Natural Resources Committee on March 9th, 2017

[Simon Irish, Chief Executive, Terrestrial Energy Inc.]

Thank you very much, Mr. Chairman.

Good afternoon, Mr. Chairman and honourable members. Thank you for inviting me back before your committee as you continue your hearings into clean technology in Canada's natural resources sector.

I'm delighted that you have included a representative of the nuclear sector in your deliberations, because it is all too rare for Canadians to remember that nuclear is a clean technology and one that has enormous potential to achieve our goal of deep decarbonization of our electric grid and industrial sectors.

When NRCan's Mr. Des Rosiers appeared before you last month, he said that the government was looking for bold solutions. Instead of greenhouse gas reductions of a few percent here and there, he said you were looking for sharp and dramatic reductions in the order of 50%, 60%, and 70%.

I'm here before you again today to declare that advanced nuclear is one of the very few clean energy technologies that can realistically and demonstrably deliver on that goal.

Moreover, our ability to deliver does not depend on someone inventing a new device or a new process—for example, a breakthrough grid battery or some other energy storage device. Advanced nuclear technologies exist today. Many are proven, and all we have to do is take the commercialization step. Many in the private sector are doing just that today. I know the members of this committee understand this, and I thank you for continuing to include nuclear in the conversation.

Your current study is an important one. To find the right policy instruments that will accelerate the early adoption of clean technology in Canada's natural resources sector, the first step, I would submit, is to be willing to talk about nuclear innovation. One of the simplest ways for policy-makers to de-risk the adoption of clean technologies is to acknowledge them and to talk about them. That does not cost a penny.

This means that our government needs to acknowledge that advanced nuclear is one of those clean technologies, and it needs to recognize the enormous potential it represents. Sadly, our government seems loath to utter the “N” word when we talk about clean energy. Nuclear, in particular advanced nuclear, which I believe must be recognized in a category of its own, must become part of the conversation. We should not be talking about the promise of wind and solar without giving equal mention to the promise of advanced nuclear.

Again to reference the testimony of Mr. Des Rosiers last month, which I thought hit the mark in so many respects, the assistant deputy minister—who is, I remind you, the ADM responsible for innovation and energy technology—did not utter the word “nuclear” once during the hearing. Terrestrial Energy has sought to meet with the Minister of the Environment, who is responsible for climate change, to describe how advanced nuclear could play an important role in the deep decarbonization of our electric grid and industrial sectors, yet we have so far been unsuccessful.

In Ontario, the premier is right to brag about how the province has the cleanest grid in North America, if not the world. When she does, the role of nuclear in that success usually goes unsaid. Ironically, the refurbishment of Ontario's nuclear plants and the possible refurbishment of Point Lepreau must qualify as among the largest carbon abatement projects in the world, yet they are rarely part of the discussion.

My big ask of this committee is to urge the government to put nuclear back on the table, and not just in the context of conventional nuclear but in the context of advanced nuclear, the most promising scalable clean technology today, especially if we desire Mr. Des Rosiers's bold 50%, 60%, or 70% solution.

At Terrestrial Energy, we believe that our integral molten salt reactor power plant, or IMSR, has enormous potential for the electrical grid and natural resource sectors. Advanced nuclear's true value is its use in industrial heat applications. In this huge part of the energy market, conventional nuclear and wind and solar technologies cannot play a role. They don't produce the required heat that fossil fuels do or that the IMSR could do.

Our IMSR provides heat of roughly 600° C, and this heat can be simply coupled to many existing industrial applications. If we are content to continue to extract crude from the oil sands, then we should at the very least try to minimize the carbon production footprint. Instead of burning natural gas for production, why not use the heat from an IMSR? The promise is Alberta crude with the same carbon production footprint as Saudi crude.

In mining, we should think about exploiting the Ring of Fire with advanced nuclear. The biggest impediment to Ring of Fire development is the lack of power and heat access, because the deposits are far from grid, but since the IMSR is grid-independent, it could be deployed in these remote regions to meet the needs of the mining sector.

Many of the alternatives we are talking about today are geography-dependent—solar farms in sunny locations, wind farms in windy locations, hydro in rivers—and are not commonly close to points of demand. Advanced nuclear has no such geographical constraints.

Why, then, doesn't the mining sector adopt this technology? Why aren't the producers of the oil sands knocking on our door? I think the reasons are clear. They look to mitigate business risk in a sector that is risky, and not to add risk. They are hence reluctant to be first adopters of any new technology.

How can the government help? Loan guarantees provide one way to support early deployment of a new industrial technology. They allow the private sector to spread risk. Terrestrial Energy's U.S. affiliate, for example, is seeking to deploy an IMSR power plant in the U.S. It is in the second part of an application process for a $1-billion U.S. loan guarantee from the U.S. Department of Energy, and that company is moving along well with that process.

Unfortunately, the Canadian government has not shown the same interest in advanced nuclear. Compare the level of support here, for example, with that of the U.S. House of Representatives, which in January of this year, with strong bipartisan support, passed the Advanced Nuclear Technology Act of 2017,which is intended

To foster civilian research and development of advanced nuclear energy technologies and enhance the licensing and commercial deployment of such technologies.

There is also a companion bill before the U.S. Senate. This U.S. interest is in part due to the environmental promise of advanced nuclear.

I have a few suggestions that I would like to leave with the committee.

First, we need a level playing field for all technologies that meet our objective definition of a clean technology. We must look at options on a relative basis. No clean technology is without externalities, but we need to look at them in honest and relative terms, and the discussions must be objective, based on facts and evidence.

Also, if we're going to have a level playing field, it should extend to the incentives offered. One technology should not be favoured over another if they achieve the same goal, namely a cleaner industry and a cleaner electricity grid. I don't need to tell you that some technologies in some jurisdictions have been given enormous preferential subsidies and incentives that are not available, for example, in my sector.

Second, policy should be developed to stimulate private capital formation around the most innovative ideas. Policy instruments should be clear, reliable, and dependable, to be capital-friendly.

I like the idea of the multi-stage view that Mr. Des Rosiers described when he was here: providing early-, mid-, and late-stage commercialization support in a more seamless fashion. There should be a portfolio of mechanisms, including loan guarantees, production tax credits, investment tax credits, and straight-up grants.

Third, for highly regulated industries like my own, let me also suggest a specific policy initiative that would be helpful. A quick fix would be to ameliorate some of the costs of regulatory actions. As it now stands, Terrestrial Energy bears 100% of the cost of its regulatory actions with the CNSC, which can add up to many millions of dollars. I think the current framework may be reasonable for licensing on an ongoing basis, but when licensing a new and novel concept, I believe these fees act as a brake upon private sector-led innovation.

Finally, I return to my initial comment. Please, let's make advanced nuclear part of our clean, sustainable energy discussion.

With that, Mr. Chairman, I'll be happy to respond to your questions.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Irish.

Go ahead, Mr. Thériault.

[Louis Thériault, Vice-President, Public Policy, The Conference Board of Canada]

Thank you, Mr. Chairman. Thank you to the committee members.

Just to provide a word on the Conference Board, we're a research organization, independent and not for profit. In fact, we're a charity by law. All the work we do in public policy and on public policy questions is driven by facts and hard evidence. We have a large team of economists. I'm an economist myself by training.

In fact, it turns out that today my training is in connection with the question at hand: I'm an energy economist by training and I started working for Natural Resources Canada back in 1990. That ties to some of the things I want to talk about.

Your question for today, as I received it, indicates that you want to hear about an assessment of policy instruments designed to de-risk adoption of clean technology in Canada's natural resources sector. We haven't written on this question in particular, but I have some reports you might be interested in looking at afterwards. I'd be glad to share these with the committee.

Let me offer two perspectives. One perspective is a macro policy perspective on development and adoption—I would put them together—of clean tech. The other is more traditional or more micro-financial perspective on the development and adoption of clean tech.

On the macro side, where my background is—I find it interesting to bring it back—25 years ago, when I started in March 1990, negotiations for the Rio summit were starting. If you remember, the goal at that time was stabilizing emissions at 1990 levels by the year 2000. Do you remember that?

Others might remember more closely Kyoto, and then the recent Paris agreement. There was Copenhagen in between.

You all know that we didn't meet Rio and we didn't meet Kyoto, and now we're looking at “80 by '50”, to put things in perspective a little bit.

I left this file in 1997 and have just come back to it in the last couple of years. I must say there has been a lot of progress. One thing we were talking about back then was that clean tech was the ace in the back pocket. The problem was that we didn't know where to find it.

It turns out that technology has played a huge role. So have standards and regulation. You should look at the car industry, for example, with huge progress on the technology front, offset by consumer preferences for bigger engines and different kinds of cars. In terms of energy efficiency, though, there has been a lot of improvement in buildings, appliances, etc.—you name it. There has been a lot of progress on many fronts.

That said, nothing has happened even close to meeting what you would consider maybe a conservative target, such as the one in 1990, the Rio one.

What we're talking about with “80 by '50” is a paradigm shift altogether. We're really redefining the industrial structure of this country. We haven't really come to grips collectively, I think, with the implications of it. In fact, the Conference Board has a public conference in a month about it; we're looking at the economic and social implications of moving to “80 by '50”.

It turns out that we're using work from McGill, the David Suzuki Foundation, and the Canadian Academy of Engineering, which has defined a technical path forward to meet “80 by '50”. In fact, the best they could achieve on the technical pathways was a 70% reduction in emissions by 2050, and it brings in assumptions that are politically unfeasible and in fact, given the timelines, not doable. What you learn when you go through all the details is that we don't know how to get there yet.

One major element that comes out systematically is around greening the grid, the electricity grid. Hydro, of course, is fundamental in that process, and nuclear comes in as really big, particularly in Alberta and Saskatchewan in these scenarios, and in Nova Scotia. This is work that is coming out, I think, in time to inform the committee. I think it would be really useful to consider it when we produce it.

There are four things I see from what has happened since the conversations in Rio, up to now.

Some things have been missing from the macro side, and the first one is policy certainty about where we're going collectively. Even if we ratified Rio...Jean Chrétien ratified Kyoto, and then Stephen Harper over the years managed that whole file totally differently. The outcome is the same. Overall we've never really had political certainty.

Do the Paris agreement and the political ambition mean policy certainty? I'm still unsure. If you want to get there, if you are serious about it, this is the golden principle.

The second thing is that relative prices matter and incentives matter. Over the years clean tech solutions would be here if they were financially viable. They are not, because implicitly there is an environmental cost associated with producing energy from carbon-emitting sources. If you produce with oil, gas, or coal, there is an environmental footprint that is not priced into the cost of producing energy from these sources.

This is the reason there are subsidies for clean tech. It's to make up for that exclusion. This is trying to play with the market. It's really hard to tune things right. First of all, pricing that environmental cost through a carbon tax is a core principle that is also really important to respect.

Standards and regulations remain. Given the level of the ambition, they are still part of the mix. We've been employing them, but given the scale, I think we're going to have to rethink the framework in which we set standards and regulations and start looking at the implications of setting them to the levels needed to reach the target.

Finally—and this ties to the next point I want to make about that clean tech ace that is hidden somewhere in our back pocket—we need to foster innovation in a way that we've never done before, which ties directly to the mandate of the committee, of course. If the pre-conditions are not in place, however, everything else falls apart.

The second point I want to make here is about the way the question is phrased, which is around policy instruments designed to de-risk the “adoption”. I'm not sure whether it's by design that the question was specifically pointed at adoption, but I think you have to think about development in that process. There is a huge economic development strategy tied to it. Development and adoption need to go hand in hand, I would argue.

The reason is that if you can figure out the process for development and adoption—and I have some suggestions here—you create a market for new technology. You start de-risking the commercialization of new ideas and you can start thinking about the scale. Again, there are really innovative tools to get to that, which I will mention here.

First of all, as part of it, the financial ROI calculation plays a part in the context in which you have that carbon tax.

The second thing is that the adoption needs to be integrated with clean development strategy, as I mentioned. Otherwise, even if we have some support through SR and ED and other tools and from other credit agencies in Canada—EDC, BDC, etc., and all the regional or provincial authorities that are also providing support—what we are finding is that we're really pushing the implementation of existing solutions when they get bigger, solutions that we typically import. They are not tailor-made for Canadian needs, and I would argue that we have particular challenges.

Among all developed economies, having an energy industry that is so strong, so central to Canada's economy, is unique. The usage of energy that goes with it is unique, and our geography, with all the implications associated with it, is also unique. To look at Canadian-made solutions and start articulating an economic development strategy that ties solutions to our current reality is much more effective.

The funding—the money available—exists. There are many sources. You know all these, and I've mentioned a couple. The only point I'd like to make on that is that there is a total lack of coordination right now. Coordination and intermediaries form a central element of the equation that right now is missing, to bring the scale of commercializing ideas to the level we need.

The final point I'd like to make is around the specific things we can do to start changing the way we've been doing things over the years.

One thing that government has total control over is procurement. There's a whole agenda around procurement innovation and health innovation procurement that applies really well for infrastructure development or for what we're talking about today. It means starting to use the procurement tool as a way to drive solutions to problems, rather than pre-crafting solutions and having minimizing costs as the ultimate standard that we comply with.

I'd like to talk about this, if I may, during the Q and A, if you're interested in it. We've done some work in this area at the Conference Board. It's a tool that's been applied within government to trigger some fundamental change in how partnerships are developed among private sector participants, and also how P3s—private-public partnerships—can evolve.

[The Chair, Liberal, James Maloney]

Thank you very much. Unfortunately, we have to stop there.

[Louis Thériault]

I'll leave it at that. I an happy to answer questions.

Thank you.

[The Chair, Liberal, James Maloney]

Mr. Tan, I believe you're going first.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you, Chair. I'm going to share my time with my colleague, Mr. McLeod.

My first question goes to Mr. Thériault.

I'm sorry, how do you pronounce—?

[Louis Thériault]

Think of “Ontario”; I could be one.

[Some hon. members]

Oh, oh!

[Geng Tan, Liberal, Don Valley North, ON]

Your company provides analysis reports on public policy issues, economic forecasting, and also the value of innovations. Quite often those clean technologies or innovative technologies are relatively new, with many things uncertain, many things that people don't know. I guess there might be considerable risks, financially or technically, involved in those new technologies or in those evaluations.

Why do you think your company has the expertise to evaluate those new technologies and give us the right recommendations?

[Louis Thériault]

I wouldn't say that the Conference Board would assist with specific technologies, but in terms of establishing a framework in order to de-risk as much as possible the process of bringing a concept to the lab, to the commercialization phase, and the scaling phase, I think we can offer some insights.

The Conference Board has an initiative called the Centre for Business Innovation. It has talked a lot about managerial capacity in the infancy of Canada's credit experience in risk capital—not the lack of capital, but the risk capital, and how angel investors, for example, come in, and that culture of risk capital that is not well established in Canada.

As part of the work we've done—in fact, as part of this report—we talk about core principles in funding Canada's emerging innovators. The report talks about the whole notion of financial risk and ROI. We come at this being totally disinterested, as I mentioned. We're not in favour of one technology versus another. It's about some core principles that are applied to funding new ideas throughout, I would say, the innovator's supply chain, from concept to bringing a product to market and scaling it.

[Geng Tan, Liberal, Don Valley North, ON]

Thanks.

Mr. Irish, thank you very much for your advocacy for nuclear technology.

I know you have an agreement with the University of New Brunswick, probably with Professor Lister or his colleagues. By the way, I used to be a member of a technology advisory committee for Dr. Lister's NSERC project.

In addition to that, do you have any co-operation with any other nuclear technology developers? Your design, your IMSR, is one type of Generation IV design. Do you have any co-operation with other technical developers, either in Canada or outside?

Also, is there a prototype of this type of reactor, built either in Canada or outside? If not, when will there be, in your opinion?

[Simon Irish]

Thank you, Mr. Chairman.

With respect to our co-operation with other vendors, we consider ourselves to be a vendor of an advanced reactor, just as much as Westinghouse or SNC considers itself to be a vendor of an advanced reactor. We're not co-operating with other vendors. We view our market ultimately as a competitive market.

What we are seeking to do is to work with universities and national labs in a partnership to develop the expertise and the capabilities, and to move through our engineering program and our regulatory actions to bring our product to market. We announced our relationship with the University of New Brunswick earlier today, but we have relationships with other Canadian universities and other universities in North America as well.

With respect to your second question...I'm sorry; could you repeat your second question?

[Geng Tan, Liberal, Don Valley North, ON]

It was about the prototype.

[Simon Irish]

There has been a prototype built of this reactor. If you look at the advanced reactors, many prototypes have been built and operated. The interesting thing about this technology comes from asking why these technologies were never brought to market.

There were some very good reasons when you look back 30, 40, or 25 years ago. If you look in the context of market needs 25 years ago, yes, it's clear why they didn't progress to market. It was because the current product was good enough, and we didn't have an existential threat from climate change. When you now revisit that decision in the context of today's market needs, in the context of where the current product is, it is too expensive and too complex to build. That's the principal problem with conventional nuclear: it's become too complicated, too risky, and too costly to build. When you revisit those decisions, you realize that the better product is advanced nuclear, for which there are many different types of designs and technologies.

These technologies have been proven at the national lab level. The commercial opportunity is to recognize that their commercial time has arrived. That's the interesting insight.

[Geng Tan, Liberal, Don Valley North, ON]

Thank you.

[The Chair, Liberal, James Maloney]

You have one minute.

[Michael McLeod, Liberal, Northwest Territories, NT]

I just have a quick question on the IMSRs. What stage are they at? Are they being utilized yet? Are they still being tested? Where are they at?

I'm from the Northwest Territories. We don't have a grid. We don't have a lot of the infrastructure that's required. This looks like a good fit, but we don't have any presence.

[Simon Irish]

Our key commercial claim is that we are looking to deploy our first systems in North America in the 2020s—so not the 2030s, the 2020s—and this technology is capable of delivering power to the grid at a levelized cost of 5¢ U.S. or 6.5¢ Canadian per kilowatt hour, about $65 Canadian per megawatt hour.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Liepert is next.

[Ron Liepert, Conservative, Calgary Signal Hill, AB]

She's going first, and then I will.

[The Chair, Liberal, James Maloney]

Oh, sorry. Okay. Go ahead, Ms. Stubbs.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thanks, Mr. Chair. Thanks to both of you for being here. I just want to say I really appreciated the comments from both of you, particularly around pitting sectors against each other and in recognizing the strengths of Canada because of all the strong natural resources opportunities we have. Those were comments made by my colleague across the table during the earlier presentation, which I just want to say I found heartwarming to hear.

I also appreciated your comments about the implications of cost drivers and of a regulatory burden in the venture and the endeavour of developing and adopting new technologies.

I want to highlight a concern of my own that has to do with the kind of carbon tax that is being proposed in Canada. Often the B.C. model is hailed as a great example, and it would be closest to what the Liberals have said they want to impose across Canada. Of course, in B.C., as both of you have mentioned in tying public policy with outcomes and goals, emissions have increased every year since 2010, and there have been no significant reductions in gasoline purchases there. This is significant, as it's the second-highest emitting sector. Also, the federal government hasn't proposed the carbon tax in the context of equivalent reductions of regulation and red tape in order to unleash innovation and allow private sector entrepreneurs and developers to absorb those costs while also continuing to develop innovation.

Like my colleague, I have some questions about MSRs and your IMSR technology. I just wonder if you are able to expand on their applicability to the oil sands and any other context you'd like to give us, in terms of challenges you foresee in that application and any specific recommendations on tools that legislators could support to enhance that adoption.

I think my colleague's going to have more questions around this area later.

[Simon Irish]

Thank you, Mr. Chairman.

In terms of its applicability to the oil sands, this technology is potentially very applicable. The product is 600°C heat. You can create steam very efficiently with that.

You can also potentially drive chemical synthesis for hydrogen production. The Canadian petrochemical industry has a tremendous hydrogen demand to upgrade its Alberta crudes. With nuclear heat you have, then, the capability of both creating the steam necessary for the extraction of the oil from the oil sands and also upgrading it chemically with hydrogen.

The opportunity here is to offer technology that is potentially cost-competitive with natural gas combustion. The challenge is that you have an industry.... The natural resource sector is a risky business; it's defined by booms and busts, and commodities are volatile. If you're an executive at one of those companies, you seek to mitigate your risks. What you wouldn't naturally want to do is to take on new technology risk. Your job is to extract, for profit to shareholders, as efficiently as possible your product from your natural resource and then sell it to your market.

This problem is generic for all clean technology capital equipment companies. We're a capital equipment company. We're looking to develop our capital equipment, and that has certain risks to it that we are looking to mitigate as well. Then we're looking to sell it to our customers.

The customers are the natural resource firms in, for example, Alberta. They have to be incentivized to adopt new technology. They can be incentivized through the bottom line—namely, it's cheaper. We can provide that incentive, but to really support early adoption, as has been the case in wind and solar, you have to provide the customer who's going to buy that capital equipment—going to be the first adopter and early adopter of that capital equipment—with some risk mitigation support, either through a loan guarantee, a production tax credit, or some type of mechanism to encourage early adoption. Otherwise, you will have a wait-and-see attitude.

We want the lowest risk point for the adoption of this technology, and that lowest risk point is when three other people have done it already. If everyone in your community does it, no one is the first mover.

You would not expect anyone in the Alberta oil sands business to become an operator of a nuclear power plant. That won't happen. However, they would potentially be very interested in taking our product, which is hot salt, just as much as they'd be interested in the takeoff of power. We as a company have to develop that capital product, that capital equipment, and seek to mitigate the risks as well, and then our customers have to be incentivized to actually be early adopters.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you.

The federal government, then, could be looking in earnest into those incentives in order to capitalize on all of Canada's strengths and enable clean tech to be adopted by the oil sands sector, instead of, for example, having the Prime Minister talking about phasing the sector out.

Do I have time to ask about bridging the valley of death?