Climate Headlines: COP28, Oil & Gas Emissions Cap, and the Clean Hydrogen Water Nexus

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Peter and Jackie start this week’s podcast by discussing the latest developments at COP28 in Dubai, including whether the wording “phase-out” or “phase-down” of fossil fuels will be included in the final text.

Next, they talk about the Canadian energy policy announced by the Canadian federal government at COP28, including draft legislation to reduce methane from oil and gas by 75% from 2012 levels by 2030. The government also issued a document on the proposed cap on oil and gas emissions, with a deadline to submit feedback by February 5, 2024, draft legislation by 2024, and final regulations in 2025.

Lastly, Kim Sturgess, CEO of WaterSMART Solutions, joins the podcast. WaterSMART Solutions is a leading consultancy for water management solutions. With funding and support from Alberta Innovates, ATCO, Capital Power, Hydrogen Naturally, Kiwetinohk Energy Corporation, and the Municipal District of Greenview, the consultancy published a study titled “Water Impacts from Hydrogen Development in Alberta in 2023.” Kim explains that water is consumed to make clean, blue, and green hydrogen and that the water source must be considered early in project planning. The report demonstrates that the full development of the hydrogen sector within Alberta is likely to both cause water supply challenges and be limited by water availability.

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Episode 222 transcript.

Speaker 1:

The information and opinions presented in this ARC Energy Ideas Podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Speaker 2:

This is the ARC Energy Ideas Podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian and welcome back. Busy week as usual, Jackie. I think we need to do a little bit of an update on where the COP28 and the UAE, what’s going on there. We’re recording today on a Monday, but last week is when the emissions cap came out. So, I think we need to talk about that with the federal –

Jackie Forrest:

Yeah, and we also had some new methane rules from the federal government announced, that-

Peter Tertzakian:

Then the methane regulations.

Jackie Forrest:

Yeah.

Peter Tertzakian:

It’s all wrapped in part with COP. Then we have a special guest, which we shall tell you about. Very excited to have her on the program. So, where do you want to start?

Jackie Forrest:

Well, let’s start with COP. First of all, let’s talk about this meeting. There’s a lot of media reports that 100,000 people are flying to Dubai and that that’s bad for the planet. When you first hear it, that does sound bad for the planet, but when you think about it, it’s really nothing. Right? That’s the same as some of these NFL football stadiums, how many people come out.

Peter Tertzakian:

Oh, like the Taylor Swift packing a stadium, right? So, it’s nothing compared to that.

Jackie Forrest:

Yeah, think about Taylor Swift. Some of these shows are like 100,000 people. She’s got like 151 shows across five continents. I was looking up the FIFA World Cup in Qatar. How many people do you think traveled to that?

Peter Tertzakian:

I have no idea, but it’s big. It’s like almost every country, yeah.

Jackie Forrest:

It was over 3 million people. So, to me, climate’s a big issue, we need international cooperation, and there’s lots of conflict in the world. It’s actually good to see some collaboration.

Peter Tertzakian:

Yeah, you can go down rabbit holes. Okay, how did people get there? How do they fly there? I think the way you have to view it is one big networking event where people come together and talk, and I think that’s fine. The issue is, what are they accomplishing? I think that is one of the big themes at COP this year. Okay. Time for action, enough talk. I actually am in the Greta Thunberg camp. I don’t know if you heard her comment, I think it was a few weeks ago, which asked if she was going to go to COP and now it’s all blah, blah, blah. Effectively intimating, there’s no action, need more action. We can talk about what that action should be, and I think we will here in a minute, but the notion that everybody gets together and talks about it, and nothing gets done, I think is prescient because it is COP28, in other words, met 28 times and emissions are still going up. So, I think Plan A is not working. It’s time to think about some plan B and converting some of the talk into action.

Jackie Forrest:

For sure, yeah. Although, information sharing in itself does have value. I did want to do a shout-out to CRIN, the Canadian Clean Resource Innovation Network. They have a pavilion in Dubai, and I’m seeing a lot of things on social media about people presenting Canadian success stories around emissions reductions and sharing knowledge. So yes, I know emissions keep going up, but I think it facilitates relationships and sharing of information that hopefully helps bend the curve.

Peter Tertzakian:

Yeah, I think it’s just a question of where all the proverbial oxygen is spent. If it’s just talking, that’s valuable, but talking has to be converted into action, and I think that is definitely how the meeting started. Okay, well, what actions? We’re now getting close to the end of it this week, there’s some draft communiques that are coming out, and I think my objection to it is that there’s still an inordinate amount of oxygen being consumed, talking about the oil and gas industry, the upstream oil and gas industry, the phasing out of fossil fuels and so on and so forth.

Jackie Forrest:

It’s taken, you’re right, a lot of media has been covering this, and as of this morning media reports are that they’re not going to have words about phasing out or phasing down oil and gas or fossil fuels in general. The wording that we’re reading right now is saying it will say, reducing both consumption and production of fossil fuels in a just, orderly, and equitable manner, as to achieve net zero by before or around 2050 in keeping with the science. I’m sure a lot of people put a lot of effort into that sentence.

Peter Tertzakian:

An excess of bias on the oil and gas side is a waste of time. I’m going to tell you why, is because if these countries like the UAE and Saudi and other big producing nations, including US, Canada, and others say, okay yeah, we’re going to phase down fossil fuels. There will always be a country that will always say “Fine, you guys are winding down, I’m going to increase my market share and take market share.’ The key to all this is the wording around consumption, in my view, and also making the systems more efficient and basically transitioning off by virtue of developing the technologies and the processes and putting into place the right conditions to finance it all, which is something that we’ve talked about a lot on this program, including when we talked with Dr. Shu a couple of episodes ago. What does it take to actually finance a transition? If you beat up on constituents that are part of this process too much, they will not finance, and they won’t get financed.

So,

to me, if you actually focus on the demand side, the consumption side, and the system side, then production will necessarily fall. I mean, we saw that with the pandemic. The pandemic was like a big laboratory experiment. All of a sudden, consumption fell precipitously because everybody was locked down. Guess what? Production fell accordingly. So, to me, spend the time and effort and energy on all these other points that are being brought forth in the communiqué and actually production will fall.

Jackie Forrest:

Yeah, and making goals that are impossible is not helpful. In fact, this is called the taking stock COP. It’s the first time since the Paris Agreement that looks at the gap between the pledges and what was agreed to under the Paris Agreement. Generally, there’s a big gap. Not only are the pledges not enough to reach 1.5, the ones that were made, but countries are generally not on target for even meeting those pledges. So, you make a goal to reduce your dependence on fossil fuels at a rate that is unrealistic and just nobody meets it anyway.

But there are some positive things that we are expecting. There are things that will be in that document that I think will reduce emissions. There was news that they want to triple renewable capacity by 2030 and also really increase the investment in energy efficiency. There was some agreement early on about the loss and damage fund. They’re saying that there’ll be initial funding of around 475 million, and that came from the host. UAE pledged 100 million, European Union, 275 million. So that’s a really positive thing.

Then this Article 6.4, we keep talking about the ability to trade carbon credits so that if a country can’t actually meet their targets domestically, or if those emissions reductions are very expensive, they could make them in other countries. We’ve been talking about this for like 10 years, but there’s hope that there’ll be more clarity in this Article 6.4 that will allow more of this global trading.

Peter Tertzakian:

Well, it’s all good talk. I mean, you just take even the triple the renewable or spending more on systems. I keep coming back to the RBC report, Royal Bank of Canada report that came out, I don’t know, what was it, a month or two ago that said this transition is going to cost Canada $2 trillion. You remember that report?

Jackie Forrest:

Right, yes, yeah.

Peter Tertzakian:

Right, so there you go.

Jackie Forrest:

It’s something like 70 billion a year on average.

Peter Tertzakian:

70 billion a year between now and 2050. What is it that we are actually spending here?

Jackie Forrest:

Well, according to Bloomberg New Energy Finance, it’s around 15 billion annually right now in Canada but there’s a huge gap, and I think that’s something that isn’t talked about enough at these meetings. It’s great to have all these goals, but if we’re not getting the capital, it’s not going to happen.

Peter Tertzakian:

It’s not going to happen. What does that look like for the rest of the world? Because some parts of the world have barely even started.

Jackie Forrest:

Well, and globally, the IEA just came up with some numbers that in 2023, they estimate about 1.8 trillion will be spent on clean energy investment.

Peter Tertzakian:

Globally, yeah.

Jackie Forrest:

But to get to net zero, it has to be over 4 trillion. So, there’s a huge gap. Now, there was some good news in that regard. The UAE announced early on in the meeting, they were setting up a 30 billion fund to help with climate finance, and they said that they hope it stimulates another 250 billion because they want other investors to invest alongside of them as they invest in clean energy through some of these big investment funds. But again, that seems like a big number, but in the context of needing to get to 4 trillion, still lots to do for sure.

Peter Tertzakian:

When that number has to be committed and assuming it’s collected from the countries that committed it, then that money has to be put to work and invested. There’re all sorts of barriers, certainly in Western countries, into the allocation and actual deployment of that capital because as we’ve talked in previous podcasts, there’s all sorts of regulatory and permitting issues and all sorts of other barriers, not the least of which is the complexity of policies and the inability to quantify risk of investment.

Jackie Forrest:

Yeah, well, then let’s transition then to talking about complex policy.

Peter Tertzakian:

Speaking of complex policy, yeah.

Jackie Forrest:

Let’s talk about what’s going on in Canada. A couple of announcements. Canada introduced a cap on oil and gas emissions discussion document. Now we don’t know what the legislation looks like, but the idea, they put some information out there, they want some feedback on it. They also put out draft legislation on methane, and I want to talk about that too, because actually there’s a lot of overlap between these two policies, but the methane draft regulations are to reduce methane by 75% by 2030, and the provinces can do it their own way and seek equivalency. So it could be that it looks a little different in each province if they choose to do it a different way, similar to our large emitters program.

But just some highlights from that. There’ll be no routine flaring unless you have an engineering study to support why you need to do that. No routine venting, so that includes all pneumatic devices aren’t allowed by 2030 for older sites. You’ll need to do monthly screening inspections and third-party inspections are required. ECCC estimates that this will all be done at a cost of about $71 per ton in the draft legislation. So that came out, but then shortly after that came this cap on oil and gas emissions, which actually also is a rule to reduce methane emissions.

Peter Tertzakian:

Well, this is the interplay between different policies. Then there’s the Greenhouse Gas Pollution Pricing Act, which is the federal carbon tax on heavy emitters or industrial emitters, and the Clean Fuel Regulations-

Jackie Forrest:

Which focuses on the CO2 piece, yep.

Peter Tertzakian:

Focuses on the CO2 piece.

Jackie Forrest:

Yeah, which overlaps with the cap.

Peter Tertzakian:

Sure, but it’s all CO2 and methane and greenhouse gas related. There’re all sorts of overlaps, including with the also proposed Clean Electricity Regulations, the Clean Fuel Regulations, and then all these other ones that are provincial level. So, it’s really creating a whole policy … What do you call it? I don’t know. It’s just-

Jackie Forrest:

Quagmire? Quest?

Peter Tertzakian:

Okay, good. Those are good adjectives. I would’ve used other ones. But it’s problematic from a financial perspective. We’ve talked about that on this program because no investment equals no transition, and in part that is why we are falling short is because the view is that more and more policy is an inducement to reduce emissions. Whereas more and more policy we’ve gone into the zone where it becomes so complex that nobody knows how to put money into the space. And you say, “Well, it’s easy. Just spend money on reducing your emissions and the capital costs.” But it’s not so easy because then there’s all sorts of other issues, not the least of which is the permitting and inter-provincial geopolitics and said the complexity of the policies.

I actually think these new policies, although on their own they sound like, “Okay, let’s take a look at this. It sounds interesting,” but collectively actually sets us back. It’s just so much confusion. “Well, I can’t invest until I have clarity on this discussion paper, and I haven’t even been able to digest the other policies, let alone this new one.”

Jackie Forrest:

Let’s come back to that, Peter, but let’s talk a little bit about what the document said. I think in general people thought it was going to be a 40 to 45% reduction in emissions by 2030, and it is a little bit less than that. It’s about a 20 to 23% below 2019. And then if you consider that they’re allowing offsets and paying into a de-carbonization fund, it would be 35 to 38%. So, it’s a little softer than I think what initially people thought. It does include upstream oil and gas and LNG. At one point it was talked about that it would include refining. So, it’s a little bit narrower scope. It does include CO2 and methane.

So, in terms of what they’re assuming, the government is assuming this can happen without a curtailment in production. They think 33% of the reduction can come from oil sands, or 20 million tons of CO2, and 55% can come from methane. I just did some math on the methane, and I think it’s almost totally redundant with the 75% reduction policy. So, I guess if you assume industry can achieve that, then maybe that can be done.

For the oil sands, the 20 million tons, it’s interesting. The Pathways Group, if they were to do their phase one, they have said publicly that that would reduce emissions around 22 million tons. So, I think lots of people are going to do some work here to show if it will constrain production. I think there are concerns about that. For instance, Tristan Goodman from EPAC made some comments after it came out saying it could have production implications, but regardless, even if it doesn’t curtail production, it’s going to stop growth. So, it has production implications in terms of how the province develops its natural resources, which I think is very important for this idea that there’ll be a legal challenge.

We had Sander Duncanson on, and he talked about how that decision around the Impact Assessment Act could make the oil and gas cap also unconstitutional.

Peter Tertzakian:

Well, I think this is where, again, it creates unnecessary uncertainty. Because we know the province is going to challenge this thing in the courts. So, then it goes to the courts, goes into the court quagmire system, we have to wait for the decisions, and you sort of drag it out and nobody spends money until those decisions are made.

Jackie Forrest:

Well, and that’s a four-year process.

Peter Tertzakian:

That’s a four-year process.

Jackie Forrest:

Yeah.

Peter Tertzakian:

Jackie Forrest:

We had Sander Duncanson on, and he talked about how that decision around the Impact Assessment Act could make the oil and gas cap also unconstitutional.

Peter Tertzakian:

Jackie Forrest:

Well, and that’s a four-year process.

Peter Tertzakian:

That’s a four-year process.

Jackie Forrest:

Yeah.

Peter Tertzakian:

So I really question the need for this. And then there’s the issue of, well, what does happen to the tier system, which is the provincial equivalent of the industrial emitter carbon tax. So the tier system-

Jackie Forrest:

Exactly. This could reduce emissions at a faster pace and cause potentially an oversupply that would affect the investments in other clean technologies in the province because it may cause the carbon price to be lower than it would’ve been.

Peter Tertzakian:

Right. So if I was a clean energy company, I wouldn’t necessarily be cheering for this new policy because it also throws into question, well, am I going to buy credits on this new cap and trade system, or am I going to buy the credits to fulfill my tier obligations? How do they overlap? How do they interplay? I don’t know. But my sense is that the uncertainty is not healthy for the transfer of dollars from emitters to clean energy projects.

Jackie Forrest:

Exactly. It’s funny. When you think about what Ottawa’s trying to do, their goal is to reduce emissions more quickly. So, they came out with that simple carbon price, and I would argue the investment tax credits, although we’re still getting them finalized, are fairly simple. But they were like, “That isn’t enough. We need to have certain rules like the clean electricity reg, or this oil and gas cap that will drive emissions even more quickly out of these particular sectors.” But the reality is I think it actually does the direct opposite. Because of the threat of legal challenge, because of the complexity that makes it harder to understand the landscape, I think it drives investment away. And I would argue that if you didn’t have these policies, you actually will reduce more emissions between now and 2030 than with them in place. So, it’s kind of counter to what the goal is.

Peter Tertzakian:

That’s the headline goal is to reduce emissions. But I think we understand that there’s politics involved, which we don’t want to get into a discussion about that. The politics are actually now so toxic between federal, provincial governments, it’s just a dynamic that is trending in the wrong direction, which then ultimately leads to resistance to invest, and hey, are we any further ahead than we were before?

Jackie Forrest:

I would argue we definitely aren’t.

Peter Tertzakian:

Yeah.

Jackie Forrest:

I think we’ve got a bit of an overview here. We definitely have some concerns. Now, there’s a 60-day comment period. So, the plan is that this discussion document will be a foundation to give feedback and that they will come out with draft legislation in 2024 and then final legislation in 2025. So, I think it’s important that people get involved. Unfortunately, it’s a very short time period.

Peter Tertzakian:

Well, 60 days over Christmas, I think this is ridiculous for something that’s so complex to be discussed that has implications on billions of dollars of investment. I think that it warrants a lot more discussion given also the complexity of the interplay between yet another carbon trading system that will layer on top of or co-exist with other carbon trading systems. I think it warrants more discussion. Anyway, we will talk more about it.

Jackie Forrest:

Yeah. Well, I do encourage people, even if it’s short, to write in and make their concerns known. We do have a process here. We’re a democracy. I think the federal government wants to move forward with this regardless, but I know that we’re planning to put in a feedback. Especially as it relates to small producers, I think they should be excluded. And actually, Minister Wilkinson did make a comment. It’s not certain if the cap will apply to individual wells or small producers, and I think that’s a very good idea. I think everyone should participate in this process if you’ve got some time before February 5th to put your thoughts together.

Peter Tertzakian:

And participate constructively. My constructive overarching advice is to start thinking about consolidating policies, simplifying them, making them more transparent, and optimizing so that investment capital can flow to the right places.

Jackie Forrest:

Yes. So, we can actually achieve these goals with actual money being spent on projects, which is ultimately what we need to get to.

Peter Tertzakian:

Good. So, shall we move on to our guest?

Jackie Forrest:

Yes. Let’s move to onto our guest.

Peter Tertzakian:

So now I’m delighted to introduce someone I’ve known since, I figure, since 1995 or so when we first met.

Kim Sturgess:

Yes.

Peter Tertzakian:

So, welcome Kim Sturgess, CEO of WaterSMART Solutions.

Kim Sturgess:

Thank you, Peter.

Peter Tertzakian:

Yeah, we’re delighted to have you to talk about the all-important subject. Probably after oxygen, the most important vital resource for human life, or for any life for that matter. And that is water.

Kim Sturgess:

Right.

Peter Tertzakian:

So, welcome.

Kim Sturgess:

Yeah, thank you. Thank you, Jackie. Thank you, Peter.

Jackie Forrest:

Yeah, welcome.

Kim Sturgess:

Yeah.

Jackie Forrest:

Well maybe before we start, could you just tell us a little bit about WaterSMART and where your focus is? Is it mainly in Alberta?

Kim Sturgess:

Sure. So, I founded WaterSMART in 2005, and the premise of it was that we really needed to look at water for a sustainable economy. According to the Water for Life strategy that we have here in Alberta, we have healthy aquatic ecosystems, a focus on safe, secure drinking water for all, and water for a sustainable economy. And in 2005, the first two were being well cared for, but the last one, no one was thinking about it at all. So that’s been the focus. And I’ve focused here in Alberta, we’ve done work in the US and across the west here, but primarily in Alberta, really focusing in on the regulatory system here in understanding how that works.

Peter Tertzakian:

Well, we’re going to get into water and sustainability, but I think probably what’s on a lot of people’s minds in Alberta is the current dry state of affairs.

Kim Sturgess:

Yes.

Peter Tertzakian:

In November I drove, this past weekend, up to Edmonton and back and couldn’t help but notice even in the Red Deer area, which was typically quite snowfall covered by this time of year, was almost no snow. And we know it’s very dry in the south. What’s happening with the water situation here right now?

Kim Sturgess:

Yeah, it’s a big concern. So, the last time we saw conditions like this were in 2000-2001, and that was a very severe drought situation. So, there’s a lot of concern. The biggest concerns really are now in the south. It looks like the reservoirs in both the Bow and the Red Deer have refilled, so they should get a reasonable start to the year. But things are very rough in the south. We really do need a good snowfall, snowpack, and rainfall to get through things. But there are things that we can do to help mitigate the drought situation, and we’re starting to work on that now.

Peter Tertzakian:

So, when you say the south-

Kim Sturgess:

Old man.

Peter Tertzakian:

The Old Man River, which goes into the irrigation of a lot of the crops and the ranches.

Kim Sturgess:

That’s right, yes.

Peter Tertzakian:

In the southern part of Alberta.

Kim Sturgess:

Absolutely, yeah. Yep.

Jackie Forrest:

What about areas in the north? I was talking to an energy developer that was saying even into BC, hydropower production is reduced because of less water.

Kim Sturgess:

Yeah. Well, it’s the El Niño situation. It’s just these warmer, drier events. I think we are going to see more events like this going into the future.

Peter Tertzakian:

Yeah. So, El Niño is the state of the ocean water temperature where somewhere in the Southern Hemisphere … Is it the Southern Pacific or something?

Kim Sturgess:

Yeah, yeah, yeah. I think it comes straight across around the equator. But what’s happening right now is it is making things early. We got this year, which was also really dry this year, we ended up having our freshet an entire month earlier than we normally would. And I think that’s what we’re going to see in the years going forward. We’re going to start to see those freshets coming-

Peter Tertzakian:

What is it again?

Kim Sturgess:

Oh, I’m sorry, the snow runoff.

Peter Tertzakian:

Oh, the snow.

Kim Sturgess:

Yeah, the snow melt comes earlier, quite a bit earlier. So we get around the same amount of water, but it comes earlier, and it comes in the form of rain and not snow. And so that’s going to exacerbate these situations as well.

Peter Tertzakian:

So the current forecast is for much drier than normal conditions as we head into spring?

Kim Sturgess:

This year yes. Yeah, it is. And the government is starting to look at ways to work with license holders to be able to do more water sharing. So looking forward to that.

Peter Tertzakian:

And then do you map or take into consideration what that means, for example, to biofuels, given that this is an energy podcast?

Kim Sturgess:

Right, for sure. The big thing here is we have a limited amount of water, and we need to make choices about what the best use of that water is. We talk about the water, energy, food nexus. We need water also for people, we need water for the environment. So trading off on those and how to make the choices and decisions around what water goes where is really an important policy conversation.

Peter Tertzakian:

Yeah. Because right now the policy conversation is in terms of decarbonization, getting off fossil fuels, and so on and so forth, there’s a lot of focus on hydrogen and green hydrogen, which is hydrogen from water, which is water that runs through something called an electrolyzer. And if it’s green, the electricity comes from solar panels and so on.

Now, if you think about that, this thing called an electrolyzer is really a refinery. It’s refining water into hydrogen and oxygen, H2O.

So actually we are now going to use significant amounts of water as a primary fuel to turn it into hydrogen and carry the energy and then be used downstream somewhere. So given now, what did you call it, nexus?

Kim Sturgess:

The water, energy, food nexus.

Peter Tertzakian:

All of a sudden energy and water is competing in a much greater way in potentially here and in other provinces.

Kim Sturgess:

Absolutely. And I think the trade-off of, and you were asking about biofuels, the trade-off for food, for fuel is the conversation that we’ve been having for many years. If you’re going to use food to make fuel or energy, you can’t export that food.

So something I’ve been very insistent on over the last few years is that we have to really think carefully about our food and our food production. The world is starving and if you look around the world, Canada, right here in Alberta and Western Canada, it’s one of the few places in the world by 2050 where we’re actually going to be able to increase our food production per acre, that’s important. The world is going to look to us to produce more food. So that starts to become a lot more of an interesting trade-off between fuel and food.

Jackie Forrest:

And why is that, Kim? You talk about the drought conditions, and I think they only get worse maybe with climate. So why would we be producing more food in the future?

Kim Sturgess:

Well, it actually gets a little warmer, and so we will have similar kinds of water, this particular drought, there are cycles, so this is a drought cycle. If we look into the future, the impacts of climate change are going to be what we talked about before, which is we’re going to see the water coming earlier, and we’re going to see it coming in rain; so drier in the fall, but more water in the spring.

So you can manage that, there are ways to manage that because we do have water in our system, we have excellent soils, we have a lot of really great warm days. We are going to be able to produce more food. And in fact, we are starting to look at irrigation in the Red Deer Basin and potentially up farther north as well. So, we are going to be able to produce more food per acre, and that’s a big issue.

Jackie Forrest:

All right well let’s go back to the hydrogen. First of all, you did release a report that looked at the impact of hydrogen production in Alberta, and we will put a link to that. You have a great infogram that shows some of the key points from the paper and we’ll put a link to that. But let me talk about what prompted you to do the report. And when I first heard about your report, I’m like, “Well, we’re not doing a lot of green hydrogen, so I don’t think it’s really that important.” But actually, you looked at there’s water use even for blue hydrogen.

Kim Sturgess:

Absolutely.

Jackie Forrest:

And considering the situation in Alberta, that demand is significant.

Kim Sturgess:

That’s right. So when I was chair of the Alberta Chamber of Resources and we were looking at what the resource industry the future looks like, so we’re actually looking quite a bit at where the water should be going in terms of the resource sector.

And at that time, the provincial government put out their hydrogen roadmap. We searched for water in the hydrogen roadmap and found it referenced four times. And it was all to do with the use of water for electrolyzers, for electrolysis. And at that point we kind of said, “Wait a minute, this isn’t right. I’m in engineering physics… H2O, you need H2O to make H2.” And it seemed puzzling that we weren’t considering that.

So we actually teamed up with Alberta Innovates who were also very concerned about this, that the water availability was not being considered in terms of hydrogen. So we worked with Alberta Innovates and then five other partners to launch this study. ATCO, Kiwetinohk, Capital Power, MD of Greenview, and Hydrogen Naturally. And all of those companies are interested in hydrogen production, but they want, they are very concerned about making sure that they’re considering the water footprint from the work that they’re doing in hydrogen.

Peter Tertzakian:

Well, we can get into numbers, but I don’t think we need to because I think one conclusion in your report that says full development of the hydrogen sector within Alberta is likely to cause water supply challenges, and limited by water availability. So certainly now we are in a drought-type situation in Southern Alberta and we need to think more about water.

You talked about the food versus energy, and obviously water is needed to make food, but now we also have the direct competition between water versus energy. And what you’re basically saying is we’re not giving enough consideration to how much water we need for all those hydrogen production that is being proposed.

Kim Sturgess:

Absolutely. Another important point is water is very place-based, very basin in specific. So we’re not saying hydrogen is bad, I would never say that because I think it’s got some possibilities, but you need to understand what the water availability is where you want to put your plant.

So I think something we could say fairly wouldn’t be overly controversial. I’m not really sure how you can put a hydrogen hub in Medicine Hat, there’s no more applications for water licenses in Southern Alberta. Where are you going to get the water for that? And one of the things that we were told is, “Well, no worries, we’ll just buy it from the farmers.” Given that we have a drought situation, I’m not 100% sure that the farmers are going to give up water.

Peter Tertzakian:

Is water priced?

Kim Sturgess:

That’s a very interesting question. We in Alberta do not pay for the molecule of water. However, in a basin where there is an approved water management plan, you can do water transfers. So, there is pricing of the license transfer. It’s not published, it’s not public, but there is water trading. And so yeah, especially as water becomes more dear and there’s not, some municipalities for example, don’t have the water that they need to grow, they are actively looking for water license transfers.

Jackie Forrest:

I guess if the farmer’s going to forego the water that they needed for irrigation, they would want some payment for that, because all things the same, their yield of their food would be less. So, it makes sense there’s some price associated with trading.

Kim Sturgess:

Yeah, there is, but it’s a black-market underground. We could talk so much on that and that point because there are other jurisdictions where water is bought and sold. Here in Alberta, it’s an agreement between the transferring parties in terms of what that value would be.

Peter Tertzakian:

As a side note, I recall vaguely a few years ago, maybe even up to 10 years ago, there was a big fuss about an international company, I think it was a French company that wanted to take water from our springs and our rivers and bottle it up and sell it as bottled water. And there was a big fuss about, “They’re not paying anything for this water.”

Kim Sturgess:

Yeah, Nestle.

Peter Tertzakian:

It was Nestle? Okay. Swiss.

Kim Sturgess:

And interestingly enough, I think they’re pretty well out of their bottled water industry now because there was a lot of blowback on that. There was some pretty interesting reputational-

Peter Tertzakian:

But it strikes me the amount of water they were talking about is trivial compared to what we’re talking about here.

Kim Sturgess:

Absolutely trivial.

Peter Tertzakian:

What percentage of our water supply would be going to hydrogen if the grand hydrogen plan were to come to fruition?

Kim Sturgess:

So, we looked at it basin by basin because, as I say water availabilities does change across the province. So, if we focus in here on Calgary, because that was one where we did do some interesting numbers, so Calgary has a water license for about 90 million cubic meters a year consumptive use. If you build out all the projects that were proposed in the Calgary area…

Sorry, one other key point, hydrogen is 100% consumptive use of the water, it’s 100% consumptive. And the difference between consumptive use and use, our bodies are very efficient processors of water, so about 80% of the water that the City of Calgary takes out of the river, goes back into the river, about 80%. So that 20% is consumed and that’s about 90 million cubes a year. So if all of those projects went forward, we’d be looking at something in the range of 50% of that consumptive use going to hydrogen, because 100% consumptive.

Right now, the consumptive use is about 60%, so the mass does not go around. So, the question then is, do you want to put that hydrogen plant in there and potentially limit future growth, or do you want to produce the hydrogen? These are real trade-offs.

Peter Tertzakian:

Yeah. Yeah.

Jackie Forrest:

So, Kim, for the blue hydrogen, I imagine the water is used more for cooling and things like that. Is it different in terms of how much is actually consumed by the process?

Kim Sturgess:

Absolutely.

Peter Tertzakian:

That’s from natural gas, right?

Kim Sturgess:

Absolutely. So, people, for some reason, think that you don’t need water to produce hydrogen from natural gas. The technology is steam-methane reforming.

Peter Tertzakian:

Steam.

Kim Sturgess:

Steam. And so, the stoichiometric calculation really is that it would take half the number of water molecules to make hydrogen using natural gas, that’s just the chemical formulas, compared to electrolysis, which is full on. It’s not a direct two-to-one because you still need water for cooling, which is normal in energy generation for cooling. And also, for CCUS, I think that’s the other thing people don’t get. If you’re making hydrogen from natural gas, you’re sequestering the carbon. That’s part of the game. It takes water to sequester the carbon as well. So that’s our next project, by the way, is saying, “How much water do you need for CCUS?” so that we can map that availability as well.

Jackie Forrest:

And I have a question. Water quality is also really important, I think. And how big of a challenge is it to get the quality that’s needed?

Kim Sturgess:

Well, it depends on the quality of what the input water is. If you look at what they’re doing in Saudi Arabia, Tiberia, and they’re using seawater, and then they’re using energy to desalinate that water. So, the technologies to clean the water are all there, but they are energy intensive. And it’s not necessarily always diesel, but those water treatment technologies do take energy.

Peter Tertzakian:

Right. And even for purifying the minerals out of the water.

Kim Sturgess:

That’s what it is, yes, just taking any of the minerals out of the water. The other thing is you lose water in that process as well.

Peter Tertzakian:

Right. Right.

Kim Sturgess:

And you still have to deal with the residual. When you treat water, there’s residuals. And now, what do you do with that? That’s also something that needs to be disposed of.

Peter Tertzakian:

So, these are big picture questions.

Kim Sturgess:

Yeah.

Peter Tertzakian:

You’ve written the report.

Kim Sturgess:

Yeah.

Peter Tertzakian:

Is anyone listening?

Kim Sturgess:

It’s a really interesting question. There’s kind of two reactions. One is, “Thank you very much for putting this out there so we understand what we’re dealing with,” and another one is, “I don’t want to know.” Right? So, it’s a really interesting time where people… I’ve actually had one person say to me, “Well, my job is to develop the demand for the hydrogen, not to figure out how to make it. It’s up to the producer of the hydrogen to sort that out.” Well, there’s, what, thirty-two billion dollars’ worth of projects downstream of Edmonton in the industrial heartland and the capital region. Can you do that or not?

Peter Tertzakian:

They build all that, and then there’s no hydrogen because there’s no water.

Kim Sturgess:

Yeah. Or worse, there’s a competition. I think what I really like about our system of water allocation here in Alberta is that it gives people senior rights, so they can have a conversation and a sharing. And that gets back to the drought situation, and people can sit down in a room and figure out how to share. If you get into a competition for water rates, what does that look like? And who’s to say that the hydrogen is more important than the food, as we talked about before, or more important than municipal growth, or the other things, or the environment? So, considering these things up front is really important.

Jackie Forrest:

And Kim, just to help me understand the risk, because by the way, ESG risks are out of fashion right now, but this is a great example of an ESG risk, right? You put in a plant. But if you put it in a place where the water isn’t there, then you create a risk of having a stranded asset.

Kim Sturgess:

Correct.

Jackie Forrest:

Hey, I have one last question. We’re talking about Alberta, but we have a lot of hydrogen projects in the United States, a lot of them in the Southern United States, a whole order of magnitude higher than what we’re talking about here in Alberta. Do you have any insights? This has got to be an issue in those locations too?

Kim Sturgess:

Totally. It is. And they have different water licensing, water management strategies there. All you have to look at as the Colorado Basin and see the kinds of issues and challenges that they have there. So, you have to look at these things basin by basin and understand river by river, literally river by river. And I guess the one thing that I would encourage any projects developers to do is think about water first. Don’t think about water last.

Peter Tertzakian:

Yeah.

Kim Sturgess:

We had one client that we worked with that thought about water four years after they’d spent hundreds of millions of dollars on a facility, and said, “Oh, gee, I guess we better get a water license then.”

Peter Tertzakian:

Crazy.

Kim Sturgess:

It’s in a constrained basin, even though it’s in the north. And you just have to think about these things first. Water is the constraining resource going forward, I think, in the world, not just here in Alberta and in the US. Think about that first.

Peter Tertzakian:

Well, I’m getting thirsty just talking about this subject. Your report notes that it is important to strategically manage our water. What are your recommendations?

Kim Sturgess:

I think the biggest things that we see coming out of our work is work collaboratively. Collaboratively working with your neighbors in the watershed, those that know the water best can identify where there are opportunities to better manage our water. The best example of this is the cooperation of TransAlta in dealing with the flood, because of course, 10 years ago, guess what we were talking about? So TransAlta has been, they change their operations, and they can really improve water management in the upper bow, which is critical for both drought and for flood.

Peter Tertzakian:

Yeah. Well, it strikes me that the other part of this is for companies that are involved in the hydrogen business to think about pricing water accordingly. Because if we do get into… Whatever the mechanism is for pricing, supply, demand, price, you got to be thinking about it, because I don’t really see a lot of that in hydrogen business plans.

Kim Sturgess:

No, and the sort of unofficial because we keep track of this unofficial price that water’s trading for is in the range of eight to $10 a cubic meter to do a transfer. So, you can start to do the math around that.

Jackie Forrest:

Okay. Well, thank you, Kim, for coming. I think this is such an important point, and it is thought about last. Hopefully we’ll get your report out so that developers start to think about it first, and really looking forward to seeing your work on CCS as well, and how much water that consumes.

Kim Sturgess:

Yeah, you bet.

Peter Tertzakian:

Yeah. So, Kim Sturgess, CEO of WaterSMART, thanks very much for coming.

Kim Sturgess:

Thank you so much for putting a spotlight on this really critical issue. It’s much appreciated.

Peter Tertzakian:

Well, we’ll put a link to WaterSMART and to your report.

Kim Sturgess:

Yeah, and the final report with all the appendices is being launched as we speak.

Peter Tertzakian:

Oh, great.

Kim Sturgess:

We’ll send you the link to that report that has all the appendices in it.

Peter Tertzakian:

Perfect.

Kim Sturgess:

Yeah.

Jackie Forrest:

Great. Well, and thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listen to and tell someone else about us.

Speaker 1:

For more ideas and insights, visit arcenergyinstitute.com.

Climate Headlines: COP28, Oil & Gas Emissions Cap, and the Clean Hydrogen Water Nexus

Episode 222 transcript.

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