Canada’s Auditor General says Ottawa is not prepared to support a just transition for workers to a low carbon economy. A new report says the government has dragged its feet on plans, and has already fallen short on supporting coal workers.
Kevin Krausert is CEO and co-founder of Avatar Innovations, a Calgary-based venture capital firm and startup accelerator that pairs entrepreneurs with companies in Canada’s energy patch. He says the lack of a firm plan is unsurprising, given the uncertain outlook for the country’s energy mix.
“There are numerous pathways to a net-zero future. So it’s very difficult to frame out where we are going to need ‘X’ number of engineers for carbon capture, and we’re going to need ‘X’ number for hydrogen,” he told Yahoo Finance Canada’s Editor’s Edition. “We’re going to need a much more resilient labour force that is going to be able to tackle the many opportunities that are coming.”
Krausert also discussed TC Energy and Nikola advancing their hydrogen-powered trucking partnership, and why Canada’s largest pension funds aren’t bankrolling more home-grown clean energy companies.
Got a question for Kevin Krausert? Email Jeff.Lagerquist@yahoofinance.com and let him know what interests you in the world of clean energy and technology.
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
JEFF LAGERQUIST: Welcome to "Editor's Edition." I'm Lagerquist with Yahoo Finance Canada. Canada's auditor general says Ottawa is not prepared to support a just transition for workers to a low carbon economy. A report released on Tuesday says the government has dragged its feet on a plan and has already fallen short on supporting coal workers.
Meanwhile, TC Energy is spelling out details of its partnership with Nikola. The American vehicle manufacturer is working on hydrogen fueled big rig trucks. And Canada's pension funds have lots of money, but they're not spending it in Canada. We'll talk about what that means for the capital-hungry clean energy sector.
Joining me to break it all down is Kevin Krausert. He's CEO and Co-Founder of Avatar Innovations. It's a venture capital firm and startup accelerator that pairs entrepreneurs with the biggest companies in Canada's energy sector. Welcome, Kevin.
KEVIN KRAUSERT: Good to see you, Jeff.
JEFF LAGERQUIST: As I mentioned at the top of the show, we have a new report from the auditor general about Canada's transition to a low carbon economy. The AG says Natural Resources Canada has not produced legislation to support affected workers and communities and has only released a discussion paper. According to the report, there's no formal assignment of roles or responsibilities or an implementation of strategy or even a way to measure and monitor progress.
Kevin, your work puts you at the heart of the energy transition. What does this report mean to you?
KEVIN KRAUSERT: You know, I don't think it's necessarily surprising. The just transition, as the federal government has decided to call it, is a pretty massive undertaking. And you're not just looking at retooling a workforce in many industries, it's also uncertain. There are numerous pathways to a net zero future.
And so it's very difficult to frame out jobs where we're going to need X number of engineers and carbon capture and we're going to need X number of engineers and hydrogen. So having an uncertain labor force of the future, you need a much more resilient labor force that's going to be able to tackle the many opportunities that are coming because the outcome in 30 years time is uncertain as to what the exact mix is going to look like.
So broadly speaking, I think that the government obviously should redouble its efforts to thinking about this. But I would encourage them to recognize that adaptability, and resilience, and entrepreneurship are going to be the hallmarks of success in a rapidly changing economy with an uncertain future. How do you train for jobs that haven't been invented yet? That's the big challenge around this just transition.
The second piece that I would encourage policymakers to consider is to not use the assumptions of the past. I'd say pre-war in Ukraine, there was an assumption that we'd have this sort of orderly transition from our current energy state of oil, gas, coal, solar, wind to some sort of utopian energy future in 2050. I think we've just demonstrated it's going to be a rocky road.
But I think also too, you're already seeing labor shortages in oil and gas. The Port of Vancouver just had its highest export year of coal in the history of Vancouver. So what just transition are we talking about when there's already not enough workers in the status quo industry?
What we need to be thinking about and what we need to be acting on is building that adaptability and resilience into the workforce and not making simplistic assumptions around what the energy transition is going to look like, because we've just thrown most of them out the window in the last couple of months.
JEFF LAGERQUIST: Well, I certainly accept your point that you can't plan for something far off in the future that you don't yet fully understand. Natural Resources Canada told the AG that it put its transition work on hold due to COVID-19 and the March 2020 oil shock. We've known this is coming for a very, very long time-- long prior to COVID-19 that we'd be transitioning away from fossil fuels, or at least attempting to. Is that explanation, COVID-19, and the oil shock valid, in your view?
KEVIN KRAUSERT: So I just want to clarify that-- it's not a transition off fossil fuels as much as it is a transition off of emissions. Right now, you're seeing record production coming out of Canada. You're having the government of Canada ask for us to find another 300,000 barrels of oil a day, already in a constrained labor market.
The conversation around just transition isn't a conversation around reskilling workers out of the oil and gas industry. It's a conversation around upskilling energy workers to be able to navigate and implement emerging technologies. And that's the work that kind of needs to get done.
And so the point I'm trying to make is where, you know, HR organizations and associations across the country used to take very static business models of commodities going this way, skills going this way, technology going this way, and that would equal we need to train 10,000 engineers and 5,000 supply chain professionals, et cetera. The point I'm trying to make is because the industry is changing so rapidly, we can't use a static assumption from the past to reskill these workers.
So we have to upskill them and bake in adaptability, resilience, entrepreneurship. These are going to be the hallmarks that are going to take a coal engineer or an oil reservoir engineer and train them to be an effective and powerful labor market in the energy transition.
JEFF LAGERQUIST: I see. So it's really a matter of bringing in new workers to the oil and gas sector for this phase of the energy transition and leaving them equipped to potentially pivot to a career in renewables.
KEVIN KRAUSERT: No. Again, it's about upskilling the oil and gas workers that are currently in short supply and upskilling them so that they can manage carbon capture projects, that they can manage hydrogen projects-- skills that are already in the oil and gas industry to be able to contribute to the energy transition. Any rational net zero 2050 scenario, you're still seeing 40, 50 million barrels of oil a day being produced.
It's not being combusted or unabated emissions. So how do we build into the system these clean technology solutions that allow us to have a rational chance at a net zero future? An entirely renewable grid by 2050, we have to way over-build energy storage. And not even any international energy association is predicting that.
JEFF LAGERQUIST: So you touched upon the labor shortage that has been persistent in the oil and gas industry for some time. Maybe break that down a little bit further-- how does that sort of feed into this whole narrative around just transition?
KEVIN KRAUSERT: Yeah. You know, I think that it's interesting in the sense that there is going to be a disproportionate impact in the energy transition on certain regions of Canada, as well as certain sectors. And even within those sectors, certain subsectors of those are going to be harder hit than others. And the reality is, you know, the oil and gas industry, because of the oil price shock over the last two years and now ramping back up, there's labor shortages everywhere in the oil and gas industry, as the world asks us to ramp up production, including the federal government.
And so I see this as really an opportunity to have a kind of reset around, what is the role of somebody working inside the energy sector? And I think that is to deliver energy security as well as solutions in the energy transition that leverages the existing infrastructure of the world and the country to have the most economic benefit at the end of the result.
JEFF LAGERQUIST: So do you feel that this issue is being poorly understood, especially, perhaps, by people like myself who are in the greater Toronto area?
KEVIN KRAUSERT: Well, to be frank, I think even the experts are struggling to totally understand energy transition. This is the towering and defining challenge of our generation, reaching a net zero future in the fastest, most economic way possible. And yeah, I do think that, you know, there is this mistaken belief that somehow we're just going to have this orderly transition off fossil fuels, onto renewables, and we need to then take oil and gas workers and train them how to install solar panels.
That's not how this is going to play out. Solar and wind need to be scaled, need to be commercialized. They're doing some fantastic work. But the reality is the other half of the emissions problem is only going to be solved through things like carbon capture, and hydrogen, and biofuels.
And so those are things that the industry already knows how to do really well. We already have infrastructure in place. TC Energy this morning making a phenomenal announcement around utilizing some of their existing natural gas facilities outside of Calgary to build a hydrogen hub. The oil and gas industry is already the largest producer of hydrogen.
So let's figure out how we can use the skills inside the industry, use the infrastructure inside the industry to deliver the goal that we all want, which is going to be a net zero future. So I think it's far too simplistic of an approach, and a misguided public policy approach, to say we're just going to flip off a switch and, boom, we're in this solar and wind utopia.
It's not going to happen like that. So let's make sure we bring Canada along in the real business opportunities of the future.
JEFF LAGERQUIST: All right, let's talk about TC Energy and Nikola. The companies have identified a natural gas facility in Alberta that they say could supply hydrogen fuel for long haul trucks and generate power for businesses and homes. A final investment decision is expected by the end of 2023.
Kevin, as we know, transportation is a leading source of emissions, but hydrogen is all about production. In this case, it's going to come from natural gas, not wind and solar. There'd be people out there that would say that this isn't necessarily clean energy because the power to make the hydrogen isn't coming from wind and solar. What do you think about that?
KEVIN KRAUSERT: You know, I think hydrogen is going to be a molecule of your future. Currently right now, it's by and large used in fertilizer production and oil refining. And so there's a number, but it's not being used either as necessarily transport fuel or a heating fuel, which would be the sort of two big areas of growth that I see.
And so this whole debate around the colors of hydrogen I find just rather pedantic. What we need to be having a conversation around is lowest emissions possible hydrogen. You know, there is a real opportunity with creating natural gas-- or, rather, creating hydrogen through natural gas that we would be remiss as a country to avoid. And each region of the country has their energy strengths.
You know, Quebec and BC have tremendous amounts of hydro. And so they're looking at hydrogen from hydro as well. So Alberta's strength is around its natural gas. And if we can produce a low emissions or zero emissions hydrogen at a cheaper cost per barrel and unlock a huge opportunity for the world, I think we've got to double down on it.
I think TC Energy's announcement today speaks volumes around what they view as a big opportunity in the energy transition that leverages existing energy assets. TC's an energy transition infrastructure company, as most major energy companies in Canada are. And it's really exciting to see, you know, true industry leaders like TC Energy put their money where their mouth is and explore real opportunities in the energy transition.
JEFF LAGERQUIST: Of course, this announcement from TC and Nikola comes at the start of hydrogen week in Alberta. Premier Jason Kenney is set to speak at the conference in Edmonton later today. Kevin, what should we expect to hear from him?
KEVIN KRAUSERT: Well, in the throne speech, the Alberta government announced the creation of a Hydrogen Center of Excellence. Without having any of the exact details, my guess is he will double down on what that is. And my hope is from Hydrogen Center of Excellence is that a lot of these emerging technologies that need to be tested, need to be validated, need to be de-risked so that they can reach market-- my hope would be that they put significant funds into the research, and the testing, and the validation ecosystem in Alberta.
We've already got phenomenal carbon capture testing facilities-- the Alberta Carbon Conversion Technology Center where X Prize was done. We've got some great stuff on carbon capture. I think we can do the same on hydrogen. So I'm hopeful.
And I think what's needed is how do we make sure that these emerging technologies that can make the hydrogen economy a reality are vetted, and tested, and validated to a significant degree that companies like TC energy and other majors in the hydrogen race like Suncor can bring these technologies to market faster.
JEFF LAGERQUIST: So Kenney tweeted a video yesterday teasing an announcement. Let's give that a listen.
JASON KENNEY: I think you're going to see a huge hydrogen industry here taking off-- in fact, I know. I think next week or two, the CEO of a major international firm involved in hydrogen will be coming here to meet with me in Edmonton and I hope come to a final investment decision on their project.
JEFF LAGERQUIST: OK, Kevin. So you heard what the premier had to say. Do you have any idea who he's talking about there?
KEVIN KRAUSERT: It could be a lot of people. And I think it just speaks to the opportunity that Alberta has in hydrogen. You know, if we can take natural gas and make an emission-free hydrogen, I think we've got a real opportunity to be a global leader in the hydrogen economy and start taking a lot of these emerging technologies that are being worked on and bring them to market.
And I'm encouraged to hear the premier finally talking positively about emerging technologies like hydrogen. And so I'm optimistic for the announcement today and I wish him the best luck on his meeting next week.
JEFF LAGERQUIST: So of course, a lot of people in Alberta are looking towards hydrogen becoming a significant part of the economy. But how far off is always the question here. How many years do you feel we are away from, you know, hydrogen exports or, you know, just meaningful economic contributions from hydrogen in a province known for oil?
KEVIN KRAUSERT: Yeah. I think shorter than you'd think. I want to break out exports because I think those are going to be a little bit different. But I think using hydrogen for transport and heating is already happening. You've got the Alberta government right now funding a test pilot, I believe, of five to 10 hydrogen trucks that are driving right now.
You've got ATCO already blending hydrogen as a heating fuel. That means if the companies are already sort of testing this and doing this, this is a matter of years, not a matter of decades. The challenge with hydrogen is transporting it and storing it.
Hydrogen can be a really tricky molecule to transport and to store. And so from an export potential, you can make hydrogen anywhere in the world where you have water and electricity. So the question I have around the export potential is, why?
If you can make it wherever you need it, and you can't transport it, and you can't store it, doesn't it make a lot more sense to use it where you have it and make it where you need it? And there's also this chicken and the egg problem with hydrogen.
Who's going to put all the money, billions of dollars, into generating hydrogen if there's no demand for it? But who's going to go and buy a whole bunch of trucks if they can't go fill their trucks up with hydrogen? So you need a public-private partnership to be able to get these things going to be able to grow the demand.
But I'm optimistic in the conversations I'm having is these are going to start happening here, I think, rather quickly. Where I think the big export potential is for Canada on hydrogen is if we could come up with an electrolyzer that could produce hydrogen using wastewater or different types of water, you could export that technology to the world. If we could come up with a way to know crack natural gas, and just take the hydrogen off, and store the carbon in carbon black, we could export that to the world. That's, I think, we're the real export opportunity is in the hydrogen race beyond just the economic impact that's going to be happening right now in short order.
JEFF LAGERQUIST: Like you say, funding is going to be a big piece in determining how all of this plays out. Canada's pension funds hold a collective $2.2 trillion in assets, according to the latest data from Statistics Canada. Less than half of that, apparently, is invested in Canada. That's compared to 70% a decade ago.
There's a senator who was recently saying that, you know, those funds are really needed to bankroll this country's energy transition. We've certainly spoken about the need for private sector money to accelerate clean energy in Canada. How do we get these pension funds to put more skin in the game? And how active are they today?
KEVIN KRAUSERT: You know, I think, first of all, pension funds are going to go wherever they can get the best rate of return according to their investment profile. So we want them to be investing in many opportunities. And I'd say they are very active and meaningful investors in the energy transition in Canada.
The challenge is a lot of these investments are still too early stage for an institutional equity to be making investments. Depending on what you're going to call, like, clean tech or energy transition, you know, there's not a whole lot of big public names out there. There's Market Power, there's a few small caps.
That's not necessarily where we're going to need the support. We're going to need the support on the private side. And I think you're starting to see some really phenomenal energy transition private investments that are happening in Canada. Hydrostor just made a big announcement. Carbon Engineering, one of the sort of Canadian darlings, Lanza Tech, which Suncor is a major investor in, which is sort of a bio jet fuel emerging technology company, carbon upcycling here in Calgary. Acona power actually just did a phenomenal deal on natural gas decarbonization to produce hydrogen, like I was talking about.
A number of the Avatar companies are going to be coming down the pike here really quick. Canada is blessed with a very innovative workforce, but we do not have a whole lot of risk capital. And so because Canada has, I think, been a little hobbled by the lack of risk capital compared to other jurisdictions, we've got to get these emerging technologies up and running with risk capital in a portfolio approach before the institutional equities are going to be able to come there.
And the institutional investors are stepping up, but we need a lot more. So rather than blame the institutional equities for not investing in Canada, I think we need to have a realistic conversation about what opportunities there are in Canada. And they should only invest in those opportunities if they're compelling on a global basis.
So let's get these technologies to market. And that's where Canada needs to be focused is getting these technologies to market.
JEFF LAGERQUIST: Hydrostor is an interesting example that you just mentioned. The company uses compressed air underground to store energy and basically sort of smooth out fluctuations in the grid from renewables when the wind is blowing and the sun isn't shining. The company got a $25 million investment from Canada Pension Investment Board, but that follows a much, much larger one from Goldman Sachs-- a whole quarter of a billion US dollars.
Hydrostor's CEO actually told the "Globe and Mail" that Goldman's investment helped convince CPPIB to jump in. Why did we need the Americans here to convince us to go ahead and invest in something here in Canada? I mean, to your point, this reluctance among big institutional investors in Canada, is it a case that we're not even noticing our technologies here because they're just too small?
KEVIN KRAUSERT: The Americans have a much more aggressive approach on risk-return profiles. And as a result, they make a lot earlier stage investments on the technologies that can pan out, recognizing that maybe 1 in 5 of them pans out or 1 in 10 of them pans out. But that 1 in 10 that does pan out, you got to make sure you're making enough to cover the other nine. That's the traditional venture capital model.
And yes, the Americans have eaten our lunch on this in the past. And you know, the number of good Canadian emerging technologies with good IP, fantastic management team can't raise $1 in Canada, go to the States. Go to Germany. Go to Israel.
That is almost the story. That is the structural issue Canada has to address if it's going to actually win this race. The institutional equities are ready to go. We need more good ideas and we need more good businesses. And so let's go and build them and we'll start winning this race.
From the entrepreneurs I'm seeing, that's the excitement in the space. We've got to figure out what a different risk-return profile looks like in Canada. And I think that, you know, the federal budget, $15 billion Canada Clean Growth Fund, is a potential opportunity to unlock some of this technology and unlock some of this investment.
JEFF LAGERQUIST: So obviously, these big pension funds have a lot of money. And so they get a lot of say when they put that money up. We recently saw the public sector Pension Investment Board release a climate plan that falls short of promising net zero, which I think is interesting given some of the commitments by others to really focus on that. They controlled about $200 billion in assets.
I believe their plan is to stay invested in carbon intensive industries and try and convince companies from within to try and reduce emissions-- leveraging their say with their investment dollars. Do you feel that that's a more effective strategy than the divestment that we've seen by some of the other big funds?
KEVIN KRAUSERT: Yes. I think I've spoken about this publicly before, that the divestment movement has resulted in not a single carbon GHG molecule remained in the ground. All it has done is moved capital from responsible investors to investors who are less concerned about sustainability practices, and, as a result, potentially might increase emissions.
And so while I'm not familiar with the particular report you just mentioned, I think you're seeing an increasing awareness amongst institutional investors that just divesting an asset to hand it over to somebody else is the wrong strategy. The right strategy is to work with the companies actually capable of lowering emissions and having them do so through real technology and real market change, rather than just dumping capital into this gray area capital for people to make a stronger return with less responsibility.
JEFF LAGERQUIST: When we talk about public sector pension funds, do you think that there should be a mandate within those firms to support economic development within Canada? You know, if we look at that statistic, obviously, a significant amount of capital is going abroad that we need here. Should we leave that up to the money managers at these funds? Or should there be a mandate there when we talk about public pensions?
KEVIN KRAUSERT: I don't think there should be a mandate. What there should be is a public policy and investment framework that encourages them to invest in Canada on those initiatives. We want our public pensions to be making the best return possible, because we're talking about our families', and our grandparents', and our parents' livelihoods here. And so I think asking them to have a mandate to invest in something other than a return is troublesome.
Creating a framework where these professionals are compelled to invest in these things is good for Canada, it's good for the pension, and it's good for a net zero future. So I would encourage, actually, that needs to be the conversation that we have is, how do we de-risk these technologies through a combination of public-private partnerships to be able to bring them to market to make Canada a global leader and generate superior returns for everyone?
JEFF LAGERQUIST: OK. And just lastly, we only have a few minutes left here, Kevin-- ESG ratings have been widely criticized for inaccuracies and generally being tough to understand. To what extent do you think that's kept institutional investors on the sidelines-- the fact that, you know, it's not always easy to wrap your head around some of these investments? And when you're, like you say, managing money for people's future, that could be a problem.
KEVIN KRAUSERT: Yeah. You know, I'm old enough to remember when it was called corporate social responsibility, or CSR. And then there was this sort of evolution into ESG, which a lot of people just meant the E, in environmental, social, and governance. And then even inside the e, they really just meant carbon.
And so it's definitely evolved. You've got a whole suite of rating agencies doing some, I think, very professional work on really drilling into and understanding what the ESG performance is of a variety of these companies. And that is based upon the verifiable fact that companies who invest in sustainability have, over the long-term, a better financial performance.
Now, inside of those particular ratings, you're going to have a lot of conversations around what's working and what's not working. The reason that e is the probably more prominent one is it's easiest to quantify. It's really easy to say, you know, number of emissions per dollar spent or whatever metric you have. It's a lot harder to say, are we investing in our communities? What are those hard metrics?
But the reality is it's table stakes at this point. You're either in or you're out. If you don't have an ESG report, no institutional equity is going to look at you. If you do, then you can have those conversations.
And while I would say there probably is a slight correlation between stock pricing and an ESG rating, it's probably not as tight as it would be on financial performance. And I see that getting tightened up as we go. But it's more or less table stakes at this point.
JEFF LAGERQUIST: All right, that feels like a good place to end. Kevin, thank you so much for joining me.
KEVIN KRAUSERT: Awesome thanks so much.
JEFF LAGERQUIST: For all the latest news on clean energy and the broader world of Canadian finance, please visit the Yahoo Finance Canada website. I'm Jeff Lagerquist. See you next time.