August 10, 2023

I think what we are seeing is less to do with the carbon tax and carbon credit system and more to do with new investments because of explicit public grants and supports. The driver for HDRD investment is the BC Low Carbon Fuel Standard, not the carbon tax.

The increase in the costs on carbon is still just acting as a market signal more than a real market intervention. Even at the prices it is going up to I do not see any true cost-driven impact on use until 2030.

The BC Low Carbon Fuel Standard is part of two agreements:

1. The federal government has signed a Memorandum of Cooperation with California on regulatory cooperation.
2. BC signed a Statement of Cooperation with California and other states on regulatory alignment and created the Pacific Costal Collaborative initiative.

Read more on that here in my Brief.

BC just ended its Zero Emission Vehicle consultation. The outcome is all but decided as we have already signed these agreements. The answer is the low carbon fuel standard being imposed on transport. So, there will be demand for lower carbon fuel like HDRD. The consumer switch to renewable-linked energy like biodiesel is seeing the writing on the wall. Grants exist now and may not exist in the future, so those companies are making use of them for what is an inevitable shift to different fuel technologies.

I think smart producers are looking for government grant opportunities and gearing-up investments along those opportunities. Our bargaining should attempt to expand our scopes to those new investments.

I think that the producers making Hydrogen in Canada are going to mostly be our oil and gas producers. We cannot create that much Hydrogen from electricity in Canada, so it is going to continue to be derived from fossil fuels for a good long while.

This is all assuming there is a transition to using Hydrogen beyond some niche uses—which I am not totally convinced of.

The inherent riskiness of Hydrogen makes it still a gamble for major investment and is only happening because of these subsidies. The Canadian subsidies are simply trying to keep pace with USA subsidies—mostly in California where they are trying hedge their bets on long-distance trucking and rail using hydrogen fuel cells. But, the investment in hydrogen is a fraction of the investment in lithium (and other) battery charging.

Biodiesel is a good investment right now for some forward thinking companies to convert refineries. I would think our employers would want to do that, but I do wonder if the profit margins exist only because lower wages exist in the biodiesel sector. The capital costs of these builds only work for smaller plants because of the lack of demand and because it is a bridge fuel option, not the end result.

In some ways, I think that these plants for biodiesel will have an end date that may be before the capital costs are paid. That's why we are seeing conversion of refineries and not new builds.

Prince George's hydrogen refueling center is electricity produced hydrogen from BC Hydro (not all clean energy). However, it is not built yet and it is a $60-70M operation. This station is owned by Hydra Energy—a company that would not exist without massive subsidies from government.

Government subsidies this size should be a flag to us to demand unionized workforces go along with them. Hydra Energy is all about being green, but the government in BC should be forced to make just transition part of that investment. I.e., subsidized transition technology firms should be union.

Why would this matter? Because you cannot have just transition without somewhere for these workers to go to do the same job. We can only have this if both employers are union and have preferential hiring language and retraining supports.

I am not sure that the HDRD is using "green" hydrogen. Much of the hydrogen comes from renewable LPG/PERC mixtures with natural gas.

The HDRC plant only got $100M from the government to convert/buy. The entire operation cost about $250M-$350M and will only produce the equivalent of 3000 barrels per day. This is to sell product under the BC Low Carbon Fuel Standard.

Again, it should be union.

There has been no decline in the production of Natural gas in Canada. Far from it, we are producing 20% more natural gas now than we did in January 2021 and demand is steady for gas and oil products.

Even according to the government's own numbers, there is no indication that the impact on production will happen until the late 2020s/2030s.