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Greening Canada’s Energy Sector: Key Takeaways From McCarthy Tétrault’s Canada’s Dynamic Energy Sector Panel – Energy and Natural Resources


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

  • The Honourable 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 &
    Mining Group, McCarthy Tétrault LLP;
  • The Honourable Wayne Wouters, former Clerk of
    the Privy Council, former Secretary to the Cabinet and Strategic
    and Policy Advisor, McCarthy Tétrault LLP;
  • Dave Nikolejsin, former B.C. Deputy Minister
    responsible for mining, BC Hydro, independent power producers, oil,
    natural gas and pipeline affairs and Strategic Advisor, McCarthy
    Tétrault LLP; and
  • Gaetan Thomas, former President and CEO of NB
    Power, President & CEO of Conseil Économique of New
    Brunswick, and Strategic Advisor, McCarthy Tétrault
    LLP.

The following are some key takeaways from the panel
discussion.

1. Federal Spearheading

In order for Canada to achieve its targets of (i) reducing
greenhouse gas emissions by 2030 by 40% to 45% as  compared to
Canada’s 2005 greenhouse gas emissions levels; and (ii)
achieving net-zero emissions by 2050, Canada must transform its
energy industry.  This can only be accomplished with
significant 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 incentivize the
development of clean technologies. The federal government announced
close to $18 billion in investment 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 for improving the energy efficiency of
    residential buildings;
  • $319 million in funding for Natural Resources Canada to support
    research, development and demonstrations for carbon capture,
    utilization and storage technologies
    (“CCUS“);
  • an investment tax credit for capital invested in CCUS projects;
    and
  • a 50% reduction to the general corporate and small business
    income tax rates for manufacturers of zero-emission
    technologies.

Budget 2021, which is intended to bridge Canadians and Canadian
businesses through the COVID-19 crisis and towards a robust
recovery, has shown that the federal government’s stimulus
program for COVID-19 recovery is closely tied to Canada’s
climate change strategy. 

2. The Role of Small Nuclear Reactors

Canada will require more nuclear energy to meet its ambitious
greenhouse gas reduction goals.  For example, the
decarbonization of the transportation industry through
electrification could double or triple energy consumption in
Canada.  Small nuclear reactors
(“SMRs“), the next generation of nuclear
reactors which promise to enhance the safety and economic and
environmental benefits of nuclear energy can play an important
role.  The main hurdles facing the development of SMRs
are:

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

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

3. The Role of Hydrogen and CCUS

In December 2020, the federal government
outlined Canada’s hydrogen strategy in a report entitled
“Hydrogen Strategy of Canada: A Call to Action.”
 The report sets out an ambitious framework for action for
establishing hydrogen as a key alternative fuel and tool for
helping Canada achieve its net zero emissions target by 2050.
 Both green and blue hydrogen, as well as CCUS, have important
roles to play in Canada’s hydrogen strategy.  Hydrogen has
huge potential.  In fact, hydrogen could surpass the size of
our current oil and gas industry.

Given the abundant supply of water in Canada, Canada is strongly
positioned to become a leader in the field of green hydrogen. 
Green hydrogen could also be used to increase the efficiency of
hydroelectric power plants.  Blue hydrogen would allow Canada,
the 4th largest natural gas producer in the world, to
leverage its existing oil and gas assets and related
expertise.  The Alberta industrial heartland is ideally
situated for creating hydrogen hubs.  Through the use of CCUS,
the carbon emissions produced in the production of blue hydrogen
can be captured and stored, leaving nearly pure hydrogen. 
While much work remains to be done, Canada is well ahead on the
learning curve given that it has been developing CCUS technologies
for over 20 years.

In order for Canada to become a world leader in hydrogen, the
federal and provincial governments must coordinate their hydrogen
strategies to ensure that government resources are properly
deployed and  foreign markets can be accessed. 
Cooperation between the public and private sectors is also required
in order to ensure that sufficient private capital is also
available.  Unsurprisingly, Canada is not the only country
seeking to become a leading player in the global hydrogen
industry.  Many countries such as Saudi Arabia and Australia
have begun to deploy mass investment into their hydrogen
strategies. To date these investments far exceed Canada’s
current efforts.

4. The Role of Indigenous Groups

Indigenous engagement and inclusion are 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 early
focus on ensuring a steady revenue stream to a desire to play a
more active role as project owners and project partners and realize
meaningful training opportunities for Indigenous community
members.  

In 2017 Lumos Clean Energy Advisors released the results of a
national survey of clean energy projects with Indigenous community
participation.  The Lumos survey confirmed Indigenous
participation in one hundred and fifty-two (152) medium-large scale
solar, wind, hydro and bio-energy clean energy projects that are
currently in operation.  The Lumos report highlighted that
among the most important benefits for Indigenous communities
arising from participating in Canada’s clean energy economy was
the strengthening of Indigenous community pride and an affirmation
of Indigenous rights and territory.

Indigenous groups can draw upon their significant experience
with renewable energy projects to participate in the broader clean
technology sector.  Indigenous leadership in the Canadian
energy sector will continue to grow and bring with it the potential
to create space for positive economic reconciliation.

5. Inter-Provincial Transmission and the Atlantic Loop

Budget 2021 was relatively silent on the subject of
interprovincial transmission.  Given the scope and ambition of
Canada’s emissions targets, cooperation among provinces will be
critical to accelerate the transition by those provinces that are
reliant on coal to clean energy.  The Atlantic Loop, which
seeks to upgrade transmission capacity on the East Cost to allow
hydroelectric power from Labrador and Quebec to displace coal use
in the region, is seemingly not a matter of if but a
matter of when.  The Atlantic Loop project has
received, and will continue to require, high levels of support from
the governmental and industry stakeholders.  It may be that
the Canada Infrastructure Bank will 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 pending final implementation.  This
includes 31 emission trading systems and 30 carbon taxes covering
approximately 22% of global emissions. The appropriate carbon price
regime for Canada will generally depend on the role 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
(“CBA“) have started to shake global
trade and climate discussions. CBAs seek to level the playing field
and prevent carbon leakage through the imposition of a carbon levy.
 This levy is imposed on imports from countries with no carbon
pricing regime or a notably weak regime.  As such, Canadian
exporters can expect not to incur CBA levies on their exports given
the implementation of Canada’s own regime.  The
implementation of a CBA by Canada would ensure that domestic
suppliers remain competitive against importers who are not subject
to a domestic carbon pricing regime.

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Read More: Greening Canada’s Energy Sector: Key Takeaways From McCarthy Tétrault’s Canada’s Dynamic Energy Sector Panel – Energy and Natural Resources

2021-06-14 09:45:58

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