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The Alberta Hydrogen Roadmap: Opportunities and Challenges for the Existing Regulatory Framework

The Alberta Hydrogen Roadmap: Opportunities and Challenges for the Existing Regulatory Framework
By  Lars Olthafer, Nicole Bakker, Bryan Li and Jacob Roth (Articling Student)
November 15, 2021

On November 5, 2021, the Government of Alberta (Government) released the Alberta Hydrogen Roadmap (Roadmap) setting out the province’s ambitious goals for enabling a hydrogen economy that will attract billions in capital investment and create thousands of jobs, all while reducing greenhouse gas (GHG) emissions.

The Roadmap complements the federal strategy discussed in our December 2020 Blakes Bulletin: Canada’s Hydrogen Strategy: An Ambitious Framework for a Strong Hydrogen Economy and the British Columbia Hydrogen Strategy released in July 2021. Indeed, the Roadmap highlights the need for coordination among governments and through public-private partnerships to ensure supply and demand signals are aligned and make the hydrogen economy a reality.

While not expressly stated in the Roadmap, it is generally accepted that blue hydrogen will be the focus of development activities in Alberta. Blue hydrogen is derived from natural gas when it is processed using steam methane reforming (SMR). While carbon dioxide is a by-product, this process is typically coupled with carbon capture utilization and storage (CCUS) technologies to minimize GHGs. When used as a fuel, the produced hydrogen does not emit any GHGs.

With its abundant natural gas resource and geology that is ideal for CCUS, Alberta is well-positioned to be a leader in the hydrogen economy. However, significant policy development is required to facilitate innovation in this promising aspect of the energy sector.

ROADMAP POLICY PILLARS & CCUS

The Roadmap identifies seven policy pillars and the Government’s associated action plan. The policy pillars include the need to establish a demand for hydrogen, the need to de-risk investments in the hydrogen economy, incentivizing innovation, building partnerships and alliances with industry, across jurisdictions and with Indigenous governments, and pursuing opportunities to export hydrogen, including the development of transportation, liquefaction and storage infrastructure. The final two policy pillars – enabling CCUS and ensuring regulatory efficiency – are the focus of this article and are discussed in greater detail below.

Earlier this year, we saw the government signal its intent to incentivize the development of centralized carbon storage hubs in the province. In May 2021, the Government issued an information letter identifying CCUS as an integral part of the province’s environmental and economic future, and announcing its plan to issue carbon sequestration rights through a competitive process. The Government issued a request for expressions of interest from companies interested in building, owning and operating a carbon sequestration hub in Alberta, and submissions were accepted until October 12, 2021. The Government intends to call for comprehensive project proposals in the near term and select successful proponents by the end of March 2022.

Carbon storage hubs will complement existing CCUS projects in Alberta including the Shell Quest Project and the Alberta Carbon Trunk Line, both of which were initiated alongside Alberta’s 2008 Climate Change Strategy and received financial support from the federal and provincial governments.

Financial support for current CCUS initiatives is expected to continue to come from federal and provincial sources. As noted in our October 2021 Blakes Insights: Pressure Builds for Canadian Companies to Lower Carbon Emissions, Canada is investing C$319-million over seven years to promote CCUS projects. CCUS also presents opportunities to generate compliance credits for the federal Clean Fuel Standard, for which final regulations are expected later this year.

REGULATORY FRAMEWORK

The final Roadmap policy pillar – ensuring that a comprehensive and efficient regulatory regime is in place – may result in some significant legislative and policy developments in the near term, particularly if the ambitious timeframes identified in the Roadmap are to be achieved.

Alberta already produces 2.4 million tonnes of hydrogen annually, including as part of the petrochemical manufacturing process. For example, hydrogen will be produced as a by-product of propane at the propane dehydrogenation plant which will form part of Inter Pipeline’s Heartland Petrochemical Complex.

Hydrogen production in the province is currently governed by applicable provisions of existing legislation including the Environmental Protection and Enhancement Act (EPEA) and Water Act. Depending on the circumstances, hydrogen production facilities may also be governed by legislation drafted with the intent of specifically regulating the oil and gas industry including the Pipeline Act and Oil and Gas Conservation Act.

a) Facilities Approvals and Licenses

The current regulatory regime does not expressly provide for the licensing of hydrogen production facilities. Depending on the specific circumstances of the facility, authorizations may be required from:

  1. Alberta Environment and Parks (AEP): Under EPEA, approvals are required for the construction, operation or reclamation of plants that process natural gas or that manufacture chemicals. Hydrogen production via propane dehydrogenation and SMR requires EPEA approvals. Such approvals have been issued by both AEP and the Alberta Energy Regulator.
  2. The Alberta Energy Regulator (AER): A facility license or approval may also be required from the AER which regulates “processing plants” used for the extraction of substances under the Oil and Gas Conservation Act.

b) Pipeline Approvals and Licenses

While compressed hydrogen is often delivered in tube trailers or tankers by truck, rail or barge, transportation of hydrogen will likely shift to pipelines as hydrogen production achieves economies of scale. Indeed, the Roadmap identifies the need to improve natural gas infrastructure tie-ins as one of the elements of the regulatory development pillar. Hydrogen pipelines will require a license from the AER under the Pipeline Act, and existing pipelines will require physical alterations and related licence amendments should they wish to transport hydrogen. In addition, amendments to the Gas Utilities Act and Gas Distribution Act (which are administered by the Alberta Utilities Commission (AUC)) may be required to permit for hydrogen blending into natural gas distribution systems.

c) Water Act Approvals and Licenses

Water allocation and availability represent an important consideration for hydrogen proponents. Under the Water Act, hydrogen proponents require a licence to divert fresh water for industrial purposes. Prospective licensees will be required to develop water management plans and conservation objectives. The AER or AEP will administer the Water Act approval process, depending on the nature of the facility and operations to which it relates.

d) Environmental Impact Assessments

Presently, hydrogen facilities are not on the mandatory or exempt list within the Environmental Assessment (Mandatory and Exempted Activities) Regulation. Therefore, CCUS and hydrogen production facilities are only required to undertake an environmental impact assessment if directed to do so. Public interest in this relatively new technology may put pressure on regulators and the Government to require some form of environmental assessment, or to more expressly state the nature of environmental review that will be undertaken for the purposes of obtaining EPEA and Water Act approvals.

LOOKING AHEAD

Overlapping responsibilities and a lack of clarity regarding how enforcement of regulatory standards should be allocated between regulatory agencies lead to jurisdictional questions that may need to be addressed through regulatory reform.

The Roadmap indicates that such reforms will seek to ensure harmonization with the regulation of hydrogen production and transportation in other jurisdictions, and that the regulatory framework will take a performance-based approach.

It remains to be seen whether the regulatory framework will involve collaboration between the AER, AEP and AUC, or if the assessment and approval process will be assigned to a single regulator. Until a comprehensive legislative and policy framework for hydrogen production is developed, prospective hydrogen proponents are likely to face some degree of regulatory uncertainty.

We will continue to monitor developments in the hydrogen sector both within and outside Alberta. If you have any questions regarding the Roadmap or business opportunities in the hydrogen sector, please contact:

Lars Olthafer               403-260-9633
Nicole Bakker              403-260-9645             
Bryan Li                       403-260-9630
 
or any other member of our Energy Regulatory or Environmental groups.