Overcoming the challenges of the hydrogen sector

As the world continues its fight against climate change and its transition towards environmental sustainability, the Government of Canada understands the importance an energy transition will play in its efforts to reach net-zero by 2050. Electrification will play a major role in reducing our carbon emissions in the coming decades. However, there are sectors such as steel and cement production, aviation, trucking and potentially even navigation, where this is not an option. Combined, these sectors account for a large share of our emissions today and low-carbon intense hydrogen offers a solution to these issues. To be successful, Canada will have to overcome some of the challenges of the hydrogen sector and continuously analyze its hydrogen policy. Attracting investments from both the federal and provincial governments as well as others in the private sector has been highlighted as one of the main challenges. Low-carbon-intense hydrogen as an energy source is a fairly new and costly technology that can be up to 30 times more expensive than natural gas. Given the high cost of production and uncertainty of the role it will play in the future, investors have not been easy to find for some low-carbon-intense hydrogen producers. The Government of Canada must ensure to continue attracting investment by investing in the areas of research and development and funding programs. Hydrogen, as we know it, is not a final product which is crucial to understand. The government will also have to continue to develop tax incentives and regulations which will make it attractive for these companies to come to Canada. For example, some experts highlight that green hydrogen will struggle to be competitive without a carbon tax. Such measures must be considered. As more countries look to fight climate change, remaining competitive will only get more difficult. As things currently stand, the United States has released the Inflation Reduction Act which puts pressure on all governments to act accordingly or risk being left out of the transition towards a net-zero economy. The IRA allocated $400-billion to the American transition to a green economy over 10 years which will undoubtedly attract investment to the United States. The Canadian government had previously been investing in clean hydrogen, but had to take a stronger stance. This was done with the 2022 fall economic statement which included changes in policy and investments towards hydrogen production, as well as carbon capture and storage. Heightened competition is likely to continue as we approach our deadline of net-zero by 2050, the government must continue taking meaningful action to remain competitive in attracting investment. As expected, federalism often plays a role when dealing with an issue in Canada and hydrogen is not an exception with each province and territory having its own priorities and plan. Additionally, much of the regulation of hydrogen policy falls under the provincial jurisdiction. Meaning that provincial governments have the authority to control provincial tax incentives to the sector, as well as develop some of the regulations for its production. In a similar fashion, each province and territory has its own strengths which are likely to be used when producing hydrogen. We are likely to see the production of green hydrogen in Quebec and Newfoundland thanks to their hydroelectricity and wind power, something we are unlikely to see in Alberta and British Columbia who have significant experience in carbon sequestration, likely leading to the production of blue hydrogen. Such differences across the country make it difficult to develop a pan-Canadian strategy in hydrogen production, something the government will need to address. In sum, Canada does have many challenges to overcome, most notably issues surrounding investment, remaining competitive and developing a pan-Canadian strategy for hydrogen production. There have been some wins, but going forward we will need to continue working towards those areas of concern and be aware of other issues arising. Failure to do so will most likely lead to Canada again not reaching its climate targets at the moment we need it the most. Senator Paul Massicotte was appointed to the Senate in 2003 to represent the province of Quebec. He is currently a member of the Senate's Energy, the Environment and Natural Resources Committee and the Senate's Banking, Trade and Commerce Committee.