Environment Committee on Sept. 23rd, 2022

[The Chair, Liberal, Francis Scarpaleggia]

Good afternoon.

Welcome to this meeting of the Standing Committee on Environment and Sustainable Development, which is being held on a Friday afternoon for the first time. So this is a kind of inaugural meeting.

I would also like to welcome Mr. Trudel, who is replacing Ms. Pauzé today, as well as Gary Vidal, who is replacing Earl Dreeshen.

This is the third meeting with witnesses that we have had as part of our study on clean technologies in Canada.

I know all members of the committee are aware of the ground rules, but I would remind witnesses to keep your mike muted when not speaking. Witnesses may speak in the language of their choice. That's all I have to say from a procedural standpoint.

We have two panels today. The first panel is made up of the Association québécoise de la production d'énergie renouvelable.

We have Gabriel Durany, who is its president and chief executive officer.

From Carbon Infrastructure Partners Corp., we have Mr. Craig Golinowski, whom we've met before. From Efficiency Canada, we have Dr. Brendan Haley. From GHGSat Inc., we have Mr. Stéphane Germain.

Each witness will have three minutes to make opening remarks, and then we'll have some rounds of questions.

Let's start with Mr. Durany for three minutes, please.

[Gabriel Durany, President and Chief Executive Officer, Association québécoise de la production d’énergie renouvelable]

Thank you very much for welcoming me to your committee.

Three minutes is not much time so I'll try to describe briefly who we are and explain why we're interested in this study.

I am the president and chief executive officer of the Association québécoise de la production d'énergie renouvelable, or AQPER. We are an industry association representing approximately 110 businesses and our mission is to increase renewable energy generation in Quebec based on sustainable development principles. Our members are active in Quebec, of course, but also in several other regions of North America and internationally.

When we established the association's vision of the way we wanted to address the Quebec government and other renewable energy stakeholders, we based it on how we thought we could meet the climate targets set by the Quebec government for 2030. They are ambitious targets. As we noted in our brief, they include a 37.5% reduction of greenhouse gas emissions, or GHGs, from 1990, in an environment where the electricity sector is virtually decarbonized.

As I'm sure you are aware, most of the emissions we produce come from energy generation. To enable people to understand the role that increased renewable energy generation must play in these decarbonization efforts, it's important for us to rely on the techno-economic modelling commissioned by the Quebec government and then to interpret it. That means providing our comments on necessary legislative and regulatory amendments so that each of the industrial sectors we represent at AQPER can play its market role. We represent many businesses in those sectors, particularly renewable electricity, bioenergy and hydrogen. Our strategy outlines the adjustments that must be made and the work that must be done for each sector to find its market niche.

What I will say about our vision, and what might be of interest to members of the committee, is that there's no single solution to meeting our climate targets, those of either Canada or Quebec. At AQPER, we encourage a rational modelling-based approach. Efforts to improve energy efficiency go hand in hand with efforts to increase renewable energy generation. These are complementary rather than contradictory notions. That's what the models show us.

I believe I've used up the three minutes allotted to me. Thank you very much for listening. Please feel free to ask any questions you may have in the language of your choice. I will be pleased to offer my comments.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. Durany.

Time will definitely be set aside for that during the period of questions.

I would also like to inform witnesses that the headsets have been tested and everything is in order.

I now give the floor to Mr. Golinowski.

Mr. Golinowski, it's nice to see you again. Please share with us your opening remarks.

[Craig Golinowski, President and Managing Partner, Carbon Infrastructure Partners Corp.]

Thank you, Chair. It's an honour to once again be invited to present.

I'm here to comment on the financial realities of deploying carbon capture and storage technologies in Canada. Deployment at scale requires certainty on the value of carbon.

I'd like to make three points.

First, the combined Canadian investment tax credit and carbon price framework need to be competitive with the section 45Q tax credit in the United States. Capital has a choice to make, and it can go to the United States. The recently passed Inflation Reduction Act in the United States significantly upgrades the 45Q tax credit.

Second, certainty on the value of carbon is critical in any company's evaluation of risk, which in turn drives the cost of capital. With carbon capture, a lower cost of capital, as in the utility industry, means more tonnes are captured and sequestered per dollar invested.

Third, the market is unable to underwrite political risk. That is a general proposition, so the risk that the government will change the carbon price in the future away from the scheduled increase of $170 a tonne is a risk that the market is unable to underwrite.

Those are my opening remarks as to the importance of certainty on carbon prices.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you very much.

We'll go now to Dr. Brendan Haley from Efficiency Canada.

Go ahead, Dr. Haley.

[Dr. Brendan Haley, Director, Policy Research, Efficiency Canada]

Thank you very much.

What I'd like to help you think about today are the opportunities for innovation in energy savings or energy demand technologies.

Let me provide a couple of examples of problems that are being solved by energy-efficient clean technologies.

One way to deliver quicker building retrofits at scale is to manufacture insulated panels in a factory instead of installing insulation on site. These panels are being manufactured right now in Brandon, Manitoba, by a company named Greenstone.

To rightsize those panels, you need to measure building dimensions exactly. A software developer in Alberta is using drones to take pictures that go into a 3-D model to get highly accurate measurements. That's a great example of mass customization, which involves figuring out how to deal with the intricacies of each building more productively.

Digital technologies play a role. BrainBox AI is a Montreal-based company that uses artificial intelligence to adjust HVAC systems in commercial buildings to get more energy savings.

The other thing we need to do is coordinate retrofits across many buildings at once that have similar equipment replacement cycles. That coordination can provide forward guidance to manufacturers and to other solution providers to come to the market with lower-cost and more innovative solutions.

All these examples are needed because we need five to 10 times the number of building retrofits that we're doing right now to achieve net-zero emissions. Figuring out how to scale energy efficiency can be almost a Canadian version of a moon shot that will produce clean technology spinoffs, because the objective is clear. How to get there involves solving a host of problems by inviting solutions from a variety of different sectors. That coordination between those user needs and domestic solution providers is an innovation strategy that has worked well in other small-economy clean technology leaders, like Denmark.

Of course, there are also social benefits, especially if we target low-income Canadians for energy savings. I would be happy to talk about that further during questions.

To conclude, we're not going to achieve the type of scale-up we need or the clean technology opportunities that could arise by offering small incentives to retrofit one building at a time. We need a more mission-oriented approach that actively explores innovations to solve energy efficiency and building retrofit challenges.

[The Chair, Liberal, Francis Scarpaleggia]

Thanks very much.

Last but not least, we have Mr. Germain from GHGSat Inc. for three minutes, please.

[Stéphane Germain, President and Chief Executive Officer, GHGSat Inc.]

Thank you, Mr. Chair, and thank you to the vice-chairs and members of the committee for the opportunity to appear today.

My name is Stéphane Germain. I'm the CEO of GHGSat. I'm grateful for this opportunity to provide our thoughts for the committee's study of Canadian clean technologies being utilized in Canada and globally to reduce greenhouse gas emissions and reduce harms to the environment.

GHGSat is a Canadian small business headquartered in Montreal with offices in Ottawa and Calgary, and international offices in London, England, and Houston. We have a fleet of satellites and aircraft-based sensors that monitor greenhouse gas emissions across Canada and around the world. There are currently six satellites in space, the newest three of which were launched in May. Last year alone with just three satellites, GHGSat detected a total of 143 million tonnes of carbon dioxide equivalent, and supported the mitigation of 2.3 million tonnes of carbon dioxide equivalent, which had the same climate impact as taking half a million cars off the road for a year. By the end of next year when GHGSat will have 10 satellites in space, we expect to be supporting the mitigation of more than 50 million tonnes of emissions per year.

The Government of Canada's space-based observation strategy calls for using satellites to generate solutions for climate change mitigation and adaptation, and to measure key environmental and health indicators. This strategy also calls on the Government of Canada to explore new datasets by launching pilot programs for commercial data purchases and testing of pre-commercial offerings that can provide new insights into how our planet is changing.

Canada's commercial satellite remote sensing companies such as ours stand ready to support our national climate change obligations under the Global Methane Pledge and the Canadian Net-Zero Emissions Accountability Act. For this to happen, the Government of Canada must, in accordance with Canada's earth observation strategy, commit to ongoing bulk procurements of earth observation data and analytics from Canadian commercial satellite remote sensing companies as an anchor tenant.

This approach is common practice amongst Canada's international partners through initiatives such as NASA's commercial satellite data acquisition program and the Earthnet Programme of the European Space Agency. Under the European Space Agency's program, satellite data is provided from companies, including GHGSat, and provided free to researchers in earth science and climate change. GHGSat will soon also be evaluated under the NASA commercial satellite data acquisition program.

To summarize, I'll paraphrase the conclusion of Canada's earth observation strategy, which states that our future environmental security depends on our ability to understand and respond quickly to accelerating climate change. A whole-of-society approach is required in which Canada's clean technology companies complement government efforts, enabling cost-effective and novel capabilities for reducing greenhouse gas emissions that would otherwise not be possible with either private or public sector solutions alone.

That concludes my prepared remarks. Thank you very much.

[The Chair, Liberal, Francis Scarpaleggia]

Thank you.

We'll go to Mr. Seeback for six minutes, please.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thank you very much, Mr. Chair.

Mr. Haley, I was really interested to hear you talk about building retrofits and new builds. Do you think the government would have a role in making that more affordable for Canadians? Lots of people would like to retrofit their homes to make them more energy efficient and thereby reduce greenhouse gases, but it's quite expensive. Heat pumps are very expensive. What role do you think the government has to play in making that more affordable for Canadians? Do you think the current government has put proper incentives in place to address that affordability issue?

[Dr. Brendan Haley]

Thanks for the question.

For residents, the principal program in market right now is called greener homes, which you might be aware provides both an incentive and loans. The loan is about $40,000. A deep retrofit can cost a bit more than that—$50,000 to $80,000, even $100,000 is often what you need to achieve a net-zero standard.

I think one way to get there is actually better coordination with some of the provincial programs that are also in market and trying to stack some of the incentives that are at the federal level with the provincial level. That is an area where I think better coordination could play a role. The major concern I have is that the Canadians who are really left out right now are those with low income, because with that greener homes program, you have to pay up front to access incentives or to take out that loan. Also, a lot of low-income homeowners or renters are not going to be taking out a loan. It's really not an accessible program for those with a fixed income.

A specific approach is always needed for low-income households. The United States has had a dedicated low-income weatherization assistance program since the 1970s that receives broad support. That's really the type of thing we should be looking at also having in Canada to help people.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

We don't have a similar program like that in Canada.

[Dr. Brendan Haley]

No. Right now, essentially, federal energy efficiency policy leaves out most low-income Canadians.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

Thanks very much.

Mr. Golinowski, you mentioned the Inflation Reduction Act. How does that compare with what's happening in Canada with respect to tax incentives?

[Craig Golinowski]

Thanks for the question.

Broadly speaking, the Inflation Reduction Act for carbon capture addresses two major areas. The first is a significant increase in the value. For geologic storage, the 45Q tax credit will be $85 U.S. per tonne and $60 per tonne for enhanced oil recovery. It's worth pointing out that the Canadian investment tax credit that was announced specifically excludes enhanced oil recovery.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

That's right. Yes.

[Craig Golinowski]

It's an important difference. The increase in the value is significant.

The other significant piece is they simplified how that credit is turned into money. In previous versions of 45Q, monetizing the tax credit required a complex tax structure called tax equity finance. What they've introduced now is a direct pay mechanism. For the first five years, it's a refundable tax credit. It's paid in cash. For the balance of the 12 years that 45Q is certain, the transferability of those tax credits will be enhanced.

An increase in the value and a simplification of how that credit is turned into cash are the two major changes for 45Q.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

The exclusion of enhanced oil recovery, which I know is a big deal, plus these other things that you were just talking about.... Where is capital going to flow? Is it going to flow to the United States or is it going to flow to Canada?

[Craig Golinowski]

The United States is far and away superior with this change, compared to Canada. We are electing to solve this problem slightly differently by relying on a combination of the investment tax credit and the federal carbon price.

Part of what I'm here to discuss is the importance of the Government of Canada providing contractual certainty on the schedule of the carbon price, so that people who are developing carbon capture and storage projects, which can be billion-dollar projects, are able to underwrite the scheduled carbon price. Without that certainty, I'm afraid that carbon capture in Canada will suffer from the market being unable to underwrite political risk because that carbon price can be changed or there's a change in government. It effectively sterilizes any large-scale investment. There's a risk of sterilizing until we have certainty on the carbon price.

[The Chair, Liberal, Francis Scarpaleggia]

You have time for a quick comment, Mr. Seeback.

[Kyle Seeback, Conservative, Dufferin—Caledon, ON]

No. I had another question, but I guess I don't have time. I'll pass my time on to the next Conservative.

[The Chair, Liberal, Francis Scarpaleggia]

Okay.

Go ahead, Mr. Weiler.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you, Mr. Chair.

I'd also like to thank the witnesses for joining us today.

I'd like to start with Mr. Golinowski.

As you know, we've set ambitious targets to reduce emissions by 2030. As oil and gas is our largest source of emissions, it has to play a major role for us to get there. You talked a bit about the tax measures related to encouraging carbon capture and storage in this year's budget.

Despite making record profits right now due to the impact of the war in Ukraine and what it's done to the price of fossil fuels, to my knowledge, the only company that's made a recent announcement about investments to reduce absolute emissions is Suncor, with a focus on wind energy and the transition from some coal power to some natural gas power for a boiler. We know these profits are instead being distributed in dividends to shareholders.

You mentioned before a bit about the competitive issues with the U.S., with the incentives for carbon capture and storage, but I want to touch on the other point you mentioned with respect to certainty. What will the government have to do to ensure investment in carbon mitigation and clean tech from these companies, by way of making it more certain with the price on pollution and perhaps also with the incentives that we have for clean tech?

[Craig Golinowski]

Broadly, carbon capture is applicable to things like fertilizer production, for example, cement production and electricity production. These are materials that need to be made for the economy. Carbon capture assists in reducing emissions from the production of these items.

In the United States, 45Q provides 12 years of certainty as to the total volume of dollars that are to be earned for each tonne of CO2 that's captured and sequestered into the ground. When you do your financial model, you understand exactly what the size of the pie is.

In Canada today, we have a combination of the investment tax credit, which would alleviate up to 50% of your up-front investment, and then the operating costs and the return on the capital is relying on the carbon price, and the carbon price is subject to change from a political perspective.

What I'm suggesting is a contract with the government where a developer enters into a contract with the Government of Canada so that, if the carbon price is changed by a subsequent government, the contract would state that any differences would be made up for if the carbon price ended up being changed to a lower number. There would be no benefit per se if it was increased faster, but the certainty on a floor price would be visible and contractual.

Then I could approach the Royal Bank of Canada, CIBC or whoever, and say that they should lend me money, that they could provide me a loan because I have certainty on the cash flow. Without that certainty in the form of a contract, it's basically a political risk, and that's highly problematic, given the capital-intensive nature of these projects.

[Patrick Weiler, Liberal, West Vancouver—Sunshine Coast—Sea to Sky Country, BC]

Thank you very much for that.

I'd like to direct my next question to Dr. Haley.

You mentioned in your opening statement some of the programs that Canada has on the demand side with the greener homes grant and the greener homes loan to support households to make home energy retrofits.

We've also included some measures more on the supply side with some of the tax credits we have for net-zero emissions manufacturing and the tax credit for clean tech.

I'm wondering what other measures you might suggest to be able to scale up clean tech in the built environment.