Public Accounts Committee on Dec. 2nd, 2022

[The Chair, Conservative, John Williamson]

Good afternoon.

Thank you for being here.

I call this meeting to order.

Welcome all to the 42nd meeting of the Standing Committee on Public Accounts of the House of Commons.

Pursuant to Standing Order 108(3)(g), the committee is meeting today to undertake a study of Report 3, Hydrogen's Potential to Reduce Greenhouse Gas Emissions, of the 2022 Reports 1 to 5 of the Commissioner of the Environment and Sustainable Development.

The witness has done a sound test as well as an Internet connection test.

I'd now like to welcome our guests.

From the Office of the Auditor General, we have Martin Dompierre, assistant auditor general, in replacement of the commissioner of the environment and sustainable development, Jerry DeMarco. We also have Philippe Le Goff, principal. It's good to see you both.

From the Department of Natural Resources, we have John Hannaford, deputy minister; and Sébastien Labelle, director general, clean fuels branch.

From the Department of the Environment, we have Christine Hogan, deputy minister; Douglas Nevison, assistant deputy minister, climate change branch; and, by video conference, Derek Hermanutz, director general, economic analysis directorate, strategic policy branch.

I believe it is Mr. Dompierre who will be giving the opening remarks for five minutes.

You have the floor. Go ahead, please.

[Martin Dompierre, Assistant Auditor General, Office of the Auditor General]

Thank you, Mr. Chair.

Mr. Chair, thank you for this opportunity to discuss our report on hydrogen's potential to reduce greenhouse gas emissions, which was tabled in Parliament on April 26, 2022.

I would like to acknowledge that this hearing is taking place on the traditional, unceded territory of the Algonquin Anishinabe people.

With me today is Philippe Le Goff, the principal responsible for this audit.

The potential role hydrogen could play in net-zero energy systems and decarbonization is gaining significant global interest. Hydrogen can be used to drive down emissions where electrification is not technically or economically feasible, such as in energy-intensive industries. However, hydrogen's potential for decarbonization depends on how the hydrogen is produced and used.

For this audit, we wanted to know whether Environment and Climate Change Canada and Natural Resources Canada comprehensively assessed the role that hydrogen should play as a pathway to reaching Canada's climate commitments.

Overall, we found that the two departments had different approaches to assessing the role hydrogen should play in reducing greenhouse gas emissions. Environment and Climate Change Canada expected to achieve 15 megatonnes of carbon dioxide equivalent emission reduction in 2030, whereas Natural Resources Canada projected up to 45 megatonnes by 2030.

To assess the demand for hydrogen, Environment and Climate Change Canada assumed a blending mandate for hydrogen and natural gas that was not based on any existing policy at the provincial or federal level. In addition, this approach was uneconomical, based on the current trend of carbon pricing.

For its part, Natural Resources Canada favoured a transformative scenario that assumed the adoption of aggressive and sometimes non-existent policies, along with an ambitious uptake of new technology.

It is important that Environment and Climate Change Canada and other federal departments adopt a standard framework to estimate the greenhouse gas emission impacts of proposed policies, clean technologies, and fuels.

Generally, Environment and Climate Change Canada did not distinguish existing policies and measures from those not yet announced or implemented. We found that Environment and Climate Change Canada's climate plan that was in effect at the time of the audit was based on measures that sometimes had not been implemented and that relied on some policies that did not have the necessary legislative and financial support.

Environment and Climate Change Canada would benefit from a stronger framework for peer review, public scrutiny, and quality assurance on control in its modelling exercises. This is important because it would improve the quality and transparency of the department’s climate change modelling in future emission reduction plans, and would inspire more trust.

Mr. Chair, this concludes my opening remarks. We are pleased to answer any questions the committee may have.

Thank you.

[The Chair, Conservative, John Williamson]

Thank you very much.

I will turn now to Ms. Hogan.

You have the floor for five minutes, please. Thank you.

[Christine Hogan, Deputy Minister, Department of the Environment]

Thank you, Mr. Chair, for inviting Environment and Climate Change Canada to your committee.

I am pleased to have this opportunity to discuss Environment and Climate Change Canada's response to Report 3 of the Spring 2022 Reports of the Commissioner of Environment and Sustainable Development.

Before I begin, I, too would like to acknowledge that this meeting is taking place on the traditional territory of the Algonquin Anishinabe peoples.

The department welcomes the commissioner's report on hydrogen's potential to reduce greenhouse gas emissions.

We agree with the recommendations addressed to the department. As our action plan shows, Environment and Climate Change Canada is acting upon them.

Let me highlight two primary points. First, I can provide some context regarding how Environment and Climate Change Canada approached its modelling work. Second, I would like to emphasize that despite differences that may exist between Environment and Climate Change Canada and NRCan's approaches, Environment and Climate Change Canada has the same overall assessment of the potential for hydrogen to play a role as a clean fuel and industrial feedstock that both helps the Canadian economy decarbonize and represents an important economic diversification opportunity for the Canadian economy.

On the modelling question, Environment and Climate Change Canada and Natural Resources Canada conducted complementary but quite different modelling exercises. The objectives, analytical approaches and scope differed. I will defer to Natural Resources Canada to speak to the analysis developed for their hydrogen strategy.

For our part, Environment and Climate Change Canada's modelling was about the overall impact of the full suite of measures in the December 2020 strengthened climate plan. It was not intended to provide a disaggregated impact of any specific set of measures or targeted activities, including measures related specifically to hydrogen. In addition, although our modelling included a proxy for the hydrogen strategy that was still under development at the time, that proxy on its own was not intended to estimate the full role hydrogen could play in reducing emissions.

Of course, since late 2020, the government has announced a number of initiatives to encourage the increased production and use of clean hydrogen. The 2030 emissions reduction plan, for example, which was released at the end of March of this year, references a number of hydrogen-related initiatives.

The clean fuel regulations, which were finalized in July 2022, will reduce emissions by requiring gasoline and diesel to become less polluting over time. They will also drive innovation in clean technology and will increase demand for low-carbon energy, including biofuels and hydrogen.

Natural Resources Canada's clean fuels fund will help producers by investing to de-risk the capital investment required to build new or expand existing clean fuel production facilities. This will help grow domestic production capacity for clean fuels, including clean hydrogen.

The Government of Canada is also supporting the production and use of clean hydrogen through the support of projects funded under the net-zero accelerator initiative.

Finally, I would highlight that in budget 2022, the government did commit to establishing an investment tax credit to support investments in such things as clean hydrogen production.

Working across the government with departments, particularly our partners at Natural Resources Canada, ISED and Finance Canada, Environment and Climate Change Canada will continue to build on and improve such initiatives as we move forward with the government's climate change agenda.

In closing, the department will consider the commissioner's observations as we move forward on the 2030 emissions reduction plan and all subsequent climate policies in the coming months and years.

Thank you very much.

[The Chair, Conservative, John Williamson]

Thank you, Ms. Hogan. We appreciate your time.

Mr. Hannaford, you have the floor now for five minutes.

[John Hannaford, Deputy Minister, Department of Natural Resources]

Thank you very much, Mr. Chair.

I am also honoured to be joining the committee from the unceded territory of the Algonquin Anishinabe people.

Mr. Chair, the commissioner's report highlighted hydrogen's essential role in our future, and my department fully agrees. Much has happened since the report's release. Global urgency on energy security, the energy transition, and the climate imperative have cemented hydrogen's critical role in meeting domestic and global energy needs. This urgency plus Canada's climate commitments make Canada a partner of choice to supply clean hydrogen.

Globally, hydrogen investments are expanding. Both the United States' Inflation Reduction Act and the EU's green deal include significant investments in hydrogen. Canada is also growing its hydrogen sector through budget 2021, budget 2022 and the fall economic statement.

For example, the $1.5-billion clean fuels fund supports new production capacity for clean fuels. In fact, in early November, $800 million from this fund went to support 60 projects, including several hydrogen facilities. The strategic innovation fund's net-zero accelerator recently announced $300 million towards a $1.6-billion project that produces and liquefies hydrogen in Alberta and will create 230 jobs. A clean hydrogen investment tax credit provides a refundable credit of up to 40%. The $15-billion Canada growth fund focuses on four areas, including hydrogen, and provides different sorts of fiscal support. As a last example, the Canada Infrastructure Bank's mandate has expanded to include clean hydrogen production, transportation and distribution.

Mr. Chair, these initiatives will solidify Canada's investments in the private sector and attract foreign investors. As you may have seen, more than 10 multi-billion dollar hydrogen projects were highlighted at the Atlantic hydrogen expo in August. At the same time, the government committed to the Canada-Germany Hydrogen Alliance.

As our action plan shows, NRCan is acting on the recommendations outlined in report 3 from the commissioner. We're already updating our hydrogen modelling to incorporate new economic and technical data. When we developed the hydrogen strategy, we spoke to over 1,500 public and private representatives. We're now planning more workshops with them, as well as with provinces and territories, to discuss modelling results. We're also working on our first biannual report, showcasing key data related to hydrogen production, uses, investments, jobs and exports. It will track progress on the strategy's recommendations, document results, and identify new priority areas for the near term.

Hydrogen is also one of the many economic opportunities being discussed at the regional energy and resource tables. Launched in June, the tables provide an opportunity to work with provinces, territories, indigenous groups, industry workers and experts to ensure that each region is well positioned to use its unique local resources in order to thrive economically in the low-carbon future.

Now, I want to turn to the audit's suggestion that NRCan overestimated hydrogen's potential in the hydrogen strategy. The strategy was meant as a call to action. To that end, it needed to show the full potential of hydrogen in multiple sectors and the full slate of actions that could be taken by governments and the private sector to unlock that potential. The strategy was meant to show what could happen, first, if only incremental actions were taken and, second, if significant actions were taken across the economy. In those scenarios, 2030 emissions reductions ranged from 22 to 45 megatonnes, in line with those estimated by ECCC's model, which only looked at one use of hydrogen.

Mr. Chair, the future is promising for Canadian hydrogen. We are already known as a clean-energy leader. We have decades of experience, a skilled workforce, and existing infrastructure that includes a vast pipeline network. We also have the feedstocks, including hydroelectricity, wind and natural gas, to produce clean hydrogen in several provinces. The government is committed to unlocking hydrogen's potential to ensure Canada's economic and climate success.

Thank you, Mr. Chair.

[The Chair, Conservative, John Williamson]

Thank you all very much.

We'll now turn to our first round.

Mr. McCauley, you're joining us virtually. You have the floor for six minutes.

[Kelly McCauley, Conservative, Edmonton West, AB]

Mr. Chair, thanks very much.

Witnesses, thanks for joining us. I appreciate it.

To the AG's office, do we know how much the government has spent, so far, on the hydrogen strategy, based on what seem to be rather faulty projections?

[Martin Dompierre]

I don't believe we have that information in the report, but I'll ask Mr. Le Goff to provide a response.

[Philippe Le Goff, Principal, Office of the Auditor General]

Mr. Chair, that is correct. We don't have that information.

[Kelly McCauley, Conservative, Edmonton West, AB]

Would it be available to you? Could you get back to us?

[Philippe Le Goff]

I think the departments would be better positioned to provide that information.

[Kelly McCauley, Conservative, Edmonton West, AB]

Okay, could the departments provide that to us, then?

In your opening statement, you noted that the departments used different approaches to assess hydrogen and its use in reducing GHGs. They are wildly different projections. Did the departments explain to you how they came up with such wildly different methodologies and numbers?

[Philippe Le Goff]

Mr. Chair, yes, they explained it to us. We saw the modelling, and we looked at the different hypotheses that were used to achieve these numbers.

[Kelly McCauley, Conservative, Edmonton West, AB]

Is there a reason there would not be just one projection or one calculation to use? It seems very odd that the same government is using numbers that are 300% apart on GHG projections.

[Martin Dompierre]

We would have expected that both departments would have a coordinated approach in terms of determining the emission reduction. As we mentioned in the report, one department indicated that the reduction would be 15 megatonnes of emission versus 45 megatonnes of emission, so definitely a coordinated approach would have been necessary.

[Kelly McCauley, Conservative, Edmonton West, AB]

Yes, one would have thought.

Do you accept Natural Resources' opening statement that they seem to be making an excuse of it being just a call to action? They seem to be excusing a lot of the rather damning comments in your report about their numbers and how they came up with the numbers.

[Martin Dompierre]

Basically, we looked at a number of assumptions. As we say in the report, some of these assumptions were overestimated, and they were based on non-existent policies. The report provides numerous examples.

As an example, there was an assumption for very low-cost electricity by provinces, where the assumption was $40-per-megawatt power across all provinces, whereas the observed price in 2020 ranged between $52 and $124 per megawatt. Some of these assumptions were definitely quite off as to the market value of some of those electricity costs.

[Kelly McCauley, Conservative, Edmonton West, AB]

Is it acceptable in any accounting practice or any general practice to base projections on what I am perhaps going to call dishonest projections or calculations by basing them on a policy that hasn't been developed or technology that hasn't been developed?

[Martin Dompierre]

I would say that we looked at the modelling and the assumptions. I am not in a position to determine if it was dishonest by both departments, but we definitely looked at those assumptions in trying to understand how they came up with these emission reductions.

[Kelly McCauley, Conservative, Edmonton West, AB]

Thanks.

Based on the cost projections in exhibit 3.1, does Canada reasonably have the ability to replace current energy use with hydrogen? I stress the word “reasonably”.

[The Chair, Conservative, John Williamson]

Mr. McCauley, whom is that question directed to?

[Kelly McCauley, Conservative, Edmonton West, AB]

That is still to the AG.

[Philippe Le Goff]

Mr. Chair, we are concerned that Canada will need an incredible amount of energy to provide the amount of hydrogen that is mentioned in the report.

[Kelly McCauley, Conservative, Edmonton West, AB]

Yes, and it's either at an incredible cost or with an incredible increase in GHG.

Are you aware of an analysis that has been done by any department as to the cost to the economy, the GDP and jobs if we replace current energy with hydrogen at the higher cost mentioned in your report?