Federal government releases Hydrogen Strategy for Canada

The Government of Canada has released the federal hydrogen strategy, “Hydrogen Strategy for Canada: Seizing the Opportunities for Hydrogen” (Strategy). As part of Canada’s efforts to achieve net zero greenhouse gas (GHG) emissions by 2050, the Strategy aims to establish Canada as a global leader in the hydrogen sector while also growing the economy and creating jobs.

What you need to know

• The Strategy is a key piece of the clean fuel initiatives outlined in the recently announced federal climate plan and will complement measures such as the federal Clean Fuel Standard and a $1.5 billion Low-carbon and Zero-emissions Fuels Fund.
• According to the Strategy, the federal government envisions, by 2050, 30% of Canada’s end-use energy being delivered in the form of hydrogen, up to 350,000 hydrogen sector jobs, and more than $50 billion in direct hydrogen sector revenue for the domestic market.
• In the next 5-10 years, the Strategy focuses on “high potential” projects or sites (i.e., early deployment hubs that have enabling infrastructure in place), including: the Alberta Industrial Heartland; coastal ports in BC, Ontario, Québec, Manitoba and the Atlantic; the transportation corridor between Montréal and Detroit; and ethanol plants and renewable natural gas facilities in provinces with access to hydroelectricity.
• While the Strategy sets out an ambitious vision for Canada’s hydrogen industry, it also identifies a number of remaining challenges, including the need to produce hydrogen that is cost-competitive (in terms of market cost and scale of production) with other conventional fuel options, support innovation to reduce costs further, develop a comprehensive and long-term policy and regulatory framework that includes hydrogen, expand the availability of hydrogen infrastructure, harmonize codes and standards across jurisdictions, and promulgate public awareness about hydrogen as a viable decarbonization pathway.

Overview of the Strategy

The Strategy lays out a framework for Canada to become a global leader in the hydrogen sector by developing new hydrogen supply and distribution infrastructure and fostering uptake of hydrogen in various end uses.

Hydrogen production

Canada currently produces an estimated 3 million tonnes of hydrogen annually, primarily via steam methane reformation of natural gas. The Strategy envisions Canada becoming a top three producer of hydrogen by 2050 by drawing on its supply of feedstock reserves (e.g., abundant low carbon intensity electricity supply (hydroelectric and nuclear), fossil fuels, variable renewable energy generation capacity) and leading hydrogen and fuel technology companies. According to the Strategy, Canada can also become a leading exporter of hydrogen given the projected tenfold increase in global demand over the next three decades.

The Strategy contemplates the domestic production of clean hydrogen through a variety of pathways, including water, electricity, fossils fuels and as a by-product from industrial processes, however it notes that pathways with a low carbon intensity are not yet cost-effective. The Strategy intends to rely on current carbon-intensive production pathways to meet hydrogen demand in the short- to mid-term and shift to clean pathways in the long-term, as these become more cost-effective.

End-uses

The Strategy focuses on expanding the use of hydrogen in energy intensive applications such as:

• fuel for transportation (including public transportation, medium to heavy duty trucks, and mining equipment);
• fuel for power generation;
• high-grade heat source for industry (such as cement and steel manufacturing and the pulp and paper sectors);
• heat for buildings, as either a blend with natural gas or as a replacement fuel; and
• feedstock for industry (including petroleum refining, bitumen upgrading, ammonia and methanol production and steel production)¹.

Roadmap to 2050

The Strategy sets out various near-term, mid-term and long-term goals, as highlighted below.

Near term: Laying the foundation

In the next five years, the Strategy aims to lay the foundation for rapid growth within the hydrogen sector. In this regard, the federal government plans to focus on regional deployment hubs, developing new hydrogen supply and distribution infrastructure for existing hydrogen applications such as oil and gas upgrading, ethanol plants, forklifts and transit operation, while also supporting pilot projects in emerging applications such as heating for the built environment, heavy duty trucks, power generation and industrial feedstock applications.

One of the significant challenges in the near- and mid-term will be the need to achieve an economically competitive hydrogen industry. The use of carbon pricing and regulatory measures will play a key role in incentivizing hydrogen use during this early phase. The federal government also expects its Clean Fuel Standard to help make hydrogen more cost-competitive by better accounting for emissions in the cost of baseline fuels.

Mid-term: Growth and diversification

The Strategy sees 2025-2030 as a period of growth and diversification. The above-noted deployment hubs would expand, and new hubs would be created, connected by corridor infrastructure. The goal for 2030 is to reach 10-20% of the 2050 deployment volume and GHG abatement targets.

The mid-term phase would focus on hydrogen uses that represent strong value propositions (potentially including the rapid expansion of fuel cell electric vehicles and transit buses) relative to other zero-emission technologies. This phase would likely also see the introduction of large-scale hydrogen production that would enable hydrogen and natural gas blending for widespread use in industry, the built environment and as feedstock for chemical production.

Long-term: Rapid market expansion

The full benefits of the Strategy would be demonstrated in the years 2030 to 2050 as the scale of deployment and range of end uses grow. During that timeframe, the Strategy anticipates greater use of battery and charging technology in transportation, dedicated hydrogen pipelines and uptake in hydrogen use across heavy emitting industries in Canada.

Canada hopes to reach hydrogen production capacity of up to 20 million tonnes per year by 2050, which would suffice to meet up to 30% of the country’s end-use energy and reduce GHG emissions by up to 190 million tonnes of carbon dioxide equivalent per year.

To achieve these targets, the remaining challenges identified by the Strategy will need to be addressed. For example, the Strategy notes that increased support in the development of hydrogen technologies and a significant expansion in supply and distribution infrastructure are necessary steps in developing a successful hydrogen economy.

Eight pillars of the Strategy

The Strategy is based on eight pillars that will inform concrete actions plans:

1. Strategic partnerships. Use existing and new partnerships to collaborate and map out the future of hydrogen in Canada.
2. De-risking of investments. Establish funding programs, long-term policies, and business models to encourage industry and governments to invest in growing the hydrogen economy.
3. Innovation. Take action to support further R&D, develop research priorities, and foster collaboration between stakeholders to ensure Canada maintains its competitive edge and global leadership in hydrogen and fuel cell technologies.
4. Codes and standards. Modernize existing and develop new codes and standards to keep pace with this rapidly changing industry and remove barriers to deployment, domestically and internationally.
5. Enabling policies and regulation. Ensure hydrogen is integrated into clean energy roadmaps and strategies at all levels of government and incentivize its application.
6. Awareness. Lead at the national level to ensure individuals and communities are aware of hydrogen’s safety, uses, and benefits during a time of rapidly developing technologies.
7. Regional blueprints. Implement a multi-level, collaborative government effort to facilitate the development of regional hydrogen blueprints to identify specific opportunities and plans for hydrogen production and end use.
8. International markets. Work with Canada’s international partners to ensure the global push for clean fuels includes domestically sourced hydrogen, helping Canadian industries thrive at home and abroad.

The release of the Strategy is “meant to serve as a catalyst for the next stages in Canada’s hydrogen story”. The federal government hopes the Strategy will provide a framework to overcome the remaining challenges and guide action and investment going forward. As the Minister of Natural Resources Seamus O’Regan noted: “[a]s we rebuild our economy from the impacts of COVID-19 and fight the existential threat of climate change, the development of low-carbon hydrogen is a strategic priority for Canada. The time to act is now”. The government will continue engaging with public, private, academic and Indigenous partners to build momentum, follow the progress of the hydrogen sector and identify new priority areas.

Torys is tracking the ongoing developments in the hydrogen industry, including policy and regulatory changes. Please contact us if you would like to learn more about market trends and opportunities in this area.

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¹ These applications align with the four main end-uses outlined by Ontario’s hydrogen strategy discussion paper, (released in November 2020): (i) industry, (ii) transport, (iii) electricity production and storage, and (iv) buildings and communities.

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