Common Elements: Recent Federal and Ontario Developments Towards a Low-Carbon Hydrogen Strategy

Investment and interest in hydrogen technologies continues to grow across Canada and recent changes announced in Ontario and at the federal level promise an intensified push for hydrogen to play a key role in the country’s transition to cleaner power.

ONTARIO DEVELOPMENTS

On April 7, 2022, the Government of Ontario announced its Low-Carbon Hydrogen Strategy (Strategy), to develop the hydrogen economy in the province and position Ontario as a clean manufacturing hub. As outlined in the Strategy, the province plans to leverage its extensive existing storage and pipeline infrastructure as well as its emission-free supply of electricity to increase low-carbon hydrogen production.
 
Among its eight immediate action items, the Strategy includes Ontario’s announcement of its support for Atura Power’s proposal to build, own and operate the province’s largest low-carbon hydrogen production facility, powered mainly by hydroelectric electricity generated at the Sir Adam Beck Hydroelectric Generating Station in Niagara Falls. The province is providing an exemption from the Gross Revenue Charge from 2024 to 2033 for electricity generated and used by the project specifically for hydrogen production under prescribed conditions. The low-carbon hydrogen produced at this facility would support emission reductions equivalent to taking more than 4,000 cars off the road, while expanding Ontario’s low-carbon hydrogen production capacity eight-fold and becoming the province’s first “hydrogen hub”.
 
The Strategy also announces Ontario’s work towards launching an Interruptible Rate Pilot to support low-carbon hydrogen production, leveraging surplus electricity generated in the province by offering reduced rates to large consumers that are able to operate with flexibility.
 
The Strategy’s other action items include identifying four strategic locations in Ontario that can leverage existing electrical infrastructure in order to produce low-carbon hydrogen, exploring the possibility of hydrogen opportunities at the Bruce Nuclear Generating Station, supporting hydrogen storage and grid integration pilot projects, supporting industry transition to low-carbon processes, consulting on an Ontario carbon sequestration and storage regulatory framework and further supporting hydrogen research.
 
Ontario’s announcement is the latest development in a series of hydrogen-related initiatives around the country which align government and industry interests in order to push Canada to become a leader in low-carbon hydrogen use and production. Increased production capacity will further allow industry to take advantage of the growing global demand for hydrogen and to position Canada as a world-leading exporter of hydrogen.

FEDERAL BUDGET

Also on April 7, 2022, the Government of Canada released its 2022 budget (2022 Budget). The 2022 Budget includes several initiatives that will be noteworthy for participants in the hydrogen technologies sector. Here, the budget echoes aspects of the federal government’s Hydrogen Strategy for Canada (Federal Strategy), which we covered in in our bulletin entitled Canada’s Hydrogen Strategy: An Ambitious Framework for a Strong Hydrogen Economy, and which affirmed hydrogen as a key factor in achieving net-zero carbon emissions and backed the development of the hydrogen economy with a mix of regulatory policy and public funding, including a C$1.5-billion Low-carbon and Zero-emissions Fuels Fund established for the production and use of low-carbon fuels.
 
Building on the Federal Strategy, Budget 2022 announces that the Department of Finance Canada will engage with experts to establish an investment tax credit of up to 30 per cent, focused on clean hydrogen, net-zero technologies and battery storage solutions. While the details of the investment tax credit are not yet available (and indeed will not be provided until the 2022 fall economic and fiscal update), the proposed credit will be of interest to all industry participants. We will provide readers with an update in a future bulletin.
 
Next, the 2022 Budget contains incentives and funding in order to help business switch from existing vehicle fleets to medium- and heavy-duty zero-emission vehicles (ZEVs). Allocations include C$547.5-million over four years to Transport Canada to launch a new purchase incentive program for medium- and heavy-duty ZEVs, C$33.8-million over five years, starting in 2022-23, with C$42.1-million in remaining amortization to Transport Canada to work with provinces and territories to develop and harmonize regulations and to conduct safety testing for long-haul zero-emission trucks, and C$199.6-million over five years, starting in 2022-23, and C$0.4-million ongoing to Natural Resources Canada to help decarbonize vehicles already on the road.
 
While not hydrogen-specific, Budget 2022 also proposes other new measures to support the expansion of clean electricity, including C$250-million over four years to Natural Resources Canada to support pre-development activities of clean electricity projects of national significance, C$600-million over seven years to Natural Resources Canada for the Smart Renewables and Electrification Pathways Program to support additional renewable electricity and grid modernization projects, and additional funding for a Pan-Canadian Grid Council and certain Regional Strategic Initiatives.
 
Finally, Budget 2022 announces a broadened role for The Canada Infrastructure Bank (the CIB) to invest in private sector-led projects that will accelerate Canada’s transition to a low-carbon economy. While CIB does have an existing clean power and green infrastructure investment strategy, the explicit call in Budget 2022 for the CIB to finance the build-out of clean energy infrastructure projects - including those related to hydrogen production, transportation and distribution – may offer an additional and cost-effective funding source to players in what remains today a nascent industry in Canada. The CIB will also invest C$500-million in large-scale, zero emission vehicle (ZEV) charging and refueling infrastructure to help accelerate the adoption of ZEVs, including where applicable hydrogen fuel cell buses.

NEXT STEPS

Developments in the hydrogen sector continue apace outside Ontario as well. We have covered further developments in the province of Quebec in our Blakes Bulletin: The Quebec Energy Transition: A Preview of The Emerging Green Hydrogen Sector. Quebec’s Action Plan placed green hydrogen, along with bioenergy, front and center as complementary sources of clean energy for the future of Quebec’s green economy. Similarly, as covered in our Blakes Bulletin: The Alberta Hydrogen Roadmap: Opportunities and Challenges for the Existing Regulatory Framework, both Alberta and British Columbia released hydrogen strategies in 2021, with Alberta poised to be a market leader in blue hydrogen derived from natural gas, coupled with carbon capture utilization and storage (CCUS).
 
Blakes lawyers are currently engaged on clean hydrogen mandates across the country We will continue to monitor and provide updates with regarding developments in the hydrogen sector.
 
For more information regarding the impact of the Strategy on your business or business opportunities in the hydrogen sector, please contact:
 
Mark Johnson              416-863-3318 
Catherine Doyle          416-863-4160
Paul Singh                   416-863-2385
Keith Byblow               403-260-9622
Anne Drost                  514-982-4033
 
or any member of our Energy group.