Canada must consider federal tax supports for its clean hydrogen industry, similar to those in the US Inflation Reduction Act (IRA), if it is to remain competitive with its southern neighbour in attracting investment, according to provincial energy ministers.

The federal government has not yet identified the form its tax support may take, or when it might come into force, although Canadian natural resources minister Jonathan Wilkinson said in October that it would happen.

Ottawa released a hydrogen strategy in late 2020, and Canada and Germany signed a hydrogen cooperation deal in August to promote exports from the former to the latter.

But the provinces of Alberta and Newfoundland & Labrador (NL) have a long list of incentives required by their low-carbon hydrogen industries to remain competitive with US hydrogen producers.

More needs to be done to meet these industry needs, Dale Nally, Alberta’s associate minister of natural gas and electricity, tells Hydrogen Economist.

$3/kg – US tax credit for hydrogen production

“Without question, recent actions taken by the Biden administration, including incentives under the IRA, will require the Canadian government to examine additional supports for the country’s hydrogen economy to make sure we remain competitive,” he says.

Under the IRA, US producers of clean hydrogen will be awarded a tax credit up to $3/kg depending on the lifecycle emissions of the production process. And producers of blue hydrogen will now have a tax credit valued at $85/t of captured and stored CO₂—compared with $50/t under the 45Q programme. In a 29 September letter to the federal government, industry group the Canadian Association of Petroleum Producers said current federal incentives for carbon capture and storage (CCS) would have to “more than double” to match the new tax credit in the US. 

“Alberta is encouraging the federal government to move quickly to adapt and finalise the Investment Tax Credit for CCUS projects to keep our incentives aligned with the US, and to provide the direct support that is needed to make sure Canada’s hydrogen leaders remain at the forefront of the industry,” says Nally. 

Guidance on how hydrogen or ammonia pipelines could operate across provincial and international borders—as well as federal financing for technology support—would help the hydrogen economy develop, he adds.

Provincial wish list

NL was among the first provinces that Natural Resources Canada (NRC)ؙ—the government’s resources department—approached to participate in its Regional Energy and Resource Tables initiative, with green hydrogen one of the priority areas being discussed, according to Andrew Parsons, minister of industry, energy and technology for the province.

“The objective of this initiative is to promote joint work between the federal government and provinces to develop economic opportunities presented by a low-carbon economy. We expect any supports we may receive from NRC to be part of those discussions, but we have not gotten into any specific details to date,” he tells Hydrogen Economist.

Establishing green hydrogen supply chains is a complex business that requires research and development, training, financing, regulation and community engagement, Parsons continues.

“NL and other provinces could benefit from federal supports in these and other areas,” he says.

“If the federal government provides the same types of support that the US government is now providing for the hydrogen industry, I would expect NL to benefit substantially,” Parsons concludes.

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Author: Vincent Lauerman