Natural Resources Committee on June 21st, 2021

[The Chair, Liberal, James Maloney]

I call the meeting to order.

Thank you, everybody, for joining us today for our 35th meeting, and what will be our last one of not only this study but also this session.

I want to repeat some of the remarks I made at the conclusion of the last meeting, and that is to thank everybody for their hard work, their commitment and their spirit of co-operation and enthusiasm not just for this study, but also for the committee. Again, I extend particular thanks to all of the people who make this meeting work twice every week—the translators, of course our wonderful clerk and our amazing analysts. Thank you all again.

Thank you to our witnesses today for joining us on our last meeting on the study of low-carbon and renewable fuels.

We're doing this virtually. I'm sure all of you have done this before. You have headsets. I ask you to be patient. Wait until the other person is finished speaking so that translators can pick up the communication back and forth. There's a translation button at the bottom of your screen, which you can use. You will be asked questions in both official languages. You're welcome and encouraged to use both.

I will give every witness group up to five minutes to deliver opening remarks, and then we'll open the floor to committee members to pose questions.

I may have to interrupt from time to time if people go over their time limit. I apologize in advance for that.

We have four groups of witnesses today. We have Advanced Biofuels Canada, Air Liquide Canada Inc., Dr. Ross McKitrick from the University of Guelph, and Renewable Industries Canada.

I will let you speak in that order. We will start with Advanced Biofuels Canada. I welcome Mr. Ian Thomson and Fred Ghatala.

I have overlooked the fact that Mr. Serré is not here today. He is being kindly replaced by Ms. Martinez Ferrada. Thank you for joining us today as well.

I'll turn it over to Advanced Biofuels. You have the floor for up to five minutes.

[Ian Thomson, President, Advanced Biofuels Canada]

Thank you, Mr. Chair.

My name is Ian Thomson, and I am the president of Advanced Biofuels Canada. I'm joined here by my colleague Fred Ghatala, the director of carbon and sustainability for our organization.

I wish to convey this morning two core ideas relative to the committee's study.

The first is that the advanced biofuels and renewable synthetic fuels made by our members have improved dramatically on all fronts in the past decade and are being deployed at commercial scale here and around the world, yet the revolutionary nature of these innovations is not widely known and old perceptions prevail.

My second message is that the clean fuel regulation, or CFR, currently under final review has immense potential, but needs several straightforward amendments to deliver on its promise.

Renewable fuel regulations of a decade ago had only a handful of solutions, but these regulations worked as intended. They kick-started widespread efforts to deploy a new generation of low-carbon, energy-dense fuels.

Today these fuels can be 100% substitutes for, or blended with, fossil fuels, fully functional in existing engines and infrastructures, and some are indeed produced at existing petroleum refineries. Clean fuel feedstocks have expanded beyond sustainable crops to include household and industrial wastes and residues, and even CO2 captured from air or from industrial flue stacks. Clean liquid fuels complement an array of other low-carbon transportation energies now also being scaled up.

The results of these innovations are that advanced biofuels made today in Canada can be carbon competitive to, for instance, electric vehicles on a full life-cycle basis. A vehicle running on these fuels can be a zero-emission vehicle, reducing greenhouse gases from 80% to 120% below those of fossil.

We know that electricity and other low-carbon energies will have a rapidly growing role in transportation. The IEA's sobering report of last month starkly noted that, even under fully executed, ambitious, global net-zero pledges, by 2050 more than 80% of final energy demand in transportation can rely on the internal combustion engine. Marine, rail and aviation sectors may be reliant on those fuels even longer. In short, we can't wait until 2030 or 2050 without the rapid scale-up of these liquid fuels.

The new clean fuel regulations can play a key role in Canada's net-zero future, and we have two recommendations relative to its design.

Our first addresses an inescapable fact that 75% of vehicle greenhouse gas emissions is from crude oil in fuel combustion and the other 25% is from the energy that goes into extracting and refining fuels. In plain terms, the CFR will fail to get Canada on the path to net zero unless it addresses, proportionately, these combustion emissions. The only solutions capable of delivering zero combustion emissions are advanced biofuels, renewable electricity, low-carbon hydrogen, renewable natural gas, and bio-crude for refineries. Put another way, you can't capture and store a car's tailpipe exhaust.

Unfortunately, the CFR draft design offers many incentives for fuel suppliers to focus their actions on reducing upstream emissions that will never be able to take us more than 25% of the way to net zero. In addition, other provisions will award credits for activities that have nothing to do with liquid fuels or transportation. I would be happy to describe the straightforward solution to this misalignment, but it roughly follows the precedents set by other global clean fuel regulations.

Our second recommendation relates to CFR feedstock criteria and the new greenhouse gas measurement tool. Canada's providers of sustainable crops, agricultural and forestry residues and waste resources are concerned about market access requirements and seek clarity on carbon intensity scoring under the new LCA tool.

The practical solution is to align the life-cycle assessment model and feedstock criteria with established industry standards in the North American fuel trade and to adopt it with an orderly transition.

Clarity on how Canada's farmers, foresters and clean fuel producers can participate will support new investments. Our recent analysis indicates that a well-designed CFR can create over 20,000 new jobs and add $10 billion in new economic output.

Last, I'd like to add that several of the clean energy tax measures and funding programs in the strengthened climate plan in budget 2021 need refinement to create competitive conditions for private sector investments.

In closing, let me reflect again that Canada's advanced biofuels sector is helping drive Canada's economic recovery and underpin climate plans. Our task is clear: to decarbonize the internal combustion engine.

We appreciate your work on low-carbon fuels and the invitation to meet today. My colleague and I look forward to your questions.

My thanks to the members of the committee.

[The Chair, Liberal, James Maloney]

Thanks, Mr. Thomson.

Next up we have, from Air Liquide Canada Inc., Mr. Bertrand Masselot, president and CEO.

Sir, you have the floor for five minutes.

[Bertrand Masselot, President and Chief Executive Officer, Air Liquide Canada inc.]

Mr. Chair, ladies and gentlemen of the committee, thank you for giving us the opportunity to present our vision of how Air Liquide Canada plans to contribute to the energy transition, particularly in the area of fuel mobility.

A few words about Air Liquide. The group is a little over one hundred years old, with a presence in 78 countries and with 65,000 employees. I feel that it is important for me to tell you that our business is to play with small, very simple molecules and to put them to work for our clients and our patients. We do so in a reliable and long-term way, with the objectives of improving the processes, of better, quicker and more efficient production, and of delivering the products with a carbon footprint that is as small as possible. All with the goal of improving our patients' quality of life.

Air Liquide has had a presence in Canada since 1911, from the east coast to the west coast. We have four pillars: the primary production of those molecules with existing pipeline systems; activities that are predominantly industrial, at a small to medium scale, or involving captive fleets, such as fork lifts that today are fuelled by hydrogen cells; and two very transactional activities, both extensive: in industry, particularly for welding, and in health care.

The Air Liquide group's path is clear: we want to reach carbon neutrality by 2050. Those are not empty words but they are not easy to put into effect because we are a structure and a growing entity at the same time. The entity puts great stock on its historical assets: separating air into component gases, producing molecules and enhancing energy. We also put a lot of stock on our clients as we improve their processes, which involves working and innovating together. Finally, we really wish to be involved in creating these new ecosystems. Our group has a strong ambition to use the hydrogen society as a means to growth. The object is to add value, but within a society with a low carbon footprint, including for mobility.

The hydrogen molecule is small, simple, efficient, and generally easy to store and to use. As a fuel, it can help to decarbonize our society, especially in transportation, including heavy transportation.

Those are lofty words, but our current vision in the Air Liquide group is to invest eight billion euros in the hydrogen value chain, in the coming decade and all around the world. Basically, that means an objective to invest three gigawatts of electrolysis, and, I repeat, all around the world. I also stress the importance of working on basins and greatly expanding the needs. For us, this is an extremely important point that we can come back to.

The Air Liquide group sets itself apart because we are investors at the same time as we work on the technology at all stages of the hydrogen value chain. They include primary production, transportation by pipeline or in liquid or compressed form, and delivery at the points of use via fuel refilling stations that we design and manufacture ourselves. In addition, we really see scaling-up as our calling.

We will come back to the importance of increasing the size of all these facilities because our objective for them is relatively simple. Whether it is to decarbonize the industry or to improve transportation, it seems critical to us to increase the size of our facilities. We can then significantly reduce the cost of our investment in those facilities and in the value chain in its entirety. Even more, we have to make sure, either immediately, or with the help of a number of industrial, private and public partners and clients, that we can move towards a low-carbon world where the price of hydrogen for the end user is as low as possible, which is what this is all about. It would allow us to properly position ourselves among the other technologies, including fossil fuels.

In that context, we are convinced that we can reduce the price of hydrogen by 60% in the coming decade. One of the great stages that we have achieved, as you have probably already heard, is at our Bécancour site, where we have produced 20 megawatts, or a little more than eight tonnes, of totally renewable hydrogen. That product, which started to flow at the end of last year, is today fuelling industrial and transportation needs in Canada and the northeastern United States.

[The Chair, Liberal, James Maloney]

Thank you very much.

Next we have Dr. Ross McKitrick, professor of economics at the University of Guelph.

[Dr. Ross R. McKitrick, Professor of Economics, University of Guelph, As an Individual]

Thank you, Mr. Chairman, and committee members.

I appreciate the chance to speak to you today.

I hold a Ph.D. in economics from the University of British Columbia, where I specialized in natural resource and environmental economics. At the University of Guelph, for 25 years I have taught courses in environmental economics and policy, econometrics and microeconomic analysis.

Canada is a world leader in finding ways to protect the environment while maintaining growth, economic opportunities and living standards. I hope that the information learned through your hearings will assist your committee as you aim to continue doing so.

While most of my research is aimed at peer-reviewed academic publications, I have also written extensively in the public domain, including think tank reports and media op-eds. Anyone familiar with my writings will know that I have certain biases, which I can summarize very simply.

I believe that policies should be critically analyzed to ensure the benefits exceed the costs. Not every environmental goal is sufficiently valuable to be worth the cost of achieving it. When a goal has been chosen, it is incumbent on policy-makers to try to achieve it at the lowest possible cost. The disaster regarding Ontario's electricity restructuring is a cautionary tale of what happens to an economy when this lesson is ignored.

I have done research for the Macdonald-Laurier Institute on the costs and benefits of Canadian biofuels policy. I'm referring to work I did with my colleague, Doug Auld, in 2014. I have also done research for LFX Associates on the costs of the proposed clean fuel standard, published last year, and for the Fraser Institute, published earlier this year as part of a study on the costs of the proposed carbon tax in Canada.

The biofuels report that I co-authored with my colleague, Professor Doug Auld, at the University of Guelph, showed that over the 2008 to 2012 interval, Canadians paid about three dollars in costs for every dollar in environmental benefits attained through biofuels. In arriving at this conclusion, we made assumptions as favourable as possible to the biofuels case. However, the expert literature has shown that switching to corn ethanol does not necessarily lower greenhouse gas emissions on a life-cycle basis compared to using gasoline. The rapid expansion of the biofuels sector after 2006 was driven by government support programs, not by the underlying economics.

My research for the Fraser Institute showed that the costs of blending ethanol go up in a convex fashion, meaning the costs go up non-linearly as the carbon intensity target gets lower. Since ethanol has less energy per litre than gasoline, consumers have to fill up the tank more often to go the same distance. Based on elasticity estimates in the economics literature and parameter values from other published sources—and there I relied chiefly on the Canadian Energy Research Institute in Calgary—I estimate that a 5% cut in carbon intensity below the current baseline will increase the cost of gasoline on a per kilometre basis by about 17%, while a 10% cut will increase it by 48% and a 20% cut will increase it by 156%.

My work for LFX Associates involved macroeconomic modelling of the proposed clean fuel standard. We modelled a policy package that would achieve a 30 megatonne greenhouse gas emission reduction. We estimated that even using a relatively high social cost of carbon metric, in other words, assigning benefits at the high end of the range, the policy would cost the Canadian economy six dollars for every dollar in environmental benefits, with net costs averaging $440 per employed person per year.

We also estimated it would cause a permanent loss of 30,000 jobs nationally, even after taking account of expanded employment in the biofuels sector, and it would put $22 billion in capital at risk of exiting the domestic economy. We also noted that in the context of population and income growth, the total emission reductions would be offset by a 7% increase in the size of the labour force. This means the actual emission reductions as of 2030 would be far smaller than 30 megatonnes, and would likely be zero or less.

I also note that a larger problem with climate policy generally is that emission reductions in Canada often lead to carbon leakage in which the emitting activity does not disappear. It simply moves to China or India or other competitive countries, taking the jobs with it.

The common catchphrase about the costs of climate inaction leads to a muddled argument.

[The Chair, Liberal, James Maloney]

I'll have to ask you to wrap up, Dr. McKitrick.

[Dr. Ross R. McKitrick]

This is my last sentence.

The relevant comparison is between global carbon emissions with the policy and without, and if they are about the same, the costs we incur are largely for naught.

Thank you.

[The Chair, Liberal, James Maloney]

Perfect. I appreciate that. I jumped the gun too soon there.

We will now move to Renewable Industries Canada. We have Malcolm West, a board member. He is executive vice-president and chief financial officer at Greenfield Global. Scott Lewis is also a board member. He is the executive vice-president of commercial operations and strategy at World Energy.

I don't know who is doing the presentation, but you have the floor.

Mr. West, you look like you're trying to present. Maybe your sound is not on. Can you hear us? We can't hear you.

[Scott Lewis, Board Member, Renewable Industries Canada; Executive Vice-President Commercial Operations and Strategy at World Energy]

Malcolm, “unmute” is at the bottom left.

[The Chair, Liberal, James Maloney]

Are you able to step in, Mr. Lewis?

[Scott Lewis]

I think I can. Yes.

[The Chair, Liberal, James Maloney]

All right. I'll give you the floor.

[Scott Lewis]

Excuse me if I read Malcolm's presentation on his behalf just to get it going.

On behalf of Renewable Industries Canada, Malcolm West wishes to thank the chair and distinguished committee members for the invitation to present as part of your study on renewable fuels. In addition to Malcolm's role at RICanada, he is the executive vice-president and CFO of Greenfield Global, Canada's largest ethanol producer.

RICanada members produce more litres of renewable fuel right here in Canada than any other organization. As Canada moves towards implementing its own net zero by 2050 objectives, one sector is often top of mind. The transportation industry is too massive to slow down, but too impactful on the environment to ignore.

Members of Renewable Industries Canada, such as Greenfield Global, have found a way to thread the needle through innovative, modern biofuels. We continue to develop increasingly efficient biofuels that meet or exceed net-zero emissions on a life-cycle basis. Over the past 35 years, our technology has substantially reduced transportation's carbon footprint.

A key focus of this committee's study should be the need to implement affordable, market-ready technologies to achieve climate objectives. The value proposition offered by biofuels is incontrovertible. Ethanol is typically cheaper than gasoline, acts as an octane enhancer promoting vehicle performance, burns more efficiently and can be used with existing infrastructure. Existing technologies, including the use of biogas to replace natural gas in ethanol production, carbon capture and sequestration, and enhanced farming practices can make ethanol a net-zero fuel or even net beneficial for the environment.

All cars on the road as of 2001 can use ethanol blends of at least 15%, with others comparable with levels in the 25% to 85% range. These flex-fuel vehicles cost roughly the same as regular fossil fuel-burning cars and represent the most affordable way for consumers to reduce emissions from their commute.

Policy that favours modern biofuels also stimulates new R and D. For example, Greenfield Global has recently invested in a joint venture that uses anaerobic digestion of solid municipal waste to create biogas for its ethanol plant in Varennes, Quebec. Next steps include producing green hydrogen to meet increased renewable fuel demand.

So far I've spoken to you, on Malcolm's behalf, mostly about light-duty transportation and renewable gaseous fuels. I will now continue with my part of the presentation, about the heavy-duty and aviation sectors.

I echo Malcolm's words of appreciation for this important opportunity to discuss renewable fuels together. I am the EVP of commercial operations and strategy at World Energy, a global leader in the production of biomass-based diesel and sustainable aviation fuels.

Some might worry that Canada's climate goals are too ambitious, while others might want the government to move faster. I'm here to tell you that net zero is real and possible. Today, right here in Ontario, my company produces a biodiesel that exceeds net-zero standards as measured by the Government of Canada's life-cycle analysis model. We're able to do this by taking waste, such as used cooking oils from restaurants and animal fats from rendering plants, and transforming them into biomass-based diesel. We also have the technology right now to make renewable diesel using other ingredients that would meet net-zero requirements.

You don't need to turn over the existing fleets of heavy-duty diesel trucks, buses and trains. The renewable diesel that RICanada members make is already 100% compatible. The same goes for diesel generators in northern and remote communities. They can all produce low-carbon power tomorrow, simply by putting in the right fuel.

Advanced biofuels are a here-and-now solution to significantly reduce carbon emissions.

Sustainable aviation fuel is another example of instant decarbonization. Right now, global demand for sustainable aviation fuel is off the charts, but supply is low because we do not have the right policies in place. Our renewable fuels are proven to be compatible with existing air fleets and are currently being used by many airlines, including United, KLM and Alaska, to name just a few.

As we aim to build back better coming out of the pandemic, Canada needs to ensure that sustainable aviation fuel is leveraged to attain important GHG reductions. Ultimately, this kind of policy will stimulate investment and grow the Canadian economy.

Mr. Chair, thank you for the opportunity to present to the committee. It will be a pleasure for Malcolm and me to answer any questions.

[The Chair, Liberal, James Maloney]

Thanks very much, both of you.

Now we'll go to our first round of questions for six minutes each starting with Mr. McLean.

[Greg McLean, Conservative, Calgary Centre, AB]

Thank you, Mr. Chair.

Thank you to all the witnesses. We're building on some blocks from our last meeting. We've heard a lot of witness testimony, some of which is quite contradictory.

There's been conflicting input on Canada's and the world's ability to replace our energy system with either biofuels or hydrogen. I appreciate most of the biofuels part of it here. The pathways for each transition seem daunting, given the complete uncertainty that we've been presented here. The bigger concern, of course, is that this transition will result in GHG emissions, or are we just looking to subsidize industries that don't add environmental value in the energy equation?

My first question goes to Mr. Thomson at Advanced Biofuels Canada.

You talk about decarbonizing the internal combustion engine, which I think is a laudable goal, but we heard from Michael Wolinetz of Navius Research at the last meeting. He advised us to be careful about using new bio-feedstock for biofuel production because of the inherent depletion of soil carbon stocks and the obvious release of this carbon to the atmosphere.

Can you comment on that, please?

[Ian Thomson]

I can. Thanks for the question.

I can point to Canada. The data in Canada indicates that, over the last 20 years, soil organic carbon in the agricultural regions that have produced biofuel feedstocks have increased substantially, so Canadian soils have become a net sink, if you will, for carbon sequestration. As a result, the carbon intensity reduction potential or biofuels produced off those have declined substantially.

Competent regulatory authorities supported by their scientists with deep LCA knowledge have examined all aspects of the biofuel supply chain, which the committee knows goes all the way from all of the crop inputs, forestry inputs, waste, etc., all the way through to tailpipe combustions. That's how we measure LCA.

The science 10 years ago on some of the other aspects was less well known, because these kinds of regulations have been promulgated so far and wide that there's an immense amount of work going into it and—

[Greg McLean, Conservative, Calgary Centre, AB]

Mr. Thomson, sorry—

[Ian Thomson]

Yes.

[Greg McLean, Conservative, Calgary Centre, AB]

—I'm limited in time here.

The EPA has a study, and we've talked about 30 different studies that talk about actual CO2 emissions from biofuels being about double what they replace when you put them in, life cycle-wise, from an internal combustion engine. The latest one, of course, from the Environmental Protection Agency in the United States indicates that sinks are a contentious way of looking at this, I think, more than anything else.

Let me ask my next question.

Mr. McKitrick, we've had a few witnesses here, Mr. Jaccard from Simon Fraser University being one. He famously told us, as you can appreciate, that it's the policy you need and don't worry so much about the outcome, which I don't agree with. You can comment on that. He told us that he'd reviewed 20 to 30 studies that show that biofuels produce more GHGs than the product they replace, but they are wrong, according to him, because they don't use his own dynamic analysis; they use static analysis.

Could you please comment, Mr. McKitrick?

[Dr. Ross R. McKitrick]

I didn't hear Professor Jaccard's presentation, so I can't comment on the specific studies.

Some of the issue depends on where you get the fuels. If they're imported from the United States, they're being produced with the American electricity system, which is much more carbon intensive than the Ontario electricity system. Another issue is the scale. It's possible to do things on a small, experimental scale with very favourable parameters, but if you then need to scale it up to an economy level operation, then you do need to pay attention very carefully to those studies, because they're going to be indications of what lies ahead.

I think that Professor Jaccard tends to be very optimistic about technological change in the way that he models it, that it's induced by policy changes. That's a controversial idea in economics, that policy-makers can induce favourable technological changes. It doesn't always work out, but I would say that there's always a chance. There's always a chance that we're on the cusp of very favourable changes in technology. If we are, the carbon tax alone will get it. You don't need to add to the carbon tax mandates to force industries to change what they're doing. The carbon tax puts a price on the emissions that will cause—

[Greg McLean, Conservative, Calgary Centre, AB]

Good.

Mr. McKitrick, I need to move on. I'm sorry. I have only a short period of time left here.

I'll ask you the follow-up question here.

Don O'Connor from S&T Squared Consultants was here last time. He talked about not including the emissions associated with a capital build in these energy transitions for life-cycle analysis.

Contradictorily, he did acknowledge that reductions immediately are more important than eventual emissions.

How do you view capital costs of biofuels production in the life-cycle analysis of these carbon emissions?

[Dr. Ross R. McKitrick]

I presume that those are taken into account, although again it depends on if you are building the whole industry here in Canada versus if you are just importing them from the U.S., in which case the capacity may already be in place.

Again, though, I think pushing the life-cycle analysis back into the actual capital build gets into somewhat speculative parameters. You'd need to look in detail at those assumptions.

[Greg McLean, Conservative, Calgary Centre, AB]

Okay.

I have a final question on—

[The Chair, Liberal, James Maloney]

Thank you, Mr. McLean. You're right on the button there, actually.

Mr. Lefebvre, we go over to you for six minutes.