Canada’s hydrogen industry is flourishing several years after the federal government released its Hydrogen Strategy for Canada report in December 2020, Jonathan Wilkinson, the country’s minister of energy and natural resources and head of government department Natural Resources Canada (NRCan), indicated in a recently released progress report.

“Across Canada, interest in low-carbon hydrogen is booming,” Wilkinson said in the foreword to the progress report. “Approximately 80 low-carbon hydrogen production projects have been announced, representing an expression of interest of over C$100b [$73b] in potential investment dedicated to building out this clean energy opportunity.”

These hydrogen projects—most of which are to produce low-carbon hydrogen through electrolysis or natural gas reforming (via steam methane reforming or autothermal reforming) with CCS—have the potential to bring 5mt/yr of low-carbon hydrogen production capacity online.

“Potential buyers in Europe and Asia have shown strong interest in establishing partnerships with Canadian export producers” Wilkinson, minister of energy and natural resources

“Pilot projects are underway, showcasing Canadian ingenuity and demonstrating how hydrogen can help fuel our trucks, buses, and trains, help decarbonise our industries, or help heat our homes and businesses,” Wilkinson added. “Hydrogen hubs are forming, such as in Edmonton, Vancouver and Southern Ontario, to match low-carbon hydrogen supply with demand.”

Domestic demand downgrade

However, NRCan severely overestimated the potential for hydrogen consumption in Canada through 2050—and hence its ability to slash the country’s greenhouse gas emissions—in its hydrogen strategy, as identified by the Commissioner for the Environment and Sustainable Development in an audit released in April 2022 and implicitly acknowledged by the federal ministry in its progress report.

“Clean hydrogen has the potential to deliver up to 30% of Canada’s end-use energy by 2050,” NRCan said in its hydrogen strategy based on an inhouse modelling initiative, or 20mt/yr.

But in the recent progress report it highlighted six modelling initiatives by outside agencies with substantially lower estimated hydrogen use by mid-century. “Overall, up to 18% of Canada’s total energy use could be provided by low-carbon hydrogen by 2050, [but] most projections fall in the range of 3% to 12%.”

According to David Layzell, professor emeritus at the University of Calgary and co-founder of The Transition Accelerator—a pan-Canadian organisation working to identify and advance viable pathways to net-zero emissions in Canada by 2050—there were lots of “unknowns” about the potential of hydrogen consumption in various sectors back in 2020. “There are still unknowns, but the consensus view now is that new uses for hydrogen will be restricted over time to hard to decarbonise sectors such as heavy industries and long-distance transport.”

On the hydrogen hub front, NRCan identified eight as either forming or formed: Vancouver and Prince George in British Columbia (BC); Edmonton and Calgary in Alberta; Selkirk, Manitoba; Sarnia-Lambton and Grey-Bruce in Ontario; and Quebec’s ‘Vallee de la transition énergétique’. The federal ministry did not identify any emerging hubs in Atlantic Canada, with projects in the region catering to export markets.

However, “not much has happened on these eight hubs since 2020,” according to Layzell, with the Edmonton region hub a relative exception. “The Feds put money aside to support their development but most of it never materialised, besides a bit for the Edmonton and Sarnia hubs.”

At the same time, Layzell is concerned eight hydrogen hubs would be too many for Canada, potentially leading to some “white elephants”, especially since the US, with a much larger potential clean hydrogen market, is targeting only seven hubs.

“From my perspective, the Feds should be focusing on just three hubs, based on major highway corridors in Western Canada, Sarnia to Toronto [in Ontario], and Montreal to Quebec City [in Quebec],” he said. “Over time these corridors could link together and extend to Halifax on the Canadian east coast and to corridors in the US.”

Export upgrade

On the other hand, after appearing no more than an afterthought in its 2020 hydrogen strategy, according to Layzell, exports have become the key driver for clean hydrogen production projects in Canada.

“Canada’s 23 clean hydrogen export projects constitute the majority of potential investment in new production projects,” the progress report said, while Wilkinson has been beating the export drum since energy security again became a major pillar of energy policy – along with cost and climate concerns – in major energy importing countries with Russia’s invasion of Ukraine in February 2022.

“We are advancing commitments to provide competitive and reliable low-carbon hydrogen to advance the energy security imperative with our friends and allies and compete as a major exporter of hydrogen, its derivatives, and hydrogen technologies, in the growing global market,” Wilkinson said.

$73b – Potential investment

“Potential buyers in Europe and Asia have shown strong interest in establishing partnerships with Canadian export producers, bringing opportunities for sustainable clean job creation in Atlantic and Western Canada and global emissions reductions.”

Projects in Atlantic Canada are to source abundant and untapped wind resources to produce green hydrogen/ammonia for German and other European markets, while export projects in Western Canada are to produce blue hydrogen and export it as ammonia to Japan, South Korea and other Asian markets, largely to reduce emissions from coal-fired power plants.

 “To advance the clean hydrogen export opportunity, Canada is actively engaging with its allies and signing commitments to support energy security through the production and export of hydrogen and its derivatives,” the progress report said.

These international commitments include: three memorandums of understandings between Canada and the Netherlands in 2021, NRCan and the US Department of Energy also in 2021, and South Korea in May 2023; the Joint Declaration of Intent to establish a Canada–Germany Hydrogen Alliance in August 2022; the Canada-Japan Energy Policy Dialogue adding ammonia to the hydrogen pillar of its updated 2023–25 Action Plan; and the inclusion of hydrogen in the Canada-EU High-Level Energy Dialogue, leading to a hydrogen action plan signed in March 2023.

“Four years ago, hydrogen export projects in Western Canada appeared to be in the lead, but with the Ukraine war and Europe scrambling for alternatives to Russian gas, hydrogen projects in Atlantic Canada have really taken off,” Layzell said.

“They have also benefitted from less regulatory and jurisdictional barriers than in the West, where the federal, Alberta and BC governments all play a role, as well as numerous First Nations on the rail route to Prince Rupert on the coast,” he added. “But once these barriers are overcome, Western Canadian export projects should again take the lead because FOB prices for ammonia at Prince Rupert should be extremely low given blue hydrogen’s significant cost advantage.”

Who’s driving the bus?

In the progress report NRCan catalogued a wide range of policies and funding programmes the federal government has implemented to support its hydrogen strategy, while Wilkinson lauded complementary actions taken by several of Canada’s provinces.

The most important financial incentive, which the federal government passed into law since the release of the progress report, is the Clean Hydrogen Investment Tax Credit (CHITC), a refundable investment tax credit for investments made in clean hydrogen production based on its life-cycle carbon intensity. The level of support ranges between 15% and 40% of eligible project costs, with blue hydrogen likely to obtain credits at the lower end of the range and hydrolytic projects the upper end.

“And provinces are showing tremendous leadership, complementing Canada’s Hydrogen Strategy with their own provincial strategies, and leading the development of provincial funding programmes, policies and supportive measures,” Wilkinson added.

However, according to Layzell, “no one is driving the hydrogen bus” in Canada. “There are lots of federal silos not working together, while none of them are empowered to lead. The Feds need to take more of a leadership role for hydrogen, especially to support domestic consumption in sectors such as transport, and to get the regions and provinces working together. As a result, Canada is not keeping up with Europe and the US.”

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Author: Vincent Lauerman