Trudeau and Scholz get Romantic with Hydrogen Alliance

  • Germany and Canada have signed a new Hydrogen Alliance.
  • Trudeau is enhancing Canada’s NATO presence through gas and hydrogen strategies.
  • Scholz is setting up a long term solution to Germany’s dependence on Russian energy.
Scholz and Trudeau
Trudeau and Scholz at G7 Summit / Lukas Barth

Why is there a romance between Trudeau and Scholz?

Answer: Scholz and Trudeau signed the new Canada-Germany Hydrogen Alliance last month. 

Late last month, Canadian Prime Minister Justin Trudeau and German Chancellor Olaf Scholz met in Newfoundland to sign a Joint Declaration of Intent known as the Canada-Germany Hydrogen Alliance. They were joined by the Canadian Minister of Natural Resources John Wilkinson and the German Vice-chancellor Robert Habeck, who were key in brokering the Alliance and setting its terms. So far, the agreement intends to increase funding for hydrogen projects through joint policy, to secure hydrogen supply chains, to establish a Canada-Germany direct transatlantic supply route, and to begin exporting hydrogen from Canada in 2025. 

This alliance is significant in Europe’s shift away from Russian gas and the rise of hydrogen as a viable and cleaner energy alternative to gas and oil. At the State of the Union Address a few days ago, President Ursula von der Leyen also unveiled the new European Hydrogen Bank, which will invest €3B over the next three years to build the hydrogen market, and to push an ambitious European energy transition strategy.

The only damper on this romance is that while Canada is increasing its oil and gas production to counteract rising global oil prices, Trudeau has so far denied Scholz exports of liquified natural gas (LNG) directly to Europe. The PM claims that the infrastructural obstacles for Canada to to set forth a direct supply of LNG to Europe would have to be justified with a robust “business case” on the side of Europe. Gas fields in Canada are located in its western territory, far from the eastern LNG ports that would have to be built in order to supply energy to Germany. 

What does Trudeau want?

Answer: He wants to weaken Russia’s position in addition to their contributions to NATO, and maintain power at home.

Even as a NATO and G7 member, Canada struggles to make its mark on international relations. Althought they are resolved to stop Putin’s “illegal war”, Canada’s contributions to NATO have remained under the 2% commitment expected from members. The PM defended their lacklustre contributions citing recent investment into Norad of $4.9B USD. This threat detection system is meant only to protect continental North America, and may not prove enough contribution to the immediate NATO objectives against Russia. Canada has also sent a contingent of 700 Canadian troops under NATO to Latvia, but Trudeau was reluctant to commit further troops to the NATO buildup following the Madrid NATO summit this June.

Elementally, Trudeau faces bureaucratic and political obstacles at home. Despite increased defence spending by the Liberals, the Department of Defence has several channels of authority and approval, which makes designating expenditures a complicated process. It remains unclear how or when money will be spent, or whether it will contribute more to NATO. The Conservatives have also now become the majority opposing party, and Trudeau is shuffling to maintain control in Parliament. He recently brokered a deal with the New Democrats Party (NDP), the social democrats, who oppose increased military spending in lieu of domestic investments. In exchange for support for the PM’s minority government, the NDP expects the PM to prioritise new national social programs over NATO spending.

Furthermore, although Europe needs more LNG, the PM is reluctant to support LNG projects, as the federal government has blocked port developments in the past. The ruling conservative party in Quebec now supports port developments for supply to Europe in light of the war in Ukraine, and may be using this opportunity to pressure Liberals ahead of a provincial election in October.

For Trudeau to change domestic policy and use his influence in Quebec for the local government to issue permits to build brand new LNG ports — that is, without a Conservative government — European commitment would have to be long-term. The ports themselves would take years to build and are opposed by the Liberals and activists. As of now, Trudeau is not quite tempted to commit.

Enter the Canada-Germany Hydrogen Alliance. Canada seeks to be a primary exporter of hydrogen as the resource is a rising competitor in clean energy markets. Trudeau brokered a deal with Germany that secures long term investment in Canada’s diversifying energy exports and keeps his supporters happy. The deal also contributes to Canada’s Hydrogen Strategy, which enables the country to reach net-zero emissions by 2050 and establishes Canada as a leading exporter of clean hydrogen and its related technology. 

In this way, the PM is working in parallel to Canada’s NATO involvement to weaken Russia’s strategic position as energy supplier. Therein lies Canada’s — and Trudeau’s — chief goal as a NATO ally: that their institutions may cooperate for increased security, in whatever way security evolves.

What does Scholz want?

Answer: Scholz wants to ensure German independence from Russian energy and find a long-term solution to their energy transition.

Previous to the Russian invasion of Ukraine this February, Germany imported 55% of its natural gas, 35% of its oil, and 45% of its coal from Russia. To put that into perspective, oil and gas made up 60% of Germany’s primary energy mix; almost half of those resources were supplied by Russia. Former chancellor Angela Merkel’s pipelinepolitik ultimately backfired and Scholz has spent his first year as chancellor attempting to keep German energy well supplied in the long run. This emergency is exacerbated by the weaponization of energy supplies by Russia through the Nord Stream 1 pipeline. 

Although Germany is adequately equipped to power the country through this winter, electricity prices have skyrocketed for consumers. More than this, coal has largely replaced natural gas to supply enough energy to keep German power grids running this year. Because of this, the prices of lignite and hard coal are more than six times higher than in 2021. Finally, Germany has paused the phase-out of two nuclear reactors in order to shore up energy in the case of energy shortages next year. 

Amidst an energy crisis and in pursuit of his coalition’s climate goals, Scholz wants to ensure Germany’s energy security and transition to cleaner energy sources for the long-term. Although hydrogen imports from Canada will only start in 2025, clean hydrogen is an alternative both in the form of sustainability and price to traditional energy sources. Furthermore, Scholz is securing a diverse energy portfolio with assured democratic allies to minimise dependence on a single supplier — especially one as anticlimactic as Russia has turned out to be. 

Canada has vast natural resources and is a Western ally, which Scholz has demonstrated is a better bet for Germany than Russia. He likely wants to strengthen this relationship to the extent that Trudeau is eventually inclined to build LNG ports on Canada’s eastern coast in addition to the Hydrogen Alliance. 

What is Scholz doing?

Answer: Scholz is making an emphatic appearance in Canada to show Germany’s — and Europe’s — need for Canadian natural resources, among other foreign nations.

Scholz spent three days in Canada with his vice-chancellor and Minister of Economic Affairs and Climate Action, Robert Habeck, making significant efforts to produce an energy alliance with Canada. Per his objective to avoid the consequences of Russian energy aggression, Scholz is pursuing a streamlined energy transition and trade diplomacy in Canada and beyond. For one, he not only came out of Canada with a new Hydrogen Alliance, but he used this opportunity to implore Trudeau to increase their oil and gas output to help stabilise oil prices worldwide, and to provide direct gas and oil exports to Europe (especially Germany). 

Besides his diplomatic efforts in Canada, Scholz travelled around Africa to meet with various leaders to discuss business investments and encourage trade diplomacy. Scholz is securing new suppliers of coal such as South Africa, and investing in Senegal’s new gas extraction projects to diversify Germany’s energy suppliers. In all, Scholz is expanding Germany’s and Europe’s options beyond Russia for energy supply that could both advance climate goals and provide security until an energetic transition is fully plausible. 

Who is winning and what about you?

Answer: Both leaders now, likely Scholz most in the long-run. You will not see the benefits for a while but they will come. 

Scholz’s diplomatic and economic efforts contribute to a variety of objectives for Germany. Scholz is being proactive in the long-term energy security of his country in addition to taking into consideration his coalition’s green commitments. His leadership role in strengthening transatlantic relations with Canada, especially considering Canada’s relative inability to stand out as a military ally through NATO, put him at the forefront of German foreign policy. This year, including his investment diplomacy in African nations, Scholz is certainly making a diplomatic impact. 

On the other hand, Trudeau is still limited domestically by Canadian politics, but this hydrogen alliance is a positive step forward for Canada’s overall goals to diversify their resource exports and become a world leader in clean hydrogen. More than this, the PM has found an alternative to standing up to Putin’s “illegal war” in Ukraine, while securing long term economic gains for Canada. These two outcomes mean that the Canada-Germany Hydrogen Alliance is a win-win situation. 

As far as the alliance’s impact, it will likely go unnoticed until the exports begin in 2025 (if they do by then). Nonetheless, such a significant package that includes investment in several hydrogen projects shows a promise of the increasing competitiveness of alternative energy sources. 

Francia Morales

Editor in Chief for Research and Analysis