Hydrogen strategy hinges on tax incentives, private investment

This article was written by Emma Graney and was published in the Globe & Mail on December 16, 2020.

A strong Canadian hydrogen sector will require between $5-billion and $7-billion in public and private investment over the next five years and will largely rely on hydrogen derived from the country’s vast natural gas reserves, according to a new federal government strategy.

The long-awaited Hydrogen Strategy for Canada, to be released Wednesday by Natural Resources Minister Seamus O’Regan, sets the stage for the development of a robust domestic hydrogen market that Ottawa hopes could be worth $50-billion and create 350,000 jobs by 2050.

Its success will hinge on billions in nearterm investments to ensure Canada doesn’t fall behind other nations also eyeing the low-carbon fuel, though the plan doesn’t put a figure on how much the federal government is willing to throw at the sector.

Instead, it says tax credits, subsidies and attracting international investment will help drive the hydrogen sector’s development to 2050.

“While the sector must ultimately be self-sustaining, temporary support is needed in the next 5-10 years to attract and de-risk industry investment,” the strategy says.

That includes investments in infrastructure, such as gas pipelines, and subsidies to encourage more Canadian industrial and transport sectors to pivot to hydrogen.

Long-haul transport, rail, aviation, mining, oil refining, and ammonia and steel production are all identified as industries that could use the gas to help reduce emissions.

Hydrogen as a fuel is light, storable and energy-dense. It produces no direct emissions of pollutants or greenhouse gases. That has made it an international energy darling over the past few years, drawing the gaze of countries pursing net-zero emissions goals.

According to the International Energy Agency, or IEA, hydrogen’s versatility could help make a significant contribution to clean-energy transitions if it’s adopted in sectors where it is almost completely absent today, such as transport, buildings and power generation.

Close to 20 countries around the world have developed hydrogen strategies. Many have already spent or earmarked billions of dollars to accelerate hydrogen technologies within their borders, but Canada’s strategy labels itself as a “call to action” rather than a specific, blow-byblow plan with money attached.

The strategy will work in tandem with Ottawa’s various other plans to reduce Canada’s greenhouse gas emissions – including the Clean Fuel Standard due for release this week – to help the country meet its climate change obligations under the Paris Agreement and its goal of netzero emissions by 2050.

Hydrogen is already in use in various parts of Canada. In Alberta, for example, the oil sector uses it to help refine crude, hydrogen-powered trucks rumble between Edmonton and Calgary as part of a pilot project, and the province recently handed out $11-million from its carbon tax on large emitters to a series of hydrogen ventures.

Next door in British Columbia, hydrogen fuel cell manufacturer Ballard Power Systems Inc. is one of Canada’s clean technology stars. It has amassed more than 1,400 patents and patent applications, with annual revenue of more than US$100-million from sales of its fuel cell stacks that are used in thousands of buses, trucks and warehouse forklifts around the world.

The new federal strategy identifies several more transport, power generation and industrial applications across Canada that could become regional pilot project hubs over the next five years. Those hubs include Alberta’s Industrial Heartland near Edmonton, which already has access to plentiful natural gas and carbon capture and storage, or CCS, infrastructure. They also include coastal ports in B.C., Ontario, Quebec, Manitoba and the Atlantic region, plus the transportation corridor between Montreal and Detroit.

It also points to opportunities for provinces with hydroelectricity, such as B.C., Manitoba and Quebec, which could use electrolyzers to crack water molecules and produce so-called green hydrogen (derived from renewable power and water, rather than natural gas).

The strategy’s focus on hydrogen derived from natural gas – not renewables – will likely draw the ire of some environmental groups, who argue promoting so-called blue hydrogen (which is derived from natural gas, with resulting carbon emissions trapped via CCS technologies) amounts to subsidies for the oil and gas sector. A collection of environmental and nonprofit groups recently urged the federal government to instead pursue the greener option.

But the federal strategy says blue hydrogen is Canada’s best bet, given it has the lowest-cost production of large-scale, clean hydrogen based on today’s technologies and commodity costs.

Canada’ s inexpensive fossil-fuel reserves and its CCS capacity mean the country can meet large-scale hydrogen demand for many decades, the report says – even though it will require a “significant increase” in carbon storage activity. Although the cost of renewable hydrogen is falling, it won’t be at the scale required for large, continuous energy applications, the report says.

The federal government hopes using a regional hub approach will build on each jurisdiction’s specific strengths, and act as jumping-off points to expand hydrogen use into other sectors between 2025 and 2030.

From 2030 to 2050, the strategy envisages Canada will have a robust hydrogen infrastructure network, including pipelines. That in turn will allow industry to “realize the full benefits of a hydrogen economy,” with more commercial applications and heavy emitters adapting their operations to use hydrogen.

“Ultimately, the market will decide where best to deploy hydrogen once greater supply becomes available in Canada,” the report says.

“The two big drivers will be cost competitiveness compared to alternative energy sources that can serve each end-use, and decarbonization potential which will ultimately be linked to the economics as carbon pollution pricing reflects the true price of emissions.”

Author: Ray Nakano

Ray is a retired, third generation Japanese Canadian born and raised in Hamilton, Ontario along with his 4 younger sisters. He resides in Toronto where he worked for the Ontario Government for 28 years. Ray currently practises in 2 Buddhist traditions: Jodo Shinshu and that of Thich Nhat Hanh. Ray is passionate about climate action and very concerned about our Climate Crisis. He has been actively involved in the ClimateFast group (https://climatefast.ca) for the past 3 years. He works to bring awareness of our Climate Crisis to others. He has created the myclimatechange.home.blog website, for tracking climate-related news articles, reports, and organizations. He is always looking for opportunities through the work of ClimateFast to reach out to communities, politicians, and governments to communicate about our Climate Crisis. He is married and has 2 daughters and 2 grandchildren. He says: “Our world is in dire straits. Doing nothing is not an option. We must do everything we can to create a liveable future for our children, our grandchildren, and all future generations.”

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