Canada’s Hydrogen Strategy: An Ambitious Framework for a Strong Hydrogen Economy

On December 16, 2020, the Government of Canada released the Hydrogen Strategy for Canada (Strategy). The government has identified hydrogen as a critical part of its path towards achieving the goal of net-zero carbon emissions by 2050, affirming that the development of low-carbon hydrogen is a strategic priority for Canada over the next 30 years.

This ambitious strategic blueprint for the development of the hydrogen economy seeks to position Canada as a world leading exporter of hydrogen by 2050. The Strategy outlines Canadian specific business opportunities and challenges, recommends the use of a mix of feedstocks (water, natural gas, petroleum, biomass), as well as industrial by-products available in various regions of Canada to produce hydrogen. The implementation of the Strategy is backed by a mix of public funding, notably a C$1.5-billion Low-carbon and Zero-emissions Fuels Fund established by the Government of Canada for the production and use of low-carbon fuels, as well as by existing and future carbon-pricing, low-carbon fuel and vehicle emissions policies and regulations.

The Strategy complements Canada’s new climate plan, outlined in our December 2020 Blakes Bulletin: Climate Change: Government Action, Judicial Restraint and Corporate Disclosure, and the actions taken by some Canadian provinces in recent years to create frameworks and targets for the implementation of hydrogen in their economies, notably British Columbia, Alberta, Ontario and Quebec. In releasing its Strategy, Canada joins the increasing number of countries around the world that have adopted frameworks for the increased use of hydrogen in the energy mix.  

STRATEGY OBJECTIVES

The twin goals of the Strategy are to maximize decarbonization and economic benefits specific to each region of Canada. The Strategy sets out the following near, mid-term and long-term goals:

• Near Term – Laying the Foundation (2020-2025): the focus is on development of new hydrogen supply and distribution infrastructure, and mature market applications including oil and gas upgrading, ethanol plants and landfill gas, fuel cell technology in forklifts, light fuel cell electric vehicles and fuel cell electric buses. Pilot projects in regional hubs will include pre-commercial applications for heavy-duty trucks, seaport goods movement equipment, power generation, heat for buildings and industrial feedstock. Additional policy and regulatory measures required to reach net-zero carbon emissions by 2050 will be developed and implemented.

• Mid Term – Growth and Diversification (2025-2030): new hubs will be added. Adoption of fuel cell electric vehicles and transit buses is expected to enter a rapid expansion phase. An increase in new and large-scale hydrogen production will enable hydrogen / natural gas blending for industry, the built environment and as a feedstock for chemical production to be commercialized in regional hubs. Deployment of hydrogen use in mining operations is expected and pilot projects testing hydrogen as a utility scale energy storage medium could begin.

• Long Term – Rapid Market Expansion (2030-2050): increase of new commercial applications supported by supply and distribution infrastructure. New transportation applications will move into commercial and rapid expansion phases, and more dedicated hydrogen pipelines may be built. Increased supply of low-carbon intensity hydrogen throughout Canada will allow heavy emitting industries to adapt operations to decrease carbon emissions. Increased production of hydrogen could also position Canada as a large-scale exporter of hydrogen.

BUSINESS OPPORTUNITIES

Canada’s current position as one of the top 10 hydrogen producers in the world, the vast potential commercial applications of hydrogen, the growing demand for hydrogen worldwide, and growing government support for the development of the hydrogen economy in Canada signal the potential for business opportunities across multiple industries. The Strategy foresees that the focus will be on energy-intensive applications, such as using hydrogen as:

• Fuel for long distance transportation requiring high power generation (trains, marine and aviation applications, long-haul trucking and buses)

• Fuel for above ground and underground mining vehicles and in microgrid stationary power systems

• Fuel for power production and storage (supply of microgrid systems, storage and release of surplus renewable energy, also commonly known as power-to-gas)

• Heating fuel for industries requiring high-grade heat (the oil and gas sector, cement and steel manufacturing, the pulp and paper sector and industrial processes relying on steam production)

• Heating fuel for buildings (as a potential alternative for natural gas utilities looking to decarbonize the use of natural gas for both space heating and water heating in Canada, where the cold climate results in heating accounting for almost 80 per cent of energy use in the home)

• Feedstock for industrial processes (petroleum refining, bitumen upgrading, ammonia production, methanol production and steel production)

The Strategy suggests that with worldwide demand for hydrogen increasing, and energy importers looking actively for supply sources, Canada is well-positioned to become a top global supplier of clean hydrogen. 

The Strategy expects that the hydrogen supply network in Canada could include both large-scale centralized plants in Canada’s natural-gas rich provinces, or in regions with high penetration of low-cost renewables (notably hydro-electricity), and smaller-scale distributed electrolytic production near demand centers.  

CHALLENGES

Despite Canada’s enviable advantages, the positive economic potential of the Canadian hydrogen economy faces several short and long-term challenges, among which are:

• Economic and Investment Challenges – Similar to other jurisdictions, the current cost of hydrogen is not competitive when compared to conventional fuel options, and the investments in this sector present high risks for investors. The costs must be driven down. The Strategy estimates that strong policy and fiscal support are needed in the next 5-10 years to attract and de-risk investments in this sector.

• Technology and Innovation – The Strategy anticipates that support for research and development is needed to reduce costs further, develop solutions in the less mature applications and discover new breakthrough technology to benefit the sector.

• Policy and Regulation - Although certain regulatory measures related to hydrogen have been adopted by the federal and some provincial governments, Canada lacks a comprehensive, long-term policy and regulatory framework regarding hydrogen. Acknowledging the importance of such a framework, the development and implementation of such policies and regulations are tabled for the first phase of the Strategy.

• Codes and Standards - Harmonizing existing codes and standards will be necessary to stimulate the adoption of hydrogen, and the growth of hydrogen trade and export markets, by providing a degree of certainty to investors in the hydrogen economy.

• Availability of Hydrogen Infrastructure – Lack of primary infrastructure (transportation and storage facilities, refueling infrastructure) hinders the supply of hydrogen in many areas in Canada. The Strategy anticipates that the growing domestic production and demand will require specialized infrastructure such as hydrogen pipelines and liquefaction plants, and further emphasizes that the timely and coordinated construction of new hydrogen infrastructure, and the refurbishing of certain existing infrastructure, will be essential to ensuring delivery of low-cost clean hydrogen to domestic and international markets.

• Public Awareness - The Strategy notes that increasing awareness about the safety and economic benefits of hydrogen is essential to establishing a dynamic hydrogen sector.   

RECOMMENDATIONS

To address the challenges Canada is facing, the Strategy offers 32 recommendations under the following eight pillars:

• Pillar 1: Strategic Partnerships – emphasizing intergovernmental, community, cross-industry sector, and international collaboration as well as public-private partnerships to share expertise and accelerate project deployment

• Pillar 2: De-Risking Investments – creating market certainty by establishing a clear and long-term regulatory environment together with strong procurement policies, multi-year funding commitments and by facilitating co-funding opportunities

• Pillar 3: Innovation – setting strategic fundamental research priorities, establishing funding for sustained R&D, leveraging expertise to create research hubs and fostering collaboration in industry and academia

• Pillar 4: Codes and Standards – updating, harmonizing, and developing standards domestically and internationally to enable deployment and to facilitate adoption of new technology and infrastructure.

• Pillar 5: Enabling Policies and Regulations – adopting a cohesive, pan-Canadian approach to regulation across all levels of government, and encouraging governments to modernize and update existing policies, programs and regulations to facilitate domestic hydrogen production growth and end-use

• Pillar 6: Awareness – educating governments, industry stakeholders and the public about hydrogen opportunities and safety issues, and training the next generation of skilled workforce for the hydrogen economy

• Pillar 7: Regional Blueprints – maximizing regionally diverse opportunities through stakeholder collaboration (including utilities, clean tech companies, major industry players and representatives of all government levels) and identifying opportunities for establishing new regional hubs

• Pillar 8: International Markets – establishing local reference projects to demonstrate technological readiness and put forth the business case for hydrogen to attract foreign investment, investing in infrastructure to facilitate supply of hydrogen to international markets and establishing Canada as the low-carbon hydrogen supplier of choice

A LOOK AHEAD

The Strategy sets forth Canada’s vision and commitment to make the development and use of low-carbon hydrogen a strategic priority for Canada. A long and uncharted road to implement the Strategy lies ahead. Nevertheless, Canada’s commitment under the Paris Agreement to achieve net-zero carbon emissions by 2050, the proposed federal Clean Fuel Regulations expected to be finalised in 2021, and the recent and upcoming initiatives undertaken in various provinces should lead to more coordinated policy, regulatory and public funding initiatives to support business opportunities, and investments in this emerging sector.

We will continue to monitor developments in the Canadian hydrogen sector. If you have any questions regarding the impact of the Strategy on your business or business opportunities in the hydrogen sector, please contact:

Viorelia Guzun            514-982-4087
Anne Drost                  514-982-4033
Paulina Balabuch       514-982-5035

or any member of our Energy Group.