Natural Resources Committee on May 14th, 2021

[Mark Kirby]

As I think Grace and Rob mentioned as well, there is the idea of credits. If you look at what happened to get the funding together for the stations in B.C., part of it was grants from the federal and provincial governments. However, a big part of that funding was from the sale of low-carbon fuel credits in B.C. British Columbia has a process whereby when you build a [Inaudible—Editor] station, you are granted credits for that in recognition of its ability to lower carbon intensity. Those credits can then be sold by the private sector builder to obligated parties, like oil companies and others, to generate the critical funding needed to build those stations.

The challenge is that you need the money up front to build them, and the load comes later. The mechanism that has been shown to work in California is capacity-based credits. You have a system whereby you are issued credits based on the capacity of the plant. Then as the load builds on it, it's replaced with the credits being generated by hydrogen sales. This enables you to get the critical economic business case together to allow private sector money to flow into that. That's a mechanism that can be used to leverage government funding and to get private sector funding in place to allow them to go forward.

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

You also mentioned the necessity of switching home heating to net-zero fuels. How easy do you think this would be? What are the pathways to doing that, given the type of infrastructure we already have built out to residential—

[Mark Kirby]

I'm not an expert on—

[The Chair, Liberal, James Maloney]

That will almost have to be a yes or no answer, by the way. We're running out of time.

[Mark Kirby]

I'm sorry?

[The Chair, Liberal, James Maloney]

It will almost have to be a yes or no answer. I'll give you a moment to answer.

[Mark Kirby]

There are technical challenges, but they are all addressable. I think the utilities are determined to work through those.

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

Thank you.

[The Chair, Liberal, James Maloney]

Great, thanks.

Thanks, Mr. Weiler.

Next is Mr. Simard for six minutes.

[Mario Simard, Bloc, Jonquière, QC]

Thank you very much, Mr. Chair.

I have a question for Mr. Goyette and Mr. Kirby.

Mr. Goyette, you presented your project and talked about green hydrogen. Two weeks ago, people from Enerkem told me that we need to put a price on the molecule. Here is my question, and it's very simple. Perhaps Mr. Kirby and Mr. Goyette can answer it for me.

Is it more costly to produce a molecule of green hydrogen than a molecule of grey hydrogen?

[Normand Goyette]

Studies by Quebec's International Reference Centre for the Life Cycle of Products, Processes and Services, CIRAIG, as well as European studies released consecutively in spring 2020, show beyond any doubt that, all trends considered, globally, the cost of producing hydrogen is expected to reach $4 U.S. per kilogram by 2030. In terms of deployment, what I call transportation and distribution, we're talking about $2 U.S. per kilogram.

So the first challenge with the green hydrogen molecule as opposed to the grey one is to produce it at the lowest possible cost to allow companies to reduce their emissions. However, if companies receive grey hydrogen, it will have no impact on reducing greenhouse gas emissions. It's called “carbon capping” for major polluters. It means that, beyond a certain threshold, those companies don't need to offset their greenhouse gas emissions. So, if they continue to use grey hydrogen, they are not required to offset. On the other hand, if they use green hydrogen such as we are going to produce at H2 V Energies, they avoid the whole “carbon capping” component.

So, that affects two things. It has a direct impact on the price, if our price is below the 2030 target of $4 U.S. That is the case at H2 V Energies. The second big factor in decision-making for companies making the energy transition is that it has an impact on reducing their greenhouse gas emissions as well.

Therefore, if we can produce green hydrogen, perhaps not at the price of grey hydrogen, but at a competitive price, it means we are going to have to mass-produce it and work on distribution and transportation. However, if a company manages to produce it more cheaply, that will drive down the cost of transportation, and at that point, decision-makers will see many advantages to adopting green hydrogen.

The agreement with Germany speaks for itself. The Germans want green hydrogen because they are aware of the benefits, particularly with respect to the greenhouse gas emission thresholds, expressed in CO2 equivalent, to which industry is also subject in Europe.

I hope that explains a little about the dynamics and the difference between grey and green hydrogen.

[Mario Simard, Bloc, Jonquière, QC]

I don't know if Mr. Kirby wants to add anything.

[Mark Kirby]

Yes, thank you.

Definitely, without a question, the cost to produce clean hydrogen today—and I'll use the term “clean hydrogen”—is higher than the cost to produce grey hydrogen. However, that is in the control of government. That's what policies such as the price on carbon and the low-carbon fuel standard are closing, because they're starting to put a price on carbon emissions. That means clean alternatives can become economically viable. It's a necessary thing. You have to have some mechanism for putting a price on CO2 emissions to make the clean alternatives cost-competitive.

The cost of those clean alternatives is dropping rapidly, with scale in particular, and scale is really what it takes. It leads to conversations about hubs or conversations about getting projects under way to get that scale.

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Kirby.

I'm concerned about what Canada's hydrogen policy will be.

Would you agree with me that green hydrogen should be given precedence if we are to develop the market?

Currently, we know that producing a molecule of green hydrogen is more expensive. If our goal is to reduce our carbon footprint, shouldn't the Canadian strategy give precedence to green hydrogen in funding projects to be developed, as opposed to grey hydrogen, for which there's already an incentive, in the price?

Mr. Kirby or Mr. Goyette can respond.

[Mark Kirby]

Again, I do not promote grey hydrogen. We're talking about clean hydrogen. Clean hydrogen includes what is sometimes referred to as blue hydrogen. We think all those are very viable. There should be competition. We're going to need all of them.

In fact, using the resources, as was mentioned by the gas industry, to build out infrastructure such as pipelines.... To use an example, a pipeline running from Alberta to the coast to supply and to export clean hydrogen produced in Alberta will also enable, all the way along, first nations communities and other communities to take advantage of their clean power resources to produce additional green hydrogen along the way and use that infrastructure to get it to market. They can't do that—they can't have the scale to get it to market—otherwise.

Taking advantage of that low-carbon, clean, fossil fuel-derived hydrogen, which can be produced very cost-effectively today, will start enabling the build-out of infrastructure and demand. Without that, you will block the ability to produce green hydrogen because there will not be markets developing for it, and there will not be infrastructure to move it to market.

In fact, I have members who make their living selling equipment for green hydrogen production, and—

[The Chair, Liberal, James Maloney]

I'm going to ask you to wrap up, Mr. Kirby.

[Mark Kirby]

Sorry.

[The Chair, Liberal, James Maloney]

If you want to finish that thought, that's fine.

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Chair.

[Mark Kirby]

They also agree that we need hydrogen from all sources.

[Normand Goyette]

As additional information—

[The Chair, Liberal, James Maloney]

Thank you, Mr. Simard.

Next is Mr. Cannings for six minutes.

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

Thank you, Mr. Chair.

I'd like to thank all the witnesses here today. With all the riches of the questions I have to ask everyone, it's hard to know where to begin.

I will begin with Ms. Quan.

You talked about how we have the technology in Canada. Canada is clearly a world leader in hydrogen technologies of all sorts, especially fuel cells, but we have difficulty in expanding the companies that we have—we've heard from several of them today—because of the demand situation in Canada, because we are a large country with geographical challenges.

You talked about the cost of distributing hydrogen to create the hubs we need to drive up demand. I was interested to hear your comment about possibly a Crown corporation that would serve to coordinate all this activity that we need, which small companies can't take on on their own, to coordinate the formation of these hubs. Various people have talked about that.

Could you expand on what a Crown corporation like that could do? We really need rapid action here to get things done by 2030 or 2050.

[Grace Quan]

Thank you, Richard.

My idea was similar to Silicon Valley. What made it so successful? It's a very concentrated pool of talented people who have a deep understanding of the technology. It was concentrated capital and it had government support.

Right now, we have similar elements in the hydrogen supply chain, in that we have very unique technologies. Similar to my own, Monsieur Goyette has a very unique technology. The hydrogen economy, or the SMEs in it, are very, very innovative.

However, as you say, to scale, we need the concept of having someone buy and put together these projects. These hubs are a half-billion dollar project. To raise the 50% for that is incredibly difficult for one company, or a consortium of companies, to have that kind of scope and reach, attention and management skill and time. It's overwhelming.

If you want a hydrogen connection between all provinces, it's going to be expensive. People need support from the government to do this kind of deep infrastructure and grow these companies. That's why I suggested this idea of a Crown corporation, even temporarily—Petro-Canada was a temporary entity—to grow the industry, share team metrics, and grow key technologies that have to traverse that valley of death.

On their own, it's hit and miss. It's very slow, very difficult. Look at Ballard. It just celebrated a 40th anniversary and they are only now gaining traction. That's how tough it is.

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

Thank you.

I'd like to move to Mr. Artibise now.

From what I understand, most of your company's production is in China, and it's in China because that's where the demand is. You talked about having hubs in various urban centres. We have something going on in Edmonton right now, but we need that to go on in Vancouver, Toronto, Montreal and even smaller centres if we want to provide access for trucking, etc.

I'm just wondering if you could expand on that and, again, just how we can stimulate the growth of those hubs across Canada because they seem essential to get hydrogen where it needs to be.