Canada has included an investment tax credit for hydrogen production based on lifecycle carbon intensity in its 2023 federal budget. The maximum support covers 40pc of eligible project costs if carbon intensity is below 0.75kg of CO₂/kg of hydrogen produced, while the minimum covers 15pc of costs for projects with carbon intensity 2–4kg of CO₂/kg of hydrogen produced.

Canada plans to calculate carbon intensity on a ‘cradle-to-gate’ basis, accounting for upstream emissions through to the point hydrogen exits the facility. As hydrogen is a zero-carbon gas, downstream emissions after production will not be considered, the government says. Projects converting low-carbon hydrogen to ammonia would also be eligible for the minimum 15pc tax credit rate.

“We are going to make Canada a reliable supplier of clean energy to the world” Freeland, Canadian finance minister

For blue hydrogen projects, captured CO₂ would need to be stored via approved methods, such as dedicated geological storage or storage in concrete, with other forms of storage such as enhanced oil recovery treated as atmospheric release for the purpose of carbon intensity calculations. Meanwhile, green hydrogen projects that use grid electricity will have to account for the carbon intensity of the power mix, although power-purchase agreements for renewable electricity will count towards carbon intensity assessments.

Companies will only be able to claim one of either the hydrogen tax credit, the CCUS tax credit, the clean technologies tax credit, the clean electricity tax credit or the clean technology manufacturing tax credit per property. “However, multiple tax credits could be available for the same project if the project includes different types of eligible property,” the government adds.

The scale of Canada’s hydrogen and CCUS tax credits in comparison to those offered by the US has been criticised by industry groups, which argue capital costs represent 15–45pc of the total cost of green hydrogen production.

The tax credit will be fully phased out after 2034, with projects that come online that year subject to half the credit rate.

Projects must also meet labour requirements, due to come into force from October this year, to secure the full tax rate, as ten percentage points will be deducted otherwise. These include a prevailing wage requirement and a requirement for at least 10pc of total labour hours performed by covered workers to be performed by registered apprentices.

Canada is expected to be a major exporter of hydrogen, particularly to Europe. The country has already agreed to supply hydrogen to Germany as early as 2025.

“Canada has free trade deals with countries that represent two-thirds of global economy,” said Chrystia Freeland, the country’s deputy prime minister and finance minister, on tabling the budget. “We are going to make Canada a reliable supplier of clean energy to the world, and from critical minerals to electric vehicles, we are going to ensure that Canadian workers mine, and process, and build and sell the goods and the resources that our allies need.”

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Author: Polly Martin