and running. Some members have concerns around whether this will take as long as the Canada Infrastructure Fund, for example, to be launched. We cannot afford to wait for that long.
Do we have the necessary tools? Not right now, but again, properly designed and effective ITCs and a properly designed Canada growth fund will help. Part of what I see in the Canada growth fund where the details matter are contracts for difference. It should be simple and easy to understand so that project proponents can bring the information to financiers and investors so they see the clear path to their return on the investment and make that decision to invest.
There are other initiatives, like you said, to address those projects that would have below-market returns. That speaks to the Canada growth fund as an equity investor. My concern is how those decisions would be made. We are all individuals; we bring our biases to the decision-making processes. I would just warn that we don’t want to be in a position where we pick winners. We are hardly ever in a position to effectively pick winners.
So are we going to use carbon intensity thresholds or cost of greenhouse gas reduced, for example, for a project to pick those winners, or are we going to be very technology-biased? That would be one question.
Again, I spoke about the contract for difference and how that will be designed. Ideally, it would also factor in the changes in electricity prices, so not a fixed number, but, for the duration of the agreements, how electricity prices fluctuate and how the carbon intensity of that electricity fluctuates, which sometimes does as well.
Then there are the offtake contracts, and those are very interesting ones. How can Canada, the federal government, become a procurer of clean hydrogen, for example?
Effectively implemented ITC and Canada growth fund initiatives would enable financiers to have long-term visibility on the returns of a project, which would unlock private capital. I think that was your third question, but please tell me if I missed anything.
Senator Loffreda: No, you covered it. Thank you. Mr. Fonger, do you want to add anything to that?
Mr. Fonger: I think Ms. Vera-Perez has hit most of the points we would echo. On the Canada growth fund, it’s not something that I’m prepared to answer in great detail this morning, but I would ask that the committee accept an answer from Energy Storage Canada on that particular area. We could probably get into more detail, if that were acceptable.
Just in terms of necessary tools, I think one of the things that we have in Canada that we need to ensure moves forward is a projected price of carbon. Having that carbon price worked into the financial statements of these projects moving forward is a key to really driving these decarbonization projects that use these technologies. The carbon price in conjunction with the ITC is going to unlock many projects and is going to allow us to get to a stage where we can really move these projects forward.
I think the other thing too is there are some initial programs that are still in place that need to be funded on a move-forward basis. The Smart Renewables and Electrification Pathways Program that comes out of Natural Resources Canada needs to be refunded in order to help the projects that need the extra bump to move forward.
The Chair: Thank you. To the witnesses, you can add to your answers in writing to be directed to the clerk of the committee, please.
Senator Bovey: I’d like to thank our witnesses. You’ve both talked about timing, international leadership and Canada keeping up regarding clean energy and storage goals.
I just got back from COP 27. We heard in many of the panels about the issue of adding storage to various hydro grids across the country, and the question of nuclear energy came up. There is the question of the greenness of hydrogen and, to follow on what Senator Marshall said, the relationship between green hydrogen and clean hydrogen. Obviously, this isn’t my background. Are both of your organizations dealing with technical research in these fields?
Ms. Vera-Perez, you mentioned carbon sequestration as part of the overall issue. Does that include any work you might be doing — or am I on a tangent — about carbon sequestration below seabed?
Ms. Vera-Perez: Thank you very much for your question.
Senator Bovey: I look forward to both of your perspectives.
Ms. Vera-Perez: I’m glad that you attended COP 27. I hear that it was about implementation, which is where we should be right now.
Dealing with technology research, absolutely. A number of our members are universities and colleges as well, which is quite important. Canada has, for a number of years, been a leader in hydrogen research, and we have not actually lost that leadership from the academic perspective. In fact, later this week I will be at UQTR, Université du Québec à Trois-Rivières, which has a world-class hydrogen research centre that we’re extremely proud of. That is on the research side of things.
Let me come back to you on the below-sea-level carbon capture and sequestration because I’m not aware of any specific research project right now. That is one of the points on which I can come back to you in writing.
Senator Bovey: There are international projects that Canada is part of with regard to below-seabed sequestration of carbon in the North Atlantic, and my questions for them — not for you — are dealing with the safety of it below seabed in the Pacific when you have a major earthquake zone. That’s another issue.
Ms. Vera-Perez: Absolutely.
Senator Bovey: I’m getting conflicting messages from the various groups I speak to as to where Canada really is, and I’m well aware of what the universities are doing. Perhaps you can address my question, picking up from Senator Marshall, about the greenness and the cleanness of hydrogen.
Ms. Vera-Perez: Very good question. The cleanness and the greenness depend on a number of factors. If you’re producing hydrogen from fossil fuel sources and you want to make sure that the carbon intensity of that hydrogen is as low as you can possibly make it, you would definitely need to sequester that carbon, that CO2, from the process and make sure it is long-term, in the order of years. There has to be a methodology that ensures that carbon is sequestered and not leaked.
In general, electrolytic hydrogen, for example, which is what we consider green hydrogen when it comes from renewable energy sources — let’s assume you’re producing hydrogen via electrolysis from a relatively clean grid. When you look at a life-cycle analysis of that carbon intensity, you also need to think about what the electricity source is.
In different provinces, the grid is around 80% or 90% green. So how can we trace — virtually speaking, of course — those electrons to the source of electricity that was used? That is one of the factors that is part of the carbon intensity methodology calculation.
The same goes with the other colours of hydrogen. If you want to do a proper life-cycle carbon intensity analysis, we need to trace back to the electrons that were utilized in the different elements of the process.
Senator Bovey: I appreciate this, and I know my time is up. If you have material that adds to what we’re talking about with regard to this, I would appreciate it in writing. Thank you.
Ms. Vera-Perez: Thank you.
[Translation]
Senator Dagenais: My question is for Mr. Fonger.
Economically, I understand that the shift away from fossil fuels to hydroelectricity, wind power and solar energy brings with it a storage requirement. In California, it costs $1,290 to store one kilowatt.
How much will that storage cost in Canada? What will be the difference between the price of a kilowatt in open access compared to a kilowatt that goes through storage? How will the price impact consumers?
[English]
Mr. Fonger: Thank you for the question. It’s a great one. I think that would be something we would like to get back to you on as an answer.
Certainly, energy storage is one of the key components that pull all of the other energy sources together. Where it really drives and shows value is being able to generate efficiency across all those individual resources.
Certainly from some of the requests for proposals and opportunities for developers to put new projects in place, the firm renewable concept of solar and storage, wind and storage, nuclear and storage or other greenhouse-gas-free energy devices combined with storage can actually make a much more efficient electricity system when you look at delivering it from energy generation to actual energy consumption. A big part of what energy storage drives on the efficiency side is the scalability and usability you get from both the transmission system and the distribution system.
It’s a great question. Something that we’re all looking at is what this is going to cost us moving ahead. We’ll put together an answer to that question for the committee.
[Translation]
Senator Dagenais: Lithium batteries are known to be the most efficient way to store energy, but batteries still deteriorate rather quickly.
In order for us to appreciate the cost of this kind of a project, what will be the price of a battery and what will be the price of disposing of it in an environmentally friendly manner?
[English]
Mr. Fonger: Thank you for the question. Certainly, the usability of lithium-ion batteries and how they degrade over time is something the industry is working on. Degradation rates are improving. Life cycles are improving. Certainly, all of the major industry players in the lithium-ion world are working on recycling programs so that you can take that technology and recycle it for second life.
As an example, the automotive industry is using lithium-ion technology for electric vehicles and is already working on programs where when those batteries are no longer useful for an automotive application, there is still plenty of life left in them to be redeployed on grid-scale applications.
That’s just the lithium world. I think as it stands today, you’re right; for short-term energy storage, lithium-ion is very cost-effective. However, some of the emerging technologies such as compressed air, energy storage, thermal storage, long-term seasonal storage are also going to be very cost-effective moving forward. That’s something that, again, the ITCs will really encourage. With more deployment of these long-term storage opportunities, we’ll see a further reduction in cost there as well in the long term.
[Translation]
Senator Dagenais: In closing, I would like to add that the $1,290 cost in California does not include equipment-related investments. Thank you.
[English]
Senator Duncan: Thank you to the witnesses who are here with us. With regard to energy storage, where I come from, in the Yukon, Yukon Energy has initiated a storage for electricity. They’ve had to do this because demand for electricity has far exceeded the supply, and this is a move to get away from having diesel generators back up our hydro. So we are moving toward battery storage.
I would like to see — and perhaps it’s available on your website — across the country, could we see a map from east to west and north to south of where we are moving to battery storage? If we could have that in writing.
I would also like to at this point express regret we’re not hearing about the small nuclear modular reactors. I was very much looking forward to that. I would like to express my regret on the public record that we’re not hearing from them today. I understand we have made efforts to reach out to them.
My final point to put on the record and perhaps the witnesses would like to address is that underlying the entire discussion about energy supply is the grid and the transmission grid. I would like to hear from the witnesses from industry of what progress we’re making in terms of east-to-west of our electrical grid. I understand it’s an excellent grid in the east-north-south, but east-west and spreading further north is a major issue.
We are all well aware, when we have significant storms, of the power linemen who go out and restore our power. That electrical grid, the transmission lines, need to be assessed and need to support this electrical supply. I’m disappointed we’re not hearing from them as well. Perhaps the witnesses would like to address the issue of the grid in Canada, and particularly progress on east-west as opposed to north-south and rural Canada.
Mr. Fonger: Senator, thanks for the question. I’m not in a position to be able to comment on what activities are happening on the east-west transmission grid connection across Canada. There’s no question provinces like Quebec, Manitoba and B.C., which have great amounts of hydropower — having them have the opportunity to be able to get that power across the country certainly would be an advantage.
One of the things I can say, though, on the energy storage side is based on how it is placed in each of these individual areas for the individual provinces. Energy storage can bring both long-term and short-term reliability to the grids that exist in each of the individual provinces.
Ivette, do you maybe want to add to that?
Ms. Vera-Perez: Yes, thanks, Jim.
A lot of what our members talk about, especially when we’re talking about hydrogen from renewable energy resources — or actually electrolytic hydrogen using the green, clean grid — we do need a lot more power. Ontario, for example, is set to triple generation, I believe, by 2035. The beauty of hydrogen is that you can also produce it closer to where you need it so you may not need those very long transmission lines. You can deliver; you don’t need more electricity transmission in this sense. You can do it decentralized or closer to the source. I wanted to mention that.
East to west, yes, interconnecting provinces as well — that’s another challenge. The quality of the transmission lines, certainly in Ontario and Manitoba, is a well-known issue that needs to be addressed.
In terms of producing more generation, I wanted to mention that this is something that we may want to address somehow. It doesn’t answer your question directly, but the U.S. is a lot quicker at building new renewable generation than we are. That speaks about the generation side as well, thinking from the perspective of turning this into hydrogen and putting it on the grid when needed — hydrogen as an energy storage tool.
One very last topic, Senator Duncan. You were asking questions about immigration earlier. I am an immigrant to Canada and I was a provincial nominee. At some point, if you ask me that question, I would be delighted to answer it today or another time. I just wanted to say that.
The Chair: Senator Duncan, for your information, the Canadian Nuclear Association will submit in writing a memoir to the committee through the clerk. Hopefully, they’re listening to us, and the fact will be brought to their attention through the clerk that they could give comments on small nuclear reactors.
Senator Duncan: Thank you very much, Mr. Chair. I appreciate it.
The Chair: Honourable senators, before we close, we have time for three questions to be answered in writing, please.
Senator Marshall: Mr. Fonger, you mentioned the utilities across the country and you said they’re looking at energy storage. They’re big producers of energy, so could you tell us in writing what they’ve achieved so far and how much progress they’ve made?
Mr. Fonger: Absolutely.
Senator Gignac: My question is for Mr. Fonger. Recently, at the Banking Committee we received our Canadian champion and international expert on climate action, Mr. Mark Carney. He pointed out that a lot of financial players, possibly pension funds, took the easy road to reduce their carbon footprint by selling their exposure to oil and gas and high-carbon-footprint industries rather than help to decarbonize the economy. They invest outside Canada rather than help to decarbonize the Canadian economy.
Since you have a big network — and I checked your membership — would you have any reaction on that, on the role of pension funds, and what could be done by policy-makers to encourage pension funds and financial players to help decarbonize the Canadian economy? Thank you.
Mr. Fonger: Thank you.
The Chair: Senator Loffreda, the last question is for you as the sponsor of the bill.
Senator Loffreda: My question is for Ms. Vera-Perez. Mr. Fonger, if you wish to add any comments in writing, you’re more than welcome.
Ms. Vera-Perez, with respect to the Canada growth fund, you mentioned you had some concerns with the decisions and picking the winners. You also mentioned that timing is of the essence. This leads me to believe you do agree with the current and immediate launch of the Canada growth fund in order to be making critical investments, despite the fact that the permanent and independent structure will only be put into place in the first half of 2023. I say that because the permanent structure — the CEO and the board — will be the ones eventually making those decisions and picking those winners.
Going forward, do you have any suggestions or recommendations to complement, as you said, this solid first step and help to maybe address your concerns regarding picking the winners going forward? Given that this permanent structure will be put in place shortly, maybe you can influence it to alleviate those concerns.
Mr. Fonger, if you would like to add anything in writing also, please do so.
Mr. Fonger: Thank you.
The Chair: Honourable senators, this is the end of our time. To the witnesses of this second panel and the previous panel, as chair, I want to bring to your attention that your comments and answers will allow us, on behalf of all Canadians, to focus on our four main principles, which are transparency, accountability, reliability and predictability.
Regarding written questions, I would like to remind witnesses to please submit those to the clerk by the end of day on Tuesday, December 6, 2022. I hope that agreement is understood.
Mr. Fonger: Absolutely.
Ms. Vera-Perez: Yes.
The Chair: Thank you.
I would like to inform honourable senators that our next meeting is tomorrow night, November 30, at 6:45 p.m. We will begin our study on the Supplementary Estimates (B).
Before closing, I would like to thank the entire support team for this committee, those in the forefront as well as those behind the scenes who are not visible. To all of them, to the clerk, thank you for your hard work, which contributes enormously to the success of our work as senators for Canadians.
(The committee adjourned.)