Finance Committee on Oct. 13th, 2023

[Sean Leet]

Mr. Chair and committee members, thank you for the opportunity to present to you today.

My name is Sean Leet. I'm managing director and CEO, and a partner in project Nujio'qonik.

We're developing project Nujio'qonik on the west coast of Newfoundland. The first phase of the project is a $6.5-billion development of a one-gigawatt wind farm powering a hydrogen plant in Stephenville. This initial phase will be followed by multiple additional phases resulting in production of over 220,000 tonnes of hydrogen by 2030. This is a massive amount of hydrogen, and alongside our friends at EverWind and projects such as Bear Head, we can position Atlantic Canada as the global leader for green hydrogen production. If you think about that, it could be massive for us.

Our project is based at the same location where Prime Minister Justin Trudeau and German Chancellor Olaf Scholz met just over a year ago and where the Canada-Germany hydrogen alliance was signed. In many ways, Stephenville and Newfoundland are the birthplace of Canada's nascent renewable-hydrogen industry.

Our project has key strengths: a valued partnership with the Qalipu First Nation, Canada's second-largest indigenous community; strong community support throughout the project and in our project region; a world-class onshore wind resource; a deep-water port, which we have acquired; an abundant industrial freshwater source, which was originally used for a pulp-and-paper facility at our location; existing transmission corridors, including a 230-kilovolt grid connection; and manufacturing slots with key OEMs who recognize that project Nujio'qonik is amongst the three most advanced green hydrogen projects in the world.

We've continued to build momentum in recent months, including through receiving provincial approval for our bid on Crown lands; by completing a comprehensive environmental impact statement totalling over 3,700 pages, which we believe is the first of its kind for a green hydrogen project; and through investing in education and training with $180,000 in scholarships to 24 students to learn right here in Newfoundland how to become wind turbine technicians or hydrogen technicians.

We're pushing forward one of Canada's most advanced renewable hydrogen projects of commercial scale. There are four other proposed projects being planned in Newfoundland alone. Together, the green hydrogen industry could bring over 11,500 new jobs to the province, according to Minister Andrew Parsons.

However, these investments are not a done deal. They're contingent upon the Government of Canada getting policy right.

Here are our recommendations to ensure that Canada can compete for these multi-billion dollar clean hydrogen investments.

First, finalize investment tax credits for clean technologies and clean hydrogen. For clean hydrogen projects to succeed in Canada, these ITCs are a necessary condition for success, but they represent less than half of the support that we would receive in the United States under the U.S. Inflation Reduction Act, which includes subsidies of up to three dollars per kilogram of clean hydrogen. More U.S. subsidies are coming. Earlier this week, President Biden announced an additional $7 billion U.S. in hydrogen investment to support regional hydrogen hubs. ITCs need to be comprehensive in coverage and supplemented with added measures. Clarity on the breadth of ITC coverage cannot come soon enough.

Second, ensure availability of de-risking measures such as contracts for difference. This will allow projects to secure off-take agreements, make their final investment decisions and start building. CFDs are cost-effective since they call on the government to support clean hydrogen prices only below a strike price. Once the price of the clean hydrogen, together with the value of its carbon savings, goes above the strike price, government will share in the profits with project proponents. CFDs were important in standing up the offshore wind industry in Europe, so there's a clear example of success and a path to implement CFD mechanisms quickly. We ask Canada to act on this immediately and to implement a market-friendly mechanism that will assist with level setting Canada with United States' subsidies.

Third, secure partnerships with other countries that are purchasing green energy. Doing this was suggested in the Canada-Germany hydrogen alliance, which committed the two countries to exploring cofinancing for green hydrogen. For example, the German government could provide price support through a contract for difference available for product produced in Canada and shipped to Germany.

Fourth, our final recommendation is to ensure availability of other government programming, such as the strategic innovation fund, the Canada Infrastructure Bank and the Canada growth fund. Each of these programs has a potential role to play in meeting the competitive gap that is partially closed by the proposed ITCs.

In closing, these steps are critical for Canada to attract and support clean energy investments, like project Nujio'qonik, and to secure the jobs of the future. Canada needs to move quickly to close the gap with the U.S. and other nations. Now is the time for Canada to take action.

Thank you.

[The Chair, Liberal, Peter Fonseca]

Thank you, Mr. Leet.

Before we get into questions from members, the witnesses may not have been here at the start of our meeting today, so we can introduce ourselves as we go through. You can do that when you get into your questions.

We do have three members here from Newfoundland and Labrador, and they'll be able to let you know where they're from through their questions. I'm the chair of the committee, and I'm also from Mississauga, Ontario.

With that, we are going to get into questions.

Members, perhaps you could introduce yourselves when you have the opportunity to ask questions.

Each party has up to six minutes to ask questions. We are starting with MP Small.

Go ahead, please.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Thank you, Mr. Chair. Thank you for taking your show on the road and bringing our finance committee to Newfoundland and Labrador to get input from our guests.

I thank our guests for appearing today.

I'm the MP for Coast of Bays—Central—Notre Dame and the shadow minister for fisheries, oceans and the Canadian Coast Guard. I chatted with MP Fonseca earlier, and he told me that one of his favourite foods used to be harvested a lot here.

[The Chair, Liberal, Peter Fonseca]

It's bacalao.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Yes, bacalao—it's Portuguese. Let's start off with a little talk on bacalao.

Mr. Bonnell, do you recall a year before 2015 in which the annual trawl survey was not conducted?

[Carey Bonnell]

No. I don't recall a time period before 2019 or 2020 in which a survey was not conducted. In the last four years, in particular, we've had [Technical difficulty—Editor] issues.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Mr. Bonnell, again since 2015, are you aware of an increase in DFO's budget, both in personnel and financially?

[Carey Bonnell]

Yes, I'm generally aware. I wouldn't know exact numbers, but certainly there have been budget increases, absolutely.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Basically, there's been a 50% increase in funding and a 50% increase in their personnel, but we're missing this data piece.

What do you think is the impact on an operation like your own? In the Newfoundland and Labrador blue economy, what's the impact of that lost science data?

[Carey Bonnell]

In terms of core multispecies science surveys...and for those of you who don't understand it, every year the federal Department of Fisheries and Oceans does a spring and fall survey, which they call a multispecies survey. They'll go out, all the way from the coast of Labrador to the southern Grand Banks, and do a multispecies survey over a period of two to three months.

For the past four years, starting with COVID in 2020, with aging vessel issues, labour issues, new vessel issues and calibration issues, there have been gaps during which complete surveys were missed, at times partial surveys were completed, and at times surveys were completed but data was not admissible because [Technical difficulty—Editor] if you wish.

That has a major impact, because these surveys lead into the assessments and lead into the science recommendations. From those, managers will make recommendations to the minister for decisions. That's the foundation for the $1.4-billion seafood industry we have in Newfoundland and the $8.8-billion industry we have across the country. When there are gaps, an ultraprecautionary approach is often applied and the outcome of that is usually quota reductions. That's our concern. This is well known, and I've spoken about this at FOPO on several occasions. I just had a call with Fisheries and Oceans, before I came here, on this very topic, and it's an area of concern, no doubt.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

We know that fishery science is used for conservation and whatnot, but with this fumble, could we be missing a great opportunity for economic growth if there's recovery in stocks?

Do you have specific examples of how you've been penalized because the science wasn't done?

[Carey Bonnell]

I think it works both ways.

There are examples of how we've been penalized for lack of data and lack of information and ultra-conservative decisions have been made. The situation with Greenland halibut is a very good recent example of that.

There are also examples of how we just don't know. We're the company that fishes most of the yellowtail flounder in the southern Grand Banks. We've actually seen a decline in catch rates in that case, yet we don't know what's going on with the resource because no survey has been completed in the last three years. My understanding is that we will have one completed this year and it will feed into the decision-making efforts. It works both ways. There's an opportunity cost, no doubt, but if stocks are declining we'd like to know that as well so we can make responsible decisions based on that.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Thank you, Mr. Bonnell.

On yellowtail flounder, your operation consumes a lot of fuel. What has the cost been, or what is your projected annual cost—I don't know if you know that figure or not—of the clean fuel standard, or carbon tax number two, on your operation at OCI?

[Carey Bonnell]

The clean fuel regulation was implemented in July this year. We can only project what the cost might be, but what I can tell you is that, as of July 3, which was the first day things were open after Canada Day.... We have two oil companies that we source oil from in this province. On July 3, one of the two companies—I won't get into naming names—increased the price by 12.5¢ a litre. The other company did not, but within a period of about a week to 10 days, the other company followed suit. There was no change in the spot price and no change in the market price. It was just implemented as a result of that.

Basically, the refineries and the oil companies are passing the clean fuel costs onto us, and we can't pass those costs along. We operate in a global seafood industry and a global seafood market where the price is the price. We compete with other countries. We export primarily, so we're squeezed on that cost.

We estimate it's about a million dollars a year potentially, as it stands right now.

[Clifford Small, Conservative, Coast of Bays—Central—Notre Dame, NL]

Mr. Bonnell, you're expecting the clean fuel standard to cost your operation a million dollars per year. Is there an alternative to burning diesel fuel in the world that you could switch to right now?

Is there something you could switch to? Because of your penalty, is there somewhere you could go?

[Carey Bonnell]

There's nothing that we are aware of right now. There's research and there's activity around biofuel. That's not our space. That's for others to develop. We encourage the development of it, but there are issues around that. There's carbon-capture technology that people are pursuing, but there are issues around that in Atlantic Canada as well.

We have a green ship. Our new vessel, the green ship, has all kinds of energy efficiencies on it, but that happens during fleet renewal. That doesn't happen every other day, so you have the fleet that you have. It's very difficult to make those kinds of adjustments. A lot of the new technologies are years, if not decades or more, away for the seafood industry. We're seeing it in the automotive industry, of course, but not so much in the seafood industry. It's going to take a lot more time.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Small.

We'll go to MP Thompson now.

[Joanne Thompson, Liberal, St. John's East, NL]

I'm Joanne Thompson. We've met, but for the record, I'm the member of Parliament for St. John's East. I'm a Liberal.

I want to ask questions of all of the witnesses. Thank you so much for coming.

I want to make the opening comment that, for me, there is no doubt we're in a climate crisis. I don't know that any of us could ever have predicted how severe it is and how urgent the action required is. Also, we have evergrowing geopolitical crises that I think are making this even more difficult. Apart from the human scale, there's the need for us to move forward with the clean fuel shift in every aspect of society to meet the realities of the targets we need to make to reach net zero.

I'm going to start with you, Mr. Leet, and then I'll go to Mr Templeton.

In the next six minutes, could you speak about what it is that makes Newfoundland and Labrador quite unique in how we're able to lead the 21st century in a movement to clean technology? We're part of the Atlantic, and I think that the opportunities within the Atlantic provinces are significant, but Newfoundland and Labrador has a very unique position here.

Mr. Leet, if you could, speak to the opportunities. You listed some of the challenges, but tell us if there's something else you would like us to know.

[Sean Leet]

Thank you for the question, MP Thompson.

The province, particularly the island of Newfoundland, is blessed with an extremely strong wind resource. We've had many experts looking at our project, from offtakers to OEMs, and they all remark at the speed of the onshore wind and the capacity factor as well. That's huge. It all starts with the resource.

Unique to our site—to some other sites in the province as well, but I can speak to ours in detail—is that we have existing transmission corridors and a low-density population. A massive freshwater supply served a former paper mill, as I mentioned in my comments. That is key. We don't have to encroach on any municipal or other provincial water sources, and it's fresh water. The other leading project in the world is in Saudi Arabia in Neom. A company called Air Products is moving that project along. They have to desalinate all their water. In order to have a carbon score to allow that product to be considered green by the EU, which are the standards that are setting the pace right now, they have to use renewable energy to do the desalination of the water. If you think about how that works economically, it's a huge advantage for us to have the freshwater supplies that we have here.

In terms of stakeholder support and first nations support, I know that it's not just with Qalipu First Nation, which is key to where our project is located. Miawpukek First Nation is extremely supportive as well. Unanimous support from the first nations on the island is huge. They recognize the fact that we're in a climate emergency; that we need to take leadership action; that we have the opportunity to do this right here, very quickly, because of the uniqueness of our site; and that we're in close proximity to the initial markets.

We're anxious to find ways to add value to the product here at home locally. We have some conversations on that started. The steel industry is a massive emitter of carbon, and there are huge movements to convert the steel plants in the world to green. Labrador, as you're probably well aware, has a very high-quality ore that holds a huge opportunity for advancing this industry more quickly.

I could go on and on about the advantages and how well we're positioned. As mentioned in my comments, I don't think we can understate the fact that we really do have the opportunity to lead the world here. It's extremely unique, at this moment in time, for the reasons you've pointed out. The OEMs that we're working with are amongst the leading companies in the world for the manufacturing of turbines, electrolyzers and all the long lead components.

We've had to sell ourselves to them. They're looking at the U.S. and the IRA subsidies and saying, “Well, once these come on, these projects are going to be well funded.” We've had to take risks, much like everyone at Bear Head, and spend our own capital to move forward and convince these OEMs that they should reserve manufacturing slots for our project. We've been successful at doing that, because they've recognized the value in the location, the support from the province and the support from the federal government, but they're still waiting to see what these subsidies are going to look like: Are your financial models going to be able to deliver on the indications you have from both the federal government and the province when it comes to the royalty regime?

As stated, that information can't come quickly enough. We need the ITC coverage to be clarified. Hopefully, it's extremely broad to give us that partial “level set” with the U.S. IRA. Then we need the contracts for different arrangements to be implemented and for Canada to send a message to the world that we're serious and we're here. These projects will start to move forward even quicker once those clarifications are made.

[Joanne Thompson, Liberal, St. John's East, NL]

Thank you.

Mr. Templeton, with the time remaining, I'd like to hear your comments.

[Alex Templeton]

I would simply reiterate what Mr. Leet has said. It is a confluence of very unique factors that are enabling the prospects in the province.

I would just highlight that it really is also the added benefit of people like—

[The Chair, Liberal, Peter Fonseca]

Excuse me, Mr. Templeton. Could you move the microphone over so that our interpreters can capture your voice?

[Alex Templeton]

I'm sorry.

I would just add to that list that people like Mr. Leet are business people who are prepared to take these risks. These are highly complex financial models, as you would expect, and there are lots of pressures on them. I would just reiterate the need for the federal government to come to the table with its piece of that complex puzzle, which is very much these ITCs and leveraging that opportunity.

[The Chair, Liberal, Peter Fonseca]

Thank you.

Thank you, MP Thompson. There will be another round, so you will have an opportunity.

We'll go to MP Ste-Marie, please.

[Gabriel Ste-Marie, Bloc, Joliette, QC]

Thank you, Mr. Chair.

Thank you to our four witnesses, who have given us a lot of information. This is a very informative meeting. I have a slew of questions, but first, I want to say a few words about the committee's work.

We've spent the week visiting the Atlantic provinces. It's been very insightful. We are learning a lot. I think it's very helpful to meet with people in their community or province to gain a better grasp of their situation. It's a bit gruelling, because we spend mornings meeting with people and afternoons on the road or in this case, in the air—we flew here, of course. The reason we are able to do our job properly is the incredible support team we have with us. The days are long for everyone.

I want to take a few moments to thank everyone on the team—our fabulous committee clerk, Mr. Roger, and our seasoned analysts, Mr. Capwell and Mr. Lambert‑Racine, who provide us with documentation, summaries and analyses.

As a francophone, I depend on the interpreters. They do a tremendous job, and I cannot thank them enough. Ms. Forbes‑Smith, who is interpreting my remarks as we speak, Ms. Célestin and Ms. Desnoyers, thank you ever so much.

I want to thank the proceedings and verification officers, who are also great, even though they're all the way over there. Thank you, Mr. Campbell and Ms. Senior. Lastly, I mustn't forget Ms. Fahey, who isn't in the room right now. She's the terrific logistics officer who organizes everything for us. I want to say a heartfelt thanks to everyone on the team. We're getting to know each other better over these weeks, and they are all amazing people.

I see the chair's reaction, so I should add that I speak on behalf of all the committee members.

Now that that's been said, I have quite a few questions for the witnesses.

Mr. Bonnell, I want to ask you about your employees.

Do you hire them for the season or the year? How does EI work for them?

We've heard a lot about the labour shortage. Is that a challenge your company is dealing with?