The race to be a key player in the hydrogen economy is global race, and one that Canada seems keen to run.
“We really do need to take an aggressive team Canada approach to pursue this opportunity,” said Brent Lakeman, director of the Hydrogen Initiative at Edmonton Global.
On March 28, the federal government announced incentives for clean hydrogen in Budget 2023, incentives that Lakeman calls a really good start on being a competitive player in the global market.
“I think this is a good move on Canada's part to work to remain competitive, but we have to be moving quickly. I think time is really of the essence because this is a global race right now,” Lakeman said.
Global Edmonton is a founding partner in the Edmonton Region Hydrogen Hub, a multi-partnered area in the Edmonton region that is focused on the “hydrogen opportunity.”
The Hub has been running for about two years, and there are plans underway for more than 25 hydrogen-related projects, the website for the hub states.
“It's really an example of the leadership of our region's municipalities coming together to pursue the hydrogen opportunity. It's a huge opportunity for Canada, for Alberta,” Lakeman said.
The federal government seems to agree, budget documents state clean hydrogen is becoming a leading candidate to fuel long-haul road, marine, aviation transportation, and for heavy industries, such as iron and steel production.
To spur investment and development of clean hydrogen in Canada, the federal government announced a Clean Hydrogen Investment Tax Credit. The credit will give projects that produce the “cleanest hydrogen” the “highest level of support,” with supports ranging from a 15 per cent tax credit to a 40 per cent tax credit, budget documents said.
The tax is expected to cost $5.6 billion over five years, beginning in 2023-24. Starting in 2028-29 and 2034-35 that number more than doubles t0 $12.1 billion.
Lakeman said he thinks the way the federal government has arranged the tax credit makes sense.
“The federal government has really mapped out a carbon intensity-based approach to hydrogen incentives. And I think that makes sense,” he said. “A lot of parts of the world continue to talk about the colours of hydrogen and that's very confusing because there's not really based on what the actual carbon intensity of production is.”
Instead of ranking hydrogen as green, blue, or grey — which is based on how it is produced and how much carbon dioxide is produced, the federal government will assess the carbon intensity (CI) of the hydrogen produced based on “the government's Fuel Life Cycle Assessment (LCA) Model that is maintained by Environment and Climate Change Canada.”
Assessment of CI would consider “upstream emissions through to the point where hydrogen would exit the factory gate” of a project, budget documents state.
To receive 40 per cent tax credit a project would need a CI of less than 0.75 kg. For a 25 per cent tax credit the CI would need to be between 0.75 kg to less than 2.0 kg; and for a project to receive a 15 per cent tax credit the CI would need to be between. 2.0 kg to less than 4 kg.
With the tax credit, the federal government has included an equipment tax credit of 15 per cent for equipment needed to convert hydrogen into ammonia to transport the hydrogen.
Labour requirements will also be required with the tax credit, and projects that do not meet the requirements tax credits will be reduced by 10 per cent.
Lakeman said some industry was looking for a credit that was focused on production instead.
“But the federal government also is focused on this tool called a contract for differences. I think that's a really exciting tool. And it allows us to, I think, take an innovative approach to moving forward to couple that with our regulatory requirements that we have here,” he said.
No details have been released on the contracts for differences, but the budget describes them as investment tools to support clean growth projects.
Lakeman said the value of that is companies can start to bank that against their project financing.
“I think that's a really interesting tool. The devils in the details it is the early days about that one so again, moving quickly, and making sure it's as broad based as possible,” said Lakeman.
Lakeman said the government could have also incentivized more demand for hydrogen.
“Because that's what we really need to do. We can produce hydrogen, but we have to create the market for it both domestically and internationally.”
