Natural Resources Committee on April 30th, 2021

[Frédéric Verlez]

Actually, we prefer to talk about the carbon intensity of hydrogen rather than to categorize it by colour or by production method. So-called green hydrogen, which would be produced by electrolysis with electricity that is not clean, would certainly not have the same carbon content as hydroelectricity.

In the regulatory framework, it would be important to recognize that carbon intensity is a key criterion in the methodology. I believe other witnesses, like Mr. Boies or Mr. Trahan, might be better able to round out my answer.

[The Chair, Liberal, James Maloney]

Unfortunately, I'm going to have to stop you there. We're out of time for that segment.

We'll move on to Mr. Cannings, please.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you.

Thank you to all the witnesses for being here today.

I'm going to start with Mr. Hutchens from Fortis, if only because I not only pay my gas bill to Fortis, but I also pay my electrical bill to Fortis. All that electricity is made in the west side of my riding. There's a company that's developing a renewable natural gas plant in my riding, and hopefully that gas will be put into Fortis pipes.

I have two questions. One is a clarification about your view of the world by 2050, the Fortis world. I didn't catch what percentage of your gas production would be net-zero carbon. I thought you said 50, and that confuses me, because I thought we'd be at zero by 2050.

That's my first question.

[David Hutchens]

Mr. Cannings, it's nice to meet you virtually, although I think I may have met you at one of the events we had out in B.C., in Kelowna over the past couple of years, as I've been involved in that province overseeing the FortisBC company now for, boy, I guess three years. It's a pleasure to at least see you here.

We are on a path to make sure we are being consistent with the CleanBC plan. We look at those 2030 targets and 2050 targets. I think probably the most important part is that when we talk about net zero, what does that necessarily mean? It doesn't necessarily mean that every hydrocarbon being transmitted is being removed. At some point, you reach the right economic point where you might still use methane and either use offsets, use carbon capture and storage, or use some other means to offset those emissions. The exact percentage along the way will change based on the economics, but the goal and the path have to be clear, that we're aligned with both our local governments and the Canadian government. At the end of the day, that's our job, to follow policy.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

The other question I had is this. You mentioned using the best possible resource, and you talked about work at UBC Okanagan around perhaps seeing how you could move hydrogen with your gas. It is my understanding that right now the limits are around 6% in moving that. From what I hear from other people in the hydrogen space, the best use of hydrogen is that it not be mixed with natural gas. The best use of hydrogen would be in fuel cells where it could be used to directly power big trucks, trains and even airplanes. There was a hydrogen-powered plane, I believe, that flew in a test flight in Great Britain.

What I've been hearing is that this plan to use hydrogen in natural gas is just kind of a distraction. Why aren't we going for green hydrogen used to directly power these hard-to-power sectors right now? They're hard to power with renewable electricity directly.

[David Hutchens]

Mr. Cannings, that's a good question. It's not one or the other, it's both or all of the above. Hydrogen should be viewed as being used in different ways within the economy to clean up the greenhouse gas emissions.

It can be used, as you've mentioned, whether it's as direct end-source use for transportation fuel cells or whatever that might be, but you have to look at the economics of how much hydrogen costs to transport it to where you're using it. I know we talked a bit about the different colours of hydrogen. We need to make sure that we're looking at the carbon-free hydrogen, when we use it, say, in our natural gas stream, which is also a very important path to use, because we can't necessarily get to the point where we can use a 100% renewable natural gas. Therefore, hydrogen will play a role in there.

You're right. When you look at the studies, I have heard everything from 5% to 20%. That's why we are spending a lot of time doing that research so we know exactly what it means for our system. Then, of course, you have to see how it behaves with your system, because every system is different. There are longer systems; there are systems that have different physical characteristics with the types of pipe, and so on, and the compressor stations. All of that has to be worked out so that you can get the right percentage for your system. However, at the end of the day, if you look at that diagram of the different paths that hydrogen can take, we shouldn't eliminate any of those paths now. We should see which ones we can use.

Electrolyzers might not be cutting-edge technology. The cost will come down, because we'll start building more of them. That's manufacturing efficiencies and getting cost-effective movement down that cost curve, but what we really need are some breakthroughs in technology.

How can be break that hydrogen and oxygen bond apart cheaper than basically the brut force of electricity to break those bonds? What other ways are there of producing hydrogen that we could use?

[The Chair, Liberal, James Maloney]

That was right on time. Thank you, Mr. Cannings.

We're moving into the second round, with five minutes each, starting with Mr. Zimmer.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Thank you, Chair.

My question will be for Mr. Hutchens.

I will just say off the bat that as a Fortis B.C. customer myself, one of the biggest complaints we get in our office is the high gas bill. Because you mentioned “affordable”, I thought it was fair to bring this up. Some of those delivery costs, not to mention added carbon tax, are making natural gas that we produce right outside our back door very unaffordable in terms of heating our homes in the winter. We do well, of course, up in our area, but there are many Canadians who are simply struggling just to pay their gas bill. I'll just leave it at that.

I think Conservatives care, and maybe this is something that Liberals should be more concerned about: how affordable all of this is and how affordable are some of these measures.

Seeing that we already have over 200 years of natural gas supply outside in the B.C. Peace region, we know it's semi-affordable the way it is. My concern, based on what Mr. Lloyd asked you before, is this dramatic increase to that already, as I said, affordable but very challenging gas bill that our constituents pay every month. Multiplying that or doubling that, or even increasing that in any way is very concerning to me.

What are your comments around that? How much is adding renewable, whether it be either hydrogen or renewable natural gas, into the system actually going to cost Canadians?

[David Hutchens]

Mr. Zimmer, I don't have an exact number for that, but that's obviously something that we can follow up on. It really does all depend on the cost curves on a going-forward basis.

Maybe I wasn't as clear as I should have been in one of my previous answers. The basis of what we should be doing from an energy policy perspective is trying to get as green as we can, as fast as we can, and the next thing that has to come out of everybody's mouth is “without sacrificing affordability or reliability”.

We have to make sure that the energy infrastructure that we have across Canada, the U.S. and everywhere never loses those two tenets. Those are the guardrails that we have to operate within, and when you get to one, you have to move back.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Thank you for that, Mr. Hutchens. Considering that Canada's total emissions are under 2% of the world's emissions, in my opinion, seeing that we have all this natural gas, the best thing Canada can do is really get that natural gas to the world and replace some of those higher-emitting forms of energy in Asia and around the world. Yet this government seems to just focus inward on increasing prices for Canadians' resources to keep them warm in the winter. It's a bit puzzling to me why more effort isn't made to get our product to that global market.

I have a specific question for you. I would like you to submit evidence to the committee—I'm not sure if you've done such a study yet—on the cost differential between renewable natural gas and regular natural gas. This is the answer that we need to provide to Canadians. Some of these ideas are great ideas in theory, but if this is going to dramatically increase the price of gas for Canadians' homes and the price of heating their homes, then I think we need to understand what that cost is going to be. You might have that information, and I will give you time to answer that.

As well, what is the net benefit in terms of the carbon footprint of renewable gas versus natural gas right out of the ground?

[David Hutchens]

Again, those are great questions. They're ones that we talk about quite often at our gas company in B.C.

We do have studies on the cost differential. Obviously, I don't have them at my fingertips, but we can provide that. That has to be part of the conversation from the committee's standpoint to understand this, because what we do is we respond to policy. If the policy says the curve has to look like that, we try to find the most cost-effective way to meet the needs of that curve.

On your other point—I can't miss this opportunity—one of the most important things we can do is to offset greenhouse gases outside of Canada, outside of B.C., using B.C. natural resources, like methane right out of the ground, turning it into LNG and sending it to Asia. We are big proponents of that. We have big projects that are based on that principle. At the end of the day, this is a global market. Look at the abatement cost curve and start from the left, the cheapest stuff to do first. It might not be spending money in a province or a state or a country that you want, but we have to remember that this is all part of a global climate policy discussion. We should all be looking at knocking off the cheapest ways of getting the climate impact we're looking for.

[The Chair, Liberal, James Maloney]

Thanks very much, Mr. Zimmer.

[Bob Zimmer, Conservative, Prince George—Peace River—Northern Rockies, BC]

Thank you.

[The Chair, Liberal, James Maloney]

You're welcome.

Mr. Lefebvre, it's over to you.

[Paul Lefebvre, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

Thank you to all the witnesses today. This is a fantastic and really interesting discussion that we're having together.

I know you've been on the hot seat there, Mr. Hutchens, so maybe I'll just talk about the Wataynikaneyap project. Thank you for mentioning that. I know it's a game-changer for indigenous communities up in the northwest. I want to give you a shout-out on that, because you mentioned it in your opening remarks.

Mr. Boies, Mr. Simard asked you a question earlier about the regulatory framework. I'm trying to get better understanding of that.

You say that, because of the regulatory framework, it's more profitable to send renewable natural gas or hydrogen produced here to California or the Netherlands. Could you elaborate on that?

We want to invest and produce these renewables at home and here we are selling them elsewhere since the market is better. That's really intriguing, but I find it's rather astonishing.

Can you explain it in a little more detail?

[Dominique Boies]

Thank you for the question and I can certainly answer it.

It depends on the price you put on CO2 emissions. Life cycle analysis is used worldwide to determine the carbon intensity of each fuel.

For example, I was saying that our project in Varennes would produce carbon-negative biofuels. If California, for example, imposes a cost of $200 U.S. per ton of CO2 emitted, and in Canada we have no regulatory framework that puts a price on CO2 emissions, I'm going to sell that fuel in the market that pays the most for every decrease in units of carbon intensity.

This is all comparable to what happens with gasoline. Let me give you an example. Gasoline has a carbon intensity of about 98, depending on the market. The fuel we're going to produce in Varennes has a carbon intensity of -10. So the difference is 108, at $200 per ton of CO2 emitted. That is a profit for the seller of that molecule.

Right now, because there is no incentive to invest, when my partners—Shell, Proman, Suncor and the Quebec government—invest in an asset in Quebec and they sell that low-carbon molecule in Quebec, they get a negative return on their investment and they lose money. So they are going to export it to Europe, the Netherlands, California or British Columbia, for example.

[Paul Lefebvre, Liberal, Sudbury, ON]

Could the Clean Fuel Standard regulatory framework play a role in that respect?

[Dominique Boies]

Let's take ethanol as an example. In Canada, ethanol sells for 92¢ a litre, depending on current market prices. That includes a 25¢ fee required under the Clean Fuel Standard. In California, the price is $1.50. As you can see, there is still a difference.

[Paul Lefebvre, Liberal, Sudbury, ON]

You're right, there is a difference. It would be nice if the whole world would move in this direction. That's where we are going, but some Canadians are a little reluctant due to the cost. It's an interesting debate, one that we are also having on this committee.

I want to ask a few questions of Enbridge. You guys have a massive portfolio, so I have some basic questions.

What, in your view, is needed for low-carbon and renewable fuels to become a more significant part of Canada's transition to a low-carbon economy? I'm sure you guys have studied this left, right and centre, so I really want to hear you on it.

[Cynthia Hansen]

You're right that we're connected across the value chain, and as you've heard from the other speakers, we are focused on delivering reliable low-cost energy while still meeting the climate requirements.

What we think would be beneficial is to be innovative in the tax system. We think the budget proposal with the tax incentives is an exciting step, and getting the details of that in the next 90 days is important. As we've heard, we should look at the incentive to drive blue or green hydrogen production. If we want hydrogen as part of the solution, we need to build out that infrastructure. As Mr. Hutchens talked about, you're not going to be able to pick and choose at this point, so we'll need to build a broad strategy.

The CCUS tax credits—the concept that's been advanced by MP McLean—are of interest to us. They look like something we can do, similar to what's happening in the U.S., to really stimulate investment.

[The Chair, Liberal, James Maloney]

Thank you. I'll have to stop you, unless you can finish that thought very quickly.

[Cynthia Hansen]

Grants and loans are important, and there are lots of opportunities and multiple pathways. Let's just make sure that we focus on the near term in getting the industry developed.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Simard, we'll go over to you for two and a half minutes.

[Mario Simard, Bloc, Jonquière, QC]

I don't have much time. So I will ask my questions very quickly.

I thank Mr. Lefebvre for his question, which made me realize something.

Mr. Boies, you spoke of low-carbon molecules. Actually, the goal in a way is to put a price on CO2 to make these new technologies competitive. Earlier, you talked about the various types of hydrogen. If we put a price on CO2, grey hydrogen will definitely be less attractive than hydrogen made from hydroelectricity.

Do I understand that correctly?

[Dominique Boies]

Yes, you understood it very well. The best way to proceed is to use a standard measure, which is life cycle analysis. This measures the carbon intensity of each molecule that goes into a final product. If you use green hydrogen made from biofuels and not grey hydrogen, which is traditionally used, that will affect the final value of the product and its carbon intensity. In my opinion, using a single standard is the best way to do it.