On May 27, 2021, McCarthy Tétrault LLP’s Energy Law Group hosted a webinar on “Canada’s Dynamic Energy Sector”. Kerri Howard, Co-Director of the National Oil & Gas Group and Partner at McCarthy Tétrault LLP, moderated a panel discussion on the significant changes taking place in Canada’s energy industry and emerging technologies that will be integral to the pursuit of greening the Canadian energy sector. Our panelists included:

  • the The Honorable Jean Charest, former Deputy Prime Minister of Canada, former Premier of Quebec and Partner and Strategic Advisor, McCarthy Tétrault LLP;
  • Selina Lee-Anderson, Partner, Energy and Mines Group, McCarthy Tétrault LLP;
  • The Honorable Wayne Wouters, former Clerk of the Privy Council, former Secretary to the Cabinet and Strategic and Policy Advisor, McCarthy Tétrault LLP;
  • Dave Nikolejsine, former British Columbia Deputy Minister responsible for Mines, BC Hydro, Independent Power Producers, Oil, Gas and Pipeline Affairs and Strategic Advisor, McCarthy Tétrault LLP; and
  • Gaétan Thomas, former President and CEO of NB Power, President and CEO of the New Brunswick Economic Council and Strategic Advisor, McCarthy Tétrault LLP.

Here are some key takeaways from the roundtable.

1. Federal spearhead

In order for Canada to meet its goals of (i) reducing greenhouse gas emissions by 2030 by 40% to 45% of Canada’s 2005 greenhouse gas emission levels; and (ii) by achieving net zero emissions by 2050, Canada must transform its energy industry. This can only be accomplished with strong government support through government spending and tax incentives. On April 19, 2021, the federal government released the 2021 budget (“Budget 2021“) which included a number of new initiatives to encourage the development of clean technology. The federal government announced an investment of nearly $ 18 billion to support clean technology innovation. Key initiatives include:

  • $ 8 billion in funding for a Net Zero Accelerator program that will focus on accelerating the development of clean technology solutions;
  • $ 1.5 billion in funding to support hydrogen infrastructure developments;
  • $ 4 billion in funding to improve the energy efficiency of residential buildings;
  • Funding of $ 319 million for Natural Resources Canada to support research, development and demonstrations of carbon capture, use and storage technologies (“CCUS“);
  • an investment tax credit for capital invested in CCUS projects; and
  • a 50% reduction in general corporate and small business tax rates for manufacturers of zero-emission technologies.

Budget 2021, which aims to bring Canadians and Canadian businesses closer together during the COVID-19 crisis and towards a robust recovery, showed that the federal government’s stimulus package for the COVID-19 recovery is closely linked to Canada’s climate change strategy.

2. The role of small nuclear reactors

Canada will need more nuclear power to meet its ambitious greenhouse gas reduction targets. For example, decarbonizing the transportation industry through electrification could double or triple energy use in Canada. Small nuclear reactors (“SMR“), the next generation of nuclear reactors that promise to improve the safety and the economic and environmental benefits of nuclear power can play an important role. The main obstacles facing the development of RMP are:

  • low public acceptance of nuclear energy;
  • the challenges of nuclear waste management;
  • regulatory approvals; and
  • cost management.

Canada, a nuclear energy leader with considerable experience in the design and operation of nuclear projects and the management of spent nuclear fuel, is well positioned to meet these challenges. Through the federal government, the Government of New Brunswick and private investment, $ 156 million will be invested over the next 3 to 5 years in advancing SMR technology in Canada.

3. The role of hydrogen and CCUS

In December 2020, the federal government presented Canada’s hydrogen strategy in a report titled “Canada’s Hydrogen Strategy: A Call to Action”. The report sets out an ambitious framework for action to make hydrogen a key alternative fuel and a tool to help Canada meet its goal of net zero emissions by 2050. Green and blue hydrogen, as well as the CCUS, have an important role to play in Canada’s hydrogen. strategy. Hydrogen has enormous potential. In fact, hydrogen could exceed the size of our current oil and gas industry.

With Canada’s abundant water supply, Canada is well positioned to become a leader in green hydrogen. Green hydrogen could also be used to increase the efficiency of hydropower plants. Blue hydrogen would allow Canada, the 4e largest producer of natural gas in the world, to leverage its existing oil and gas assets and related expertise. Alberta’s industrial heartland is ideally located for creating hydrogen poles. Through the use of CCUS, the carbon emissions produced during the production of blue hydrogen can be captured and stored, leaving almost pure hydrogen. While there is still a lot of work to be done, Canada is well ahead of the learning curve as it has been developing CCUS technologies for over 20 years.

For Canada to become a world leader in hydrogen, federal and provincial governments must coordinate their hydrogen strategies to ensure that government resources are properly deployed and foreign markets are accessible. Cooperation between the public and private sectors is also necessary to ensure that sufficient private capital is also available. Not surprisingly, Canada is not the only country to want to become a major player in the global hydrogen industry. Many countries like Saudi Arabia and Australia have started to invest heavily in their hydrogen strategies. To date, these investments far exceed Canada’s current efforts.

4. The role of indigenous groups

The engagement and inclusion of Indigenous people is essential to Canada’s net zero emissions strategy. The role of Indigenous engagement in large-scale clean energy projects has evolved over the past decade. The interests of Indigenous communities in clean energy projects have evolved from an initial focus of ensuring a steady stream of income to a desire to play a more active role as project owners and partners and to create opportunities for meaningful training for members of indigenous communities.

In 2017, Lumos Clean Energy Advisors published the results of a national survey of clean energy projects with the participation of Indigenous communities. The Lumos survey confirmed Indigenous participation in one hundred and fifty-two (152) medium to large scale solar, wind, hydro and bioenergy clean energy projects that are currently underway. The Lumos Report highlighted that one of the most important benefits for Indigenous communities arising from participation in Canada’s clean energy economy was the strengthening of Indigenous community pride and the assertion of rights and of indigenous territory.

Indigenous groups can use their extensive experience with renewable energy projects to participate in the larger cleantech sector. Indigenous leadership in Canada’s energy sector will continue to grow and will bring with it the potential to create space for positive economic reconciliation.

5. Interprovincial transport and Atlantic loop

The 2021 budget was relatively silent on interprovincial transportation. Given the scope and ambition of Canada’s emissions targets, cooperation between provinces will be essential to accelerate the transition from coal-dependent provinces to clean energy. The Atlantic Loop, which aims to improve transmission capacity on the East Coast to allow hydroelectric power from Labrador and Quebec to replace the use of coal in the region, is apparently not a question of if but a question of when. The Atlantic Loop project has received and will continue to require high support from government stakeholders and industry. The Canada Infrastructure Bank may end up taking the lead in structuring the deal.

6. Carbon taxes

According to the World Bank, 61 carbon pricing policies have been put in place or are awaiting final implementation. This includes 31 emissions trading schemes and 30 carbon taxes covering around 22% of global emissions. The appropriate carbon pricing regime for Canada will generally depend on the role that carbon pricing plays on the world stage. The effect of carbon pricing on Canada’s global competitiveness remains a concern. More recently, however, Carbon Boarder Adjustments (“ABC“) have begun to undermine discussions on global trade and climate. ACAs seek to level the playing field and prevent carbon leakage through the imposition of a carbon tax. This tax is imposed on imports in from countries with no or particularly weak carbon pricing regimes. As such, Canadian exporters can expect not to pay CBA royalties on their exports given the implementation of Canada’s own regime. Canada’s implementation of a CBA would ensure that domestic suppliers remain competitive with importers who are not subject to a national carbon pricing regime.

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