Natural Resources Committee on June 7th, 2021

[Dr. Mark Jaccard]

Oh, yes. They have a very large carbon tax, but they have also picked certain sectors as well. Government has said, with intercity busing, that they're going to help make sure that they have E85 produced for those buses, and those are the ones they're going to pick as their fleet.

It's a combination, as I say, of government being directive, even in its investments and choices, and they have regulations as well, so regulations and pricing. It's the basic formula that we know. At least in Canada federally and in British Columbia, where I'm from, and in Quebec, we're doing those kinds of things.

[The Chair, Liberal, James Maloney]

Thanks, Mr. Lefebvre.

Mr. Brunelle-Duceppe, you're next.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Thank you, Mr. Chair.

Today's discussion is extremely important, but above all, extremely beneficial.

Thank you to the witnesses for their input. I will try to ask each of them a question, time permitting.

I will start with you, Mr. Layzell. In your opening statement, you mentioned the different hydrogen colours, or types. The objectives of the hydrogen strategy for Canada are to promote the development and deployment of hydrogen, spur near-term investment, and develop new regulatory measures to achieve a net-zero emissions target by 2050.

As you said, though, if Canada wants to achieve those objectives, does it not need to distinguish between the different sources of hydrogen, grey, blue and green? The development of grey hydrogen could be another opportunity for the hydrocarbon market.

How should the government shape the strategy to foster the development of green hydrogen, first and foremost?

[Dr. David Layzell]

I think we should preferably get away from the colours and focus on the carbon intensity. That's the factor that we want. We want low life-cycle carbon intensity.

I would argue that—and this is happening around the world—standards are being developed and defined for the carbon intensity of hydrogen, and Canada should insist that life-cycle carbon emissions have to be below a certain level.

There is a European study. It's called CertifHy. It has identified, I think, 36.4 grams of CO2 per megajoule lower heat value hydrogen, and that is the maximum carbon intensity. I think that's a good place to start. I think we need to even lower that carbon intensity that we allow from a life-cycle basis as years go on as we move towards 2050.

Green electricity made from wind, solar or large hydro can meet that standard. So can blue electricity made from steam methane reforming or auto-thermal reforming with carbon capture and storage.

I think what we need to do is set a standard. The Canadian Standards Association is looking at this now, and there is an international committee. I think Canada should be encouraging that and coming up with a standard for quality similar to what has been talked about for biofuels for low-carbon emissions on biofuels. I think that's critical.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Thank you for your answer, Mr. Layzell.

I will now turn to Mr. Dufau‑Sansot.

The committee heard from a witness who said that Canada should put a price on molecules. That would mean measuring the environmental footprint over the production cycle. Turning to cleaner production methods would have an economic advantage. I'm curious to hear your thoughts on that.

[Cyril Dufau-Sansot]

I agree with the principle, but a more detailed look reveals two ways to promote clean molecules.

The first is to support their green potential through subsidies. The lower the molecule's carbon intensity, the more financial support should be available. That support needs to foster the development of an industry. In any case, the scale effect generated by the massive deployment of green hydrogen production should render such support unnecessary. If the size and number of plants increases, costs will go down. It's the same with the development of renewable electricity; cost-effectiveness increases. The economic model could be comparable to that of fossil fuels.

The other way to promote it is to penalize the use of fossil fuels, mainly through a carbon tax or a bonus-malus system, whereby those who use clean fuels are rewarded and those who do not are penalized. The idea is to regulate the market to move towards solutions with the lowest possible carbon intensity.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Thank you, Mr. Dufau-Sansot.

If I still have time, I have a question for Mr. Jaccard.

I gather from what you said earlier, Mr. Jaccard, that, as an economist, you don't want to say too much about which strategies governments should use. Nevertheless, I would think you have an opinion on certain things.

Department officials told us that the terms of the strategy do not distinguish between the different colours, or types, of hydrogen and that the objective is largely to foster the development of a hydrogen market for all types of hydrogen. Once the demand has been stimulated, low-carbon hydrogen production can then be targeted.

How does the economist in you view that approach?

[Dr. Mark Jaccard]

That involves a two-step process. The first is just to promote hydrogen, and the second is to monitor the emissions throughout the production process. If I were asked to sign off on the approach, I would say no because it could lead to backwards movement. From the outset, policies have to signal to the marketplace and innovators the importance of moving in the right direction. In the past, a carbon tax and subsidies have been suggested, but more recently, clean fuel standards are being put forward.

[Alexis Brunelle-Duceppe, Bloc, Lac-Saint-Jean, QC]

Thank you.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Cannings, it's over to you.

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

Thank you, and thanks to all the witnesses for being here today. As usual, it's been a very interesting discussion so far.

I'm going to continue on with Dr. Jaccard, to allow him to go into more detail.

Dr. Jaccard, I want to ask you about the mix of carbon pricing and regulations that you talked about. You used the example of biofuels, and how we needed the regulations to get us to 100% biofuels when we're talking about diesel, for instance.

I assume that carbon pricing also plays a part in that. The carbon pricing on biofuels would be much lower, and the same goes for hydrogen or green electricity. You would have regulations, perhaps, on the number of hydrogen vehicles versus the push from carbon pricing, as well.

I want to give you some more time to speak to that.

[Dr. Mark Jaccard]

Thank you. I'll be quite brief.

I'm always making the distinction—I did in my comments—about the actions. That's our switching away from high-emission end use or production processes for any energy form that we use. That's the action. What is the policy that drives that?

We are told that we have to have carbon pricing. I say that as an economist, but actually we don't have to. We could do it entirely with regulations. We did that with ozone-depleting chlorofluorocarbons. We could do it all with regulations.

I talked in my comments about having a rising carbon price. It will get to a point where we will be at zero emissions in both the end use and the production of anything, whether it's hydrogen, ammonia, biodiesel or whatever. But if we're going to do it with a regulation, we could do that as well. For your committee, in British Columbia, I talked about a low-carbon fuel standard that we copied from California. For more than five years now, I've been involved in the federal process of designing a clean fuel standard. I didn't like how it was initially designed. I thought it should narrow in on liquid fuels. What it does is regulate both the fuel end use, as defined by the Intergovernmental Panel on Climate Change, which is why I mentioned that, and the production process. It would look at the production process of hydrogen, of electricity, of biofuels. I'm simply saying do that kind of regulation if you don't want to do carbon pricing.

I'll stop there.

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

Thank you.

I'm going to move to Mr. Layzell now and talk about hydrogen.

You mentioned the possibility of an export market for hydrogen, especially green hydrogen in Canada. When I talk to energy ministers of countries like Germany and Japan, they are very big on export markets or importing hydrogen from other countries that have a clean source of hydrogen. Germany, I remember, used an example of a big mega solar project in Chile and using that to produce hydrogen to move that clean energy around the world.

I was wondering if you could expand on that idea of a possible export market for Canadian hydrogen.

[Dr. David Layzell]

I think it's actually quite a large market, potentially equal in size, according to our calculations, to the domestic market we have for hydrogen, just as today we export as much oil as we consume in Canada.

The hydrogen could be exported as liquid hydrogen or compressed hydrogen, but probably most critically, as Mr. Dufau-Sansot talked about, as ammonia. The hydrogen produced, either blue or green, could be converted to ammonia to be put on a ship and shipped overseas, or if it's being exported to the United States, it could go into its hydrogen pipeline. There are various alternatives. There are a couple of other technologies as well.

Certainly in western Canada there's a lot of interest in South Korea and Japan. In fact, we're in quite regular conversations with companies who would like to import low-carbon hydrogen from Canada.

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

Could that link in with Canada's expertise in hydrogen fuel cells, using those fuel cells here in Canada and exporting them?

[Dr. David Layzell]

Absolutely.

We could certainly export fuel cells. In terms of attracting international investment, a lot of companies around the world are interested in making hydrogen vehicles. We make fuel cells. Those fuel cells could go into those vehicles.

We may actually be able to attract to Canada manufacturing industries that are creating the vehicles that would be used here and also attract foreign investment to produce the hydrogen for export.

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

Mr. Layzell, you talked about hubs and investing in hydrogen hubs. We've heard that from other witnesses. Perhaps you have an idea of how the government could help create those hubs.

[Dr. David Layzell]

I think one of the things is to define the characteristics of what makes a viable hub. Our focus in what we're doing is on making sure that any public investment is focused on capital investment and not operational investment. When the public investment stops, one has an economically viable energy system that will keep running.

That's really the metric that we would argue needs to be looked at when we're looking at public investment in hubs.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Cannings.

We'll move into round two for five minutes each, starting with Mr. Lloyd.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

Thank you, Mr. Chair. Thank you to the witnesses.

My first question is for Mr. Layzell.

The end goal of this entire process is to mitigate the effects of climate change. Everything we're doing is leading to that end, but sometimes I think we get too focused on the goal of achieving net-zero carbon emissions while possibly ignoring the consequences of emissions of other greenhouse gases of varying levels.

I've read that in some places water vapour is a significant greenhouse gas. Water vapour is a byproduct of the combustion of hydrogen, and hydrogen, even in its gaseous form, if it were to escape also does have some impact on the climate as well. I was wondering, what's the evidence around that? Is there an impact?

[Dr. David Layzell]

When you look at climate change you see it's about how long the gas lasts in the atmosphere. Certainly, burning hydrogen, burning fossil fuels, all puts water into the atmosphere. The time for water in the atmosphere is about two to three weeks, and then it rains out.

What we're talking about with CO2 emissions is they're lasting there for over 100 years, and that really means—

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

What about hydrogen gas in and of itself? If it wasn't combusted and much like methane escaped into the atmosphere, are there any consequences to that?

[Dr. David Layzell]

Yes. It's actually quite interesting. I studied that 20 years ago and did quite a bit of work on that.

Hydrogen is actually pulled out of the atmosphere by soil microorganisms. Essentially, the hydrogen exists in only half a part per million in the atmosphere. When you double hydrogen in the atmosphere, the biology of the biological soils around the world will stimulate the microbial activity and pull the hydrogen back out. Effectively, the work that was done 20 years ago suggested that there's certainly very little problem with some hydrogen emissions. The biological systems will self-regulate in feedback.

[Dane Lloyd, Conservative, Sturgeon River—Parkland, AB]

That's positive to hear. It's good to have that information on the record.

You were talking about green hydrogen and blue hydrogen. Canada's a diverse country, as you know. We have provinces like Quebec, British Columbia and Manitoba, which have ample hydroelectric resources and fairly cheap and steady power sources. Then you get the provinces like Alberta and Saskatchewan, where much more electrification was coal and now natural gas.

Do you think it would be better for the government to approach this regionally? Green hydrogen obviously has more economic benefits in provinces like Quebec and B.C., but in western provinces it seems blue hydrogen would be the more viable option. Would you agree with that?

[Dr. David Layzell]

Absolutely. I think we should let the market decide, but also some of the producers of blue hydrogen are looking for some subsidies for carbon capture and storage. I would argue you need to go and look at the green hydrogen to make sure we haven't tilted the playing field against green. I think both are extremely important. We need both. Blue hydrogen is lower cost at the present time, but green hydrogen prices are coming down. My sense is we don't need to decide. We let the market determine which works.

The problem is moving hydrogen around. You obviously want to produce it close to where it's going to be used, if you can. That's going to have a regional opportunity.