Natural Resources Committee on Sept. 18th, 2023

[The Chair, Liberal, John Aldag]

Thank you, Ms. Stubbs.

Are you good? Okay. Monsieur Simard is going to pass.

What I heard was an amendment from Ms. Dabrusin, which we'll deal with first, which would be to amend the invitation to have the Suncor executive and executives from the oil and gas sector, so that would—

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

I said, “other energy executives”. That was the wording I proposed. I would keep to that and then we would have an invitation list we could manage.

[The Chair, Liberal, John Aldag]

Okay. We'll put the vote on the amendment to insert “other energy executives” in the invitation.

(Amendment agreed to)

(Motion as amended agreed to)

When we get back to committee business, we can look at where we want to insert that into the agenda and at putting out the witness lists and all of those types of details. Thank you, members.

Thank you to our witnesses for their patience.

That having been dealt with, I'd like to welcome our witnesses from the four departments. Please correct me if I get any of your names wrong, which I inevitably will.

From the Department of Industry, we have Patrick Hum, acting director general, clean technology and clean growth. From the Department of the Environment, we welcome back Mr. Moffet, assistant deputy minister, environmental protection branch. From the Department of Finance—there are some familiar faces here as well—we have Miodrag Jovanovic, assistant deputy minister, tax policy branch; Greg Reade, assistant deputy minister, Crown investment and asset management branch; and Nelson Paterson, director general, economic studies and policy analysis division, economic policy branch. Last, from Natural Resources, we welcome back Frank Des Rosiers, assistant deputy minister, strategic policy and innovation.

I believe each department has a five-minute opening statement, so we'll go to those immediately. Does anybody want to go first?

Monsieur Des Rosiers, feel free. I have the clock here somewhere, I'll give you a signal when the five minutes are up and then we'll move on to the next person. Over to you. The floor is yours for five minutes.

[Frank Des Rosiers, Assistant Deputy Minister, Strategic Policy and Innovation, Department of Natural Resources]

Thank you, Mr. Chair. It's a pleasure to be here with all of you to launch this round of discussions on this important topic.

I'm accompanied, as you said, by colleagues from the Department of Finance, who will be able to unpack some of the measures that are contained in the most recent budget document, notably the tax measures; our colleague from Environment Canada, who will deal with issues ranging from regulatory issues to programs; and colleagues from ISED as well. I hope this group will be helpful when answering your questions.

I will focus my remarks on the global and North American contexts, as well as how NRCan is working with international partners to advance a competitive net-zero economy.

Canada and the world are faced with dual challenges: addressing climate change at one end and adjusting to shifting geopolitical contexts at the other. We've all seen what's been happening in Europe with the Russian invasion of Ukraine and the dramatic impact it had in terms of supply for the region. However, the impact was just as dramatic elsewhere in the world, in the Americas but also in Asia, where partners are looking for reliable suppliers of critical minerals and energy. Canada is ideally positioned to support them in that context.

The Government of Canada has committed to achieving net-zero emissions by 2050; domestic action and international partnerships will be key to achieving this objective. Canada is not alone in its energy transition ambitions. Many of our allies and competitors recognize the importance of the transition to their economic and strategic well-being.

The pandemic and the Ukraine crisis were sharp reminders of the importance of continued international co-operation in order to attain our energy security and affordability needs in this low-carbon future.

As an administrative point, if we look at what's been announced in the European Union, an amount in the order of 700 billion euros has been committed to accomplishing this energy transition. Similarly, in the case of the U.S., with the U.S. Inflation Reduction Act that was introduced a year or so ago, there is about $369 billion U.S. for energy- and climate-related actions in order to accomplish their varied objectives. Those are the measures, but there is quite a bit of pressure on us all to be able to compete in this marketplace.

Canada has been equally, if not more, ambitious in terms of climate actions, including $109 billion in spending to date, as well as a price on carbon. On a per capita basis, this is greater than what the U.S. has currently committed.

To illustrate that point, I'll give three quick examples, and we'll have a chance to unpack them during the session that follows.

On critical minerals, NRCan is working with the U.S., the EU, Japan and other friends and allies to develop and secure the supply chains needed for the development and supply of electric vehicles, batteries and so forth. On nuclear, we are also working on advanced nuclear power generation, including SMRs and nuclear fuel supplies. Lastly, on hydrogen, quite a bit of work is happening both in the east—in Quebec and Ontario—and the west to look at developing this very important vector for trade corridors, particularly toward Europe and Asia, which are eagerly looking for supply for decades to come.

In the context of budget 2023, the government has announced a number of spending and tax measures. We're going to hear from our Department of Finance colleagues on those more fully. They are fairly significant, ranging in the tens of billions of dollars for the year to come. I'm sure the committee took good notice of those, and I'm happy to entertain questions in that regard.

To note before closing, we are also working very closely with the U.S. Department of Energy, which has been a very strong partner with us for the past decades on a range of technologies, demonstrations and projects that will shape our going forward. The most recent visit of U.S. President Biden put a clear emphasis on energy, climate change and collaboration.

Allow me to close by noting, in the global context, the significant opportunities for job creation and economic growth. We are looking to our suite of measures to ensure the proper supports for workers around the country, so they benefit from the opportunities that come from energy decisions.

On this, I look forward to the discussion and the questions from all of you.

[The Chair, Liberal, John Aldag]

Thank you for those opening comments.

I'll let everyone know that I have a couple of folders. It's a timekeeping thing. When there are 30 seconds left, I'll give you the white folder, and when the time is up, I'll wave the red. Wind up your comments. Don't stop mid-sentence. We'll then move on. It just keeps things moving.

We'll go now to our Department of Finance officials, if they're ready to go.

Whenever you're ready, the floor is yours for five minutes.

[Miodrag Jovanovic, Assistant Deputy Minister, Tax Policy Branch, Department of Finance]

Thank you for the opportunity to appear today concerning Canada's clean energy plans in the context of North American energy transformation. One of the key themes of budget 2023 was the announcement of a made-in-Canada plan to build a clean economy. Investment tax credits are a key part of that plan. My remarks today will focus on these investment tax credits.

Let me start with the investment tax credit for carbon capture, utilization and storage, or CCUS, which was first announced in budget 2021 with further details proposed in budget 2022 and budget 2023. CCUS technologies are an important tool for reducing emissions in high-emitting sectors where other pathways to reduce emissions may be limited or unavailable.

The intent of this tax credit is to incentivize businesses to invest in CCUS to reduce their greenhouse gas emissions. It would provide a refundable tax credit of 50% for investments in capture equipment—60% for direct air captures—and 37.5% for investment in transportation, storage and use equipment. It would be available to the extent that projects use captured CO2 for dedicated geological storage or storage in concrete, but not enhanced oil recovery.

Second would be the investment tax credit for clean technology, the details of which were first announced in the 2022 fall economic statement. The intent of this tax credit is to incentivize businesses to adopt clean technologies to support decarbonizing electricity generation, heating and industrial activity. It would provide a refundable tax credit of 30% to investments in eligible clean technologies. The credit would be available to businesses that incur eligible expenses starting on March 28, 2023.

Third is the investment tax credit for clean hydrogen, which was first announced in the 2022 fall economic statement. The intent of this tax credit is to incentivize businesses to invest in clean hydrogen production. As an energy source and an energy carrier that does not release greenhouse gases, hydrogen is becoming an increasingly important source of clean energy to global net-zero strategies. It would provide a refundable tax credit that varies based on the lifecycle carbon intensity of the produced hydrogen, as measured by Environment and Climate Change Canada's full life cycle assessment model, with lower carbon intensity projects receiving higher credit rates.

In terms of eligible investments, it would be available for equipment required to produce hydrogen from electrolysis, and to produce hydrogen from natural gas with CCUS.

The fourth investment tax credit announced by the government is the investment tax credit for clean technology manufacturing, which is meant to incentivize businesses to invest in the equipment needed to manufacture clean technologies. It would provide a refundable tax credit of 30% to support investments in machinery and equipment used in the manufacturing of clean technologies, as well as in the extraction and processing of key critical minerals essential for clean-technology supply chains. The credit will be available to businesses that incur eligible expenses starting on January 1, 2024.

Last is the investment tax credit for clean electricity, which is intended to incentivize all power producers, both private and public, to make investments that support net-zero electricity and an expanded clean electricity grid. It would provide a refundable tax credit of 15% to support investment in clean electricity infrastructure. To access the credit, commitments would have to be made by a competent authority in each province and territory that the federal funding would be used to lower electricity bills and to achieve a net-zero electricity sector by 2035. The credit would be available as of the day of budget 2024, but only for projects that did not begin construction before March 28, 2023.

One novel feature that I would like to highlight is the inclusion of labour requirements that are meant to ensure that workers share the benefits of these investments. In the case of the investment tax credit for CCUS, clean technology, clean hydrogen and clean electricity, in order to access the highest tax credit rates, businesses would need to pay workers prevailing wages and ensure that apprenticeship opportunities were being created.

I’ll conclude my remarks with a brief update on the development of these investment tax credits. It’s important to note that enacting legislation must receive royal assent before any of the investment tax credits can be administered by the Canada Revenue Agency. Development of the credits is proceeding along different timelines, partly reflecting staggered coming-into-force dates.

In August, the government released draft legislative proposals for the CCUS and clean technology investment tax credits, as well as the associated labour requirements for public consultation. These consultations concluded on September 8.

The government is working to release further details on the clean hydrogen investment tax credit, recognizing the importance of finalizing design details and introducing legislation as quickly as possible. This is also the case for the clean technology manufacturing tax credit.

With respect to the clean electricity investment tax credit, a number of policy issues still need to be established. The Department of Finance will be engaging with provinces, territories and other relevant parties to develop the design and implementation details.

Thank you.

[The Chair, Liberal, John Aldag]

Great. Thank you for your opening comments.

Now, Mr. Moffet, if you're ready, we can go to you for your five minutes. The floor is yours.

[John Moffet, Assistant Deputy Minister, Environmental Protection Branch, Department of the Environment]

Thank you, Mr. Chair.

It's a pleasure to be here today to talk about these issues.

As this committee has emphasized, the ongoing energy transition presents both opportunities and challenges, and will require the transformation of Canadian industries and the labour market. The government recognizes the need to drive this transformation and to help workers and communities adapt to it, and the work of this committee will be very helpful.

In thinking about these issues, it may be helpful to distinguish three broad objectives.

First, we have a variety of policy measures designed to reduce the use in Canada, by individuals, businesses and industries, of emitting fuel. The widespread use of clean electricity and other forms of clean energy will be foundational for achieving a net-zero emissions economy by 2050.

Second, we also have a variety of policy measures designed to reduce the emissions from the production of carbon-based fuels. Even as Canada reduces its own demand for oil and gas, there is going to be continued demand by other countries, so to the extent that Canadian companies respond to that demand, we need to ensure they produce that fuel as cleanly as possible.

Third, the government is supporting the development of clean energy and associated technologies and components throughout the supply chain, both to support the domestic energy transition and to take advantage of the growing global demand for clean energy.

These goals are being supported by the all-of-government approach, described by my colleagues, with a wide range of measures.

I’ll now speak for a moment about our approach to regulations.

While we appreciate the importance of regulatory stability for attracting investment, we are also working in an unprecedented situation in which there is a need to drive further greenhouse gas reductions and to build the regulatory and policy foundation for the clean energy transition. In this fluid context, we are trying to operate in a way that is as transparent as possible, signalling clearly the various new regulatory measures that we are developing and engaging extensively to ensure that these regulations are well designed and can provide a durable basis for long-term investments.

I’d like to reassure the committee that our work to decide when to regulate, how to target regulations and what requirements to include is informed by the considerations you've identified. The regulatory impact analysis statements that accompany every federal regulation, for example, provide detailed information about technical and economic feasibility, regional employment and other economic impacts—all factors that we consider throughout the development of all our regulations.

To attract investment in clean energy projects, the government also recognizes the need to make project approvals as predictable and efficient as possible. These objectives are the focus of the budget 2023 commitment to improve the efficiency of the federal impact assessment and permitting processes for major projects in Canada.

I look forward to your questions and to the results of your important work.

Thank you.

[The Chair, Liberal, John Aldag]

Thank you.

Now we'll go to our representative from the Department of Industry.

Mr. Hum, whenever you're ready, the floor is yours.

[Patrick Hum, Acting Director General, Clean Technology and Clean Growth Branch, Department of Industry]

Good morning. I'm pleased to be speaking with you today, representing the department on the subject of clean energy.

ISED's mandate is to work with Canadians in all areas of the economy to improve conditions for investment, enhance innovation performance, increase Canada's share of global trade and build a fair, efficient and competitive marketplace.

The department has a purview across a wide range of industrial sectors, from steel and aluminum, chemicals and plastics, cement and concrete, critical minerals, clean technologies, automobiles, aerospace, space and marine to digital, AI and quantum, to name several.

As ISED undertakes its work, there is recognition that the competitiveness and growth potential for Canadian industry will include access to and use of clean energy. For instance, the use of hydrogen and renewable natural gas could significantly lower the emissions intensities of industries like steel and cement.

However, as the mandate for the committee’s study quite rightly points out, Canadian businesses face stiff competition as other countries, including the United States, seek to provide their industries with a similar clean energy advantage.

As Canadian industry and other countries seek pathways to decrease emissions and sources of clean energy, Canada's dynamic and robust clean technology sector is well positioned as a supplier of choice for hydrogen, low-carbon and renewable fuels and wind technologies, as well as for clean digital technologies and services which is an area of significant innovation.

In this context ISED uses its range of regulatory, legislative, policy and program tools in support of the government's clean growth and clean energy priorities. For example, ISED and Natural Resources Canada deliver the clean growth hub initiative, a unique whole-of-government focal point dedicated to helping Canadian clean technology innovators and adopters navigate the vast array of federal programs and services most relevant to their needs.

Since its creation in 2017, the hub has served over 2,700 small- and medium-sized enterprises across Canada, leveraging the knowledge, expertise and network of its 17 member departments and agencies to provide tailored advice. In 2022, approximately 44% of its clients were companies in the clean energy sector.

ISED also created the industrial decarbonization team, or IDT, to support large-scale clean energy and decarbonization projects through enhanced collaboration across departments on federal programs and regulatory issues. The IDT assesses and provides advice on projects that require more tailored support in view of their complexity and ability to accelerate Canada's path to a competitive net-zero economy.

Another part of the federal government's clean technologies and clean energy tool kit is the strategic innovation fund's net-zero accelerator. The $8-billion net-zero accelerator initiative is a tool to help support Canada-wide GHG emissions reduction targets, groundbreaking investments in low-carbon fuels and clean energy-related technologies in areas such as fuel cells, small modular reactors and wind energy.

Clean energy-related investments include a $15-million contribution to AVL Fuel Cell Canada for a hydrogen fuel cell R and D centre in Vancouver and $25 million to LM Wind Power for the expansion of large, complex wind turbine blade production in Gaspé.

Budget 2023 provided an additional $500 million to the program to support clean technologies and redirected $1.5 billion of its existing resources toward projects in clean technologies, critical minerals and industrial transformation.

With that, thank you. I'd be happy to take your questions.

[The Chair, Liberal, John Aldag]

That's great. Thank you.

Thank you to all of the officials for the very tight opening comments. It's really appreciated.

We're going to now get into our first round of questions. For the members, we should be able to get through at least the first two rounds and, possibly, a bit of the third.

Welcome, Mr. Morrice, to our committee, as well as Mr. Fonseca.

If there is time at the end, Mr. Morrice has requested time, which would require unanimous consent unless somebody offers their time as we go through the rounds. We'll deal with that when we get to the end.

First up, we have Mrs. Stubbs, who will have six minutes on the clock.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you, Chair.

Thank you to the officials for being here. It's nice to see all of you again as well.

Mr. Moffet, certainly on your comments, Conservatives on this side of the table looked at each other in full agreement with you that global oil and gas demand will continue to increase. That's why Conservatives believe that the very last barrel of oil and gas used in the world ought to be from Canada, instead of the Liberal approach, which is to cede ground to dictators, despots and regimes with much lower environmental standards.

I must confess that it's a little odd to hear comments about the clear requirement in Canada to reduce permitting and regulatory timelines and fix the Impact Assessment Agency. I say this on behalf of all Conservative colleagues at this table, but I guess in particular because it just happened to be specifically me during the debates on Bill C-69 who warned that the government spin on the legislative timelines the bill would implement wasn't, in fact, true, and that there were multiple ways in which the bill had the ability for members of both the regulatory body and the cabinet to stop, start and extend the regulatory process repeatedly over private sector proponents.

I can also say that at that time—because it was again, oddly, specifically me—Conservatives warned that what that would do would be to create potentially endless timelines and uncertainty for private sector proponents and therefore make the regulatory decisions and permitting for all kinds of energy projects in Canada uncompetitive against the rest of the world. I'm not sure why Canadians ought to believe that the government that brought in this system, which was broken in the first place, will be the ones to fix it, but suffice it to say Conservatives agree with those two main principles you talked about.

For the finance department officials, one thing I'd like you to explore a bit more for this committee and for Canadians is the difference between investment and production tax credits. One of the main reasons the U.S. IRA is a threat to Canadian competitiveness, of course, is their inclusion of production tax credits, which are ongoing and based on actual outcomes—actual environmental and energy results—rather than, in Canada's context, only first-time early initiative incentives.

I invite any or all of you to make any comments on maybe the relative advantages and disadvantages of investment versus production tax credits and any consideration of that in Canada's context.

[Miodrag Jovanovic]

Thank you for the question.

That is a fundamentally important question. In Canada, we tend to favour investment tax credits as opposed to production tax credits, and the United States is using both. More recently in the IRA, they have expanded significantly on their production tax credits. They had that in their system already before now. The investment tax credits basically support capital investment up front, so it has, in a way, the advantage when it comes to securing financing to be able to count on that up front, while production tax credits basically support opex—operating expenses.

It's going to vary depending on the project as to which one is preferred. In a way, I think it's back to the relationship between initial capital spending and opex. In the United States, production tax credits would last between 10 and 12 years depending on the credit, which also means that if you do a major investment up front you can count on that for maybe 10 years, but after that it's done. That's another way to look at this. If you have a major infrastructure project that is very costly, sometimes you may prefer the investment tax credits up front, because you get it up front and you get it for the effectively the whole life of the project, and often it easily goes up to 20 years.

It's a question of choice and a question of the predisposition. In a way, the systems in Canada and the United States are also very different. In Canada, we do have a national carbon pricing regime. In the United States, they don't, and that is kind of factored into the idea of how you want to support things. In a way, being able to sell your carbon credits is a way to bank that in addition to the investment tax credits.

That's the context and comparison.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you. I appreciate your comments.

It seems to me that production tax credits pose an especially challenging competitiveness issue for Canada, especially for the development of projects like hydrogen, critical minerals and manufacturing.

On the issue of permitting reform, since you raised it, of course the U.S. IRA bill as well as their debt ceiling bill took very aggressive actions on reducing the permitting and regulatory time frame. Their debt ceiling bill has a target for under two years. The IRA obviously wants to pursue permitting timeline reductions. This seems to me to be the low-hanging fruit with which Canada should take full control of our own situation to be able to compete, rather than try to chase the U.S. down a dollar-for-dollar subsidy spiral.

The trouble for Canada, of course, is that it takes up to 25 years to get a mine built. The disaster for Canada is already demonstrated in terms of LNG. The U.S. built seven LNG projects and approved 20 more in the same timeline that we approved only three, with one actually being constructed.

Can you give any concrete details in terms of timelines under consideration for those assessment reforms? When will Canadians and all of us know what the intended timeline reductions are?

[The Chair, Liberal, John Aldag]

I'm sorry. We ran out of time. That's six minutes. That may be something that one of your colleagues or others on the committee may want to pick up on when it comes to them. That was a good round of questions.

We'll go next to Mr. Chahal, who will have six minutes on the clock.

[George Chahal, Liberal, Calgary Skyview, AB]

Thank you, Chair.

Thank you to the officials for joining us today.

I'll start with you, Mr. Hum. You talked about the importance of renewable energy in attracting business in Canada in sectors like steel and others. How important is having a clean energy grid to attracting business to Canada?

[Patrick Hum]

Certainly, I would say it's extremely important, in industries that are particularly energy-intensive and trade-exposed, to access clean energy to reduce their carbon intensity. We see that in sectors like aluminum, for instance. Canada produces amongst the lowest carbon-intensive aluminum in the world. These are important factors for export markets. Industries definitely look to Canada, and these industries in particular, to have access to clean energy.

[George Chahal, Liberal, Calgary Skyview, AB]

Thank you.

Mr. Jovanovic, you talked a lot about the ITCs. I want to focus in. How many billions of dollars of economic activity and jobs do you anticipate Canada will receive with the ITCs you've put in place?

[Miodrag Jovanovic]

Thank you for your question. I can talk about investment in terms of the money or the spending that these ITCs would represent for Canada. I may turn to my colleague to see if he has anything to add; I'm not sure.

To give you some idea, over the next five years, we project the cost of the five ITCs I mentioned to be nearly $28 billion. If you project that to the next 10 years, that is more than $64 billion, and to the next 12 years, by their expiry dates, we're at about $83 billion of forgone revenues, if you will. Therefore, it is very, very important.

[George Chahal, Liberal, Calgary Skyview, AB]

Thank you.

What are you hearing from the industry? Alberta Conservatives have put a moratorium on renewable energy in Alberta. We've seen, some experts say, $33 billion in losses and thousands of jobs that are going to be impacted. Have you heard from industry on the impacts, and can you verify those numbers?

[Miodrag Jovanovic]

I haven't really had any discussion on that specific aspect. The industry hasn't reached out to me directly on this, so I can't really comment on it.

[George Chahal, Liberal, Calgary Skyview, AB]

Mr. Des Rosiers from Natural Resources, could you comment on the impact on the industry? Have you heard from the Canadian renewable sector on the impact of a moratorium on industry, moving forward, in job losses and investment?

[Frank Des Rosiers]

We certainly heard a number of companies express preoccupation with the state of the marketplace, but given what our recent development has been, I don't think we have any quantitative assessment of what dollar-value impact this would have.

My understanding is that the Alberta government is quite seized with the importance of going through this process in a timely way to ensure the investment climate...which has led to so many great projects in Alberta. As was noted earlier by one of the committee members, we've had a record number of great clean energy projects in Alberta at very low cost, and I think both the provincial government and the country overall benefit very much from those.

I think everybody is motivated to make sure the rules of the game are established quickly and the investments can flow.

[George Chahal, Liberal, Calgary Skyview, AB]

Why have a moratorium? Why stall the industry when it's growing and being a national leader? Thirty-three billion dollars and thousands of job losses are big numbers. Do you think there will be a drastic impact to the renewable energy sector with this moratorium?

[Frank Des Rosiers]

I don't think it would be appropriate for me, as a federal official, to comment on how the province wants to carry out its affairs, but what I can certainly emphasize, as was illustrated by Minister Wilkinson in recent statements and with the electricity grid recently established, is that there's great need for clean power in this country.

This is why, in budget 2023, there is such emphasis around expenditures and tax measures, to which our colleagues from the finance and tax department just spoke, to make sure we are able to significantly expand the size of clean power production in the country.

Estimates vary, depending on which source you rely on, but I think there is broad agreement that we need to at least double the size of the power grid between now and 2050. Just think about that. It took us a century and a half or so to build the grid as we know it today, and we need twice that. Recognizing how big those projects are and how complex they are and how important it is to make sure that our workers and our communities are consulted in this, this is not a small feat.

Countries around the world—Canada, the U.S. and Europe—are faced with similar challenges. The good news is that Canada has lots of options in terms of clean power, whether we're looking at hydro, at wind, at solar or at a range of other options including nuclear. We are capable of getting there, but it will require quite a lift from the whole country.