Natural Resources Committee on June 14th, 2021

[The Chair, Liberal, James Maloney]

I call this meeting to order.

Good morning, everybody. Welcome to meeting number 33 of the Standing Committee on Natural Resources.

I'd like to welcome our members and our guests, particularly those who are on the west coast and who are up bright and early to attend the meeting. We are very grateful. We have another great panel this morning to continue our study.

I believe all our panel members are familiar with the process, but I'll go through it quickly.

We're doing this by Zoom, so we have to be a little patient and not talk over each other. Speaking slowly is not a bad thing; it helps our translators.

You have translation services available to you on your screen. You are welcome and encouraged to speak in either of our official languages. You will be asked questions in both, I'm sure, and thank you for coming.

Each presenter will be given up to five minutes to make their opening remarks, and once all of them are completed, they will be followed by questions from the members.

We have four witnesses today. We have Air Products Inc., Dr. Jacques Roy, Ballard Power Systems Inc. and Hyundai Auto Canada Corp.

Thank you for joining us.

I will go through the opening remarks in that order, so why don't we start with Mr. Simon Moore, who is the vice president, investor relations, government relations and sustainability from Air Products Inc.?

The floor is yours, sir.

[Simon Moore, Vice-President, Investor Relations, Government Relations and Sustainability, Air Products Inc.]

Thank you.

Good morning, Mr. Chair and honourable members of the committee. On behalf of the employees of Air Products globally and in Canada, thank you for the invitation to appear before your committee today.

Air Products is a global corporation with a market cap of over $65 billion and operates in over 50 countries. Our 19,000 employees work hard every day supplying critical products to customers in a variety of industries. Our products enable our customers to be more productive and more efficient. For example, last year our products allowed our customers to avoid the equivalent of 72 million metric tonnes of equivalent carbon dioxide emissions.

At Air Products, our higher purpose is to bring people together to collaborate and innovate solutions to the world's most significant energy and environmental sustainability challenges. Obviously we consider the energy transition one of the greatest challenges of our time.

We are the leading global supplier of hydrogen. Every day we produce and safely transport over 9,000 tonnes of hydrogen via pipeline and trucks. We were a pioneer in the hydrogen for mobility market—we've been involved in over 250 projects over the last 15 years—and we participate in over one and a half million hydrogen fills every year.

We have a strong presence in Canada as the leading supplier of hydrogen. Our Alberta Heartland Hydrogen system began operations in 2006. Today we have three world-scale plants connected by an over 50-kilometre pipeline network supplying the refining and petrochemical sectors. We also have a hydrogen system, including liquefaction, in Sarnia.

Our sustainability-driven offerings for gasification, carbon capture and hydrogen are essential and necessary components of any realistic energy transition plan to reduce carbon intensity while also meeting the world's growing energy demand.

A prime example of translating our vision into reality is our announcement just last week of a world-scale energy complex in Edmonton, which will begin with a transformative $1.3-billion net-zero hydrogen production and liquefaction facility to be on stream in 2024. This project is an example of what we can achieve when all three levels of government work to create a common solution, bring investment, and in this case provide over 2,500 good-paying construction jobs when they are desperately needed.

This first-of-its-kind investment enabling the production of net-zero hydrogen from natural gas was made possible by Canada's clean energy diversification strategy and regulatory framework that made it clear that clean hydrogen will be a key enabler to Canada's being carbon-neutral by 2050.

During the announcement ceremony last week, which included Minister O'Regan and Minister Champagne, our chairman, Seifi Ghasemi, stated, “I can't think of a better place to invest our money for the long term than Canada. You are leading the world in the vision for energy transition.”

While we are clearly supportive of the federal government's leadership, I'd like to suggest a few overarching considerations.

First, with regard to hydrogen, consider focusing on carbon intensity, not colour. Much of the world still assumes that green hydrogen made from renewables is better than blue hydrogen derived from fossil fuels, mainly natural gas. We believe the net-zero complex we announced last week proves that blue hydrogen can be produced with a carbon intensity equal to green. Where that's the case, the policy should be agnostic to how the hydrogen is derived and focus on its carbon intensity. This will allow the market to determine the best option.

Second, in tax policy, focus on CO2 reduction efficiency, not capital investment. Finance Canada is currently conducting a consultation on tax policy to incent carbon capture and storage. We had hoped Canada would follow the U.S. lead with a tax incentive similar to the U.S. 45Q tax reduction tied to the volume of CO2 sequestered. Finance Canada's proposed capital investment tax credit approach runs the risk of prioritizing capital investment inefficiency over CO2 reduction efficiency. We hope this approach gets reconsidered.

Finally, address the historical bias against multi-facility solutions. For over 70 years, Air Products has been a pioneer in the outsource model of industrial gases and energy supply. For the refining sector, our outsource model is recognized as a global best practice for the safe, reliable and capital-efficient supply of critical gases like hydrogen. Unfortunately, federal tax and environmental policies have in the past created an unintentional bias against our multi-facility offerings. This bias has even made its way into the proposed clean fuel standard, which we're working hard to address with officials at Environment and Climate Change Canada. Given that every tonne of CO2 reduction matters, we urge you to avoid the flaw everywhere you can.

Thank you again for the opportunity to come before the committee today. I look forward to answering any questions you may have.

[The Chair, Liberal, James Maloney]

Thank you very much, Mr. Moore.

Next up we have Dr. Jacques Roy.

[Dr. Jacques Roy, Professor, HEC Montréal, As an Individual]

Thank you, Mr. Chair.

Respected committee members, thank you for the invitation. I am happy to be joining you today to share the results of my research on hydrogen's potential.

I am a professor of operations and transportation management. I am not a chemist or an expert on hydrogen. What I am particularly interested in are its applications to various modes of transportation.

My interest in hydrogen is actually pretty recent. It goes back to 2019, when I carried out a study on the use of hydrogen around the world. That was a study I carried out for the Hydrogène Québec coalition, which is made up of automobile manufacturers, including Hyundai and Toyota, gas producers, such as Air Liquide and Messer, and energy distributors. The study was essentially based on a fairly comprehensive literature review and on a few interviews with experts in the field. In less than five minutes, I would like to provide you with a few highlights of the study, which will soon be available to you.

As we all know, the use of electric zero-emission vehicles is a growing global trend. There are actually two types of electric vehicles. The best known are of course battery-powered vehicles, which are becoming increasingly available on the market. There are also vehicles that use hydrogen fuel cells. Batteries are more appropriate for small vehicles travelling short distances, while hydrogen fuel cells are better suited for use in heavy vehicles travelling long distances. We could be talking about class 8 trucks, for example, or even about less heavy vehicles that need to operate for many hours in a day. Under those circumstances, hydrogen becomes a more worthwhile option. Between the two types, there is a whole slew of hybrid vehicles, either plug‑in or not.

Hydrogen vehicles are becoming increasingly popular around the world. We estimated in our study that there were about 13,000 of them at the end of 2018. One year later, the number reached 25,000, so it nearly doubled.

Hydrogen vehicles are everywhere—for example in the United States, especially in California; in Asia, especially in Japan, China and South Korea; and in Europe, such as in Germany, France, Norway, the United Kingdom, and so on. Of course, there must be enough charging stations for that many vehicles. So the number of charging stations has also increased. It went from 376 stations at the end of 2018 to more than 470 stations one year later. That growth has mostly been happening in Asia and in Germany.

Concerning vehicles, an increasing number of buses are also being converted to hydrogen or are using hydrogen as their source of energy. Hydrogen buses are commercialized around the world, but very little in Canada. Sales are skyrocketing. In the past year, over 4,000 orders have been placed in China and another 4,000 orders in South Korea. I am sure the Ballard Power Systems representatives will be able to talk to you about this. In fact, we have in Canada vehicle and equipment manufacturers such as Ballard or Hydrogenics, which is now owned by Cummins. We have very active manufacturing businesses in that sector.

I will say a word about the transportation of goods. I think that hydrogen is especially appropriate for heavy trucks, which are, as you know, the main source of pollution in transportation. I am talking about heavy-duty trucks, which travel long distances. Canadian winters are harsh, and battery-powered trucks are less efficient in those conditions.

There are a number of hydrogen truck manufacturers in the world. I will not name them all, but some are Hyundai, Cummings and Toyota.

Someone talked earlier about Alberta and the production of hydrogen from natural gas. It is interesting to note that testing is currently being done in Alberta as part of the AZETEC project, which brings together transport companies such as Trimac and Bison. Researchers will essentially test hydrogen trucks travelling between Calgary and Edmonton. I think that experiment should be followed very closely. The same experiment should even be replicated in Quebec and in Ontario. The same kind of a test could be carried out in the Montreal-Toronto corridor.

Those trucks have been commercialized around the world, including in the United States, by Anheuser-Busch, in France, by Carrefour, and in China and Japan.

The advantage of hydrogen trucks over battery-powered trucks is clearly the recharge time. It takes about the same time to recharge with hydrogen as to fill a diesel fuel tank. The weight of batteries is also an important downside for trucks with electric batteries. Transporters want to transport goods, not batteries. What is more, the range is significant. When hydrogen is used, there is no loss due to the cold. There is enough power to transport goods between Abitibi and Montreal, for example.

However, there is currently a considerable downside, over the short term, and that is the high cost. I am here talking about the cost of equipment, of hydrogen and of transportation.

That said, every study I have looked at—

[The Chair, Liberal, James Maloney]

Doctor, I'm going to have to ask you to wrap up quickly, if you could, please.

[Dr. Jacques Roy]

Okay.

We expect the costs to drop quickly.

It is also possible to convert passenger trains to hydrogen. There are several projects of that kind, including in Germany and in France.

Hydrogen can also be used for other purposes—for example, forklifts, industrial applications or even aircraft projects. Airbus plans to use hydrogen in its future aircraft.

I will summarize everything with a few recommendations for you.

[The Chair, Liberal, James Maloney]

You'll have to do it very quickly, please, Doctor.

[Dr. Jacques Roy]

Okay.

Governments should develop a roadmap and encourage initiatives involving hydrogen. It must be said that, in countries that are successfully using hydrogen, governments are involved. We also recommend stimulating research and development. Incentives for purchasing hydrogen vehicles should also be implemented, especially for vehicle fleets. In addition, the use of hydrogen must be encouraged in new projects. I am here thinking of the Quebec City tramway and the VIA Rail high-frequency train.

As my time is up, I will stop here. I could answer any questions you may have about other hydrogen applications.

I apologize. We, professors, usually have three hours.

[The Chair, Liberal, James Maloney]

You're going to have to stop now.

[Dr. Jacques Roy]

That is what I have to say.

Sorry.

[The Chair, Liberal, James Maloney]

Thanks, Doctor.

We'll go over to Mr. Pocard from Ballard Power for five minutes, please.

[Nicolas Pocard, Vice-President Marketing , Ballard Power Systems Inc.]

Good morning, everyone.

Mr. Chairman and members of the committee, thank you very much for allowing me to be a witness on your panel today.

I am very happy to be representing Ballard Power Systems. Ballard is a Canadian company, based in British Columbia. Today, globally, we employ over 950 people, with more than 760 in Canada. We have been developing fuel cell technology for the past 40 years, and we put on the road the first-ever fuel cell buses in Vancouver in the late 1990s. Today we export almost 100% of our production, and last year we produced over 100 megawatts of fuel cell products.

The hydrogen strategy, which was published in 2020 by NRCan, highlighted the critical role of hydrogen in the decarbonization of the Canadian economy in order to reach carbon neutrality by 2050, especially for the hard-to-abate sectors like heavy-duty transportation. This has been highlighted by previous speakers.

Fuel cell electric buses, trucks, trains and ships benefit from the high energy density of hydrogen as a fuel to match the performance of diesel vehicles, but with zero emission and without any compromise in operation, enabling long-range operation in harsh climates like we have in Canada.

The use of green hydrogen produced from renewable energy, as recently announced by some projects in Quebec, will reduce GHG emissions by 89% for heavy-duty trucks, compared to the diesel equivalent. Such a reduction can also be achieved by using blue hydrogen produced from natural gas with carbon capture and sequestration.

As an example, a transit bus using such low-carbon blue hydrogen in Alberta will reduce its GHG emissions by 83%, compared to a diesel bus. To compare, a battery electric bus will only reduce emissions by 50% in Alberta due to the higher carbon intensity of the electric grid.

The use of hydrogen as a low-carbon fuel is also an economic opportunity for Canada. With a unique, strong and world-leading hydrogen and fuel cell industry, Canada is very well positioned to benefit from this transition.

At Ballard alone, we have created over 200 high-paying jobs in the past two years. According to the NRCan hydrogen strategy document, up to 350,000 jobs can be created in Canada with the growth of the hydrogen economy in the next three decades.

We believe now is the time to act and the time to start. Supporting the production of hydrogen as a low-carbon fuel in Canada with regulations such as clean fuel standards and providing financial incentives for vehicle operators will accelerate the adoption of zero-emission fuel cell vehicles such as transit buses and trucks. We are demonstrating these vehicles now in Alberta with the 60-tonne fuel cell truck, as part of the AZETEC project, or in trains, as was recently announced by CP Rail, which has its first freight locomotive using hydrogen as a fuel. All those vehicles disproportionally contribute the most to GHG emissions, compared to other modes of transportation.

Thank you very much.

[The Chair, Liberal, James Maloney]

Thank you very much.

Next, from Hyundai Auto Canada Corp, we have Don Romano, president and CEO.

[Don Romano, President and Chief Executive Officer, Hyundai Auto Canada Corp.]

Thank you very much.

Good morning, everyone. Thank you for having me.

I'll start by saying the auto industry is past the inflection point of change when it comes to electrification, having invested to date over $300 billion in zero-emission vehicle development and production, which is already resulting in a substantial supply, with much more to come. You could confidently say that our industry is at the point of no return when it comes down to zero-emission vehicles in the future.

I'm proud that Hyundai is an industry leader. We presently are the second-largest retailer of zero-emission vehicles, next to Tesla, and one of the only brands to offer hydrogen fuel cell cars in Canada.

While we offer hybrids and plug-in hybrids, our primary focus is a zero-emissions future with pure EV and fuel cell vehicles. We believe in fuel cell vehicles for a number of reasons, which have already been discussed. In addition to being zero emission, they're more consumer-friendly. As I think Mr. Roy had mentioned, the vehicles charge rapidly, in five minutes, and they have a substantially longer range than traditional all-electric vehicles. This addresses the two biggest consumer issues that we face, the two biggest pain points: the charge time and the range.

In addition, fuel cell vehicles require substantially fewer batteries. Really, regardless of whether a consumer chooses an electric vehicle or a fuel cell vehicle, as long as it's zero emissions, the real challenge we face is the infrastructure for charging. Both electric charging stations and hydrogen fuel cell pumps in our country are too few in number to accommodate the current and forthcoming supply of zero-emission vehicles. To change the situation, we need commitments—commitments from gas stations, retail outlets, home builders and parking operators to install the charging systems that will give all Canadians the peace of mind that zero-emission vehicles will accommodate all their transportation needs. In other words, it's going to take a village for our country to make zero emissions part of our future and turn that into a reality.

If we all pull together, I believe a zero-emission future is not just possible but inevitable, and when I say “all”, I mean everybody. It cannot be just the people who are speaking today and it cannot just be auto manufacturers. Everybody is going to have to carry their weight and get involved in this movement.

Thank you very much for your time.

[The Chair, Liberal, James Maloney]

Thank you very much.

We'll move to the first round of questions for six minutes each, starting with Mr. Lloyd.

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

Thank you, Mr. Chair; and thank you to all the witnesses for coming out today.

I'm most interested in starting with our friends from Air Products Inc. I'm very excited to see your $1.3-billion announcement in the Alberta industrial heartland, which is partially in my riding of Sturgeon River—Parkland.

Why did your company believe the Alberta industrial heartland was the best place to make this investment? What were the factors that played into that decision?

[Simon Moore]

Thank you very much. I appreciate the recognition of the very exciting announcement.

There were a number of factors. To be frank, we've had a very successful hydrogen production and pipeline network operation in the area for more than 15 years, so we have experience in executing projects there. We've had the support of various government authorities, as well as a very qualified workforce in the area, so quite frankly, we know it's a good place to do business. That's one thing.

The second thing is the ability to effectively capture and sequester the CO2, taking advantage of the Alberta carbon trunk line, the CO2 pipeline. Obviously it is very beneficial to carry out this project where you can take natural gas and capture over 95% of the CO2 to be sequestered, and then generate hydrogen-based electric power to offset the rest. Of course, this project, in addition to making zero-carbon hydrogen for our pipeline network, is also going to feed hydrogen into a liquid hydrogen plant that will make liquid hydrogen for the mobility market.

Finally, I must say that we were very excited to see the significant support coming from various levels of the Canadian government, including a number of officials who joined us on our announcement call last week.

That's a combination of factors that helped us make this the right decision for us.

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

Drilling down into that, one thing in this part of the country is that we do have some renewable power, such as windmills and solar panels, but Alberta is very well known for its natural gas resources and those energy sources. We've been debating and talking with witnesses about the merits of blue hydrogen and grey hydrogen versus green hydrogen.

I presume you're using blue hydrogen. Did the blue hydrogen play a role in your investment decision?

[Simon Moore]

Yes, and as I said in my remarks, I think we are all familiar with the colours, but I think, honestly, that occasionally assigning these products colours can confuse things. I'll just expand on that for a second.

Obviously, everybody is aware that blue hydrogen is produced from hydrocarbons, but what matters is its carbon intensity. In a different type of process, you might only be able to capture half of the CO2 from a hydrogen plant. We chose a different process that helps us capture more than 95% of the CO2. Quite frankly, the carbon footprint of the hydrogen from this project is very similar to that of so-called green hydrogen produced from a project using renewable energy, so again I think it's important to keep focused on the actual carbon intensity, as opposed to what colour it is assigned.

We've certainly looked at different opportunities. Not to get off track, but we're building a $7-billion renewable, carbon-free, green hydrogen facility in Saudi Arabia for exporting hydrogen around the world. I share that with you to provide some credence behind the idea that we have the capability to do both hydrocarbon-based zero-carbon hydrogen and renewable energy-driven carbon-free hydrogen, and we saw again, with the opportunity to deploy this technology and leverage the CO2 pipeline, that this looked like the right solution here to create net-zero hydrogen.

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

Thank you.

Something that you remarked on interested me. You were talking about the Q45 tax credit. That's something I've brought up numerous times in this committee.

Can you describe to us, with regard to the United States Q45 tax credit, the differences that concern you between that and what has been proposed in the recent budget? What would you propose that would be more helpful for your industry?

[Simon Moore]

Yes. I realize this is an oversimplification, but at the end of the day, we want this policy to reduce CO2. If the policy is set up to be a credit for investment, that is indirect. If the policy is set up to create value for actual volume of CO2 sequestered, that seems to be a lot more direct.

A concern would be a policy that, again, is tied to the amount of capital spent. It might result in inefficient use of capital. What would be a more direct approach would be to directly incent putting the CO2 in the ground, which is what this is focused on.

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

Thank you.

My next question is for our friends from Ballard Power. I seem to be getting a theme here with this trucking job that's coming out of Alberta.

I was wondering if you could talk about how many years we are looking at before we see a significant market share for hydrogen fuel cells in large trucks in Canada. How many years do you think we are away from that?

[Nicolas Pocard]

It's a really good question. I wish I had an answer for you.

I think it's going to depend on the ability of the industry, like Ballard on the fuel cell side or the engine side, to drive the cost, and I think for that we are on the right track. We have been reducing a lot of costs for the technology in the past five years. Accelerating now, we are in really aggressive cost reduction, so we should be able, by the end of the decade globally, to be at parity with diesel trucks. On the fuel cell side, I think we're making really good progress.

I think, though, the challenge would be the deployment of the hydrogen infrastructure. If we want to be able to have a significant market share of trucks operating with hydrogen, we need to bring that heavy-duty station infrastructure across Canada.

Initially we can start with trucks operating as a fleet base—home and return, or operating between two points—to minimize the requirement in terms of hydrogen infrastructure by focusing on those fleets of vehicles. We fully believe that by the second part of this decade, we can start to see a significant part of those vehicles being fuelled by hydrogen.

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

Thank you.

One more quick—

[The Chair, Liberal, James Maloney]

Thank you, Mr. Lloyd.

Mr. Weiler, we go over to you.