Billions of dollars hang in the balance as Canadian hydrogen companies await specific regulations from the federal government on how they can qualify for a lucrative tax credit.
Companies in Canada’s most eastern province are hoping those rules are on the stricter side.
It’s been more than a year since the Liberal government announced companies would be eligible for tax credits ranging between 15 and 40 per cent, but some significant details remain undecided.
Those details will essentially determine how green a green hydrogen project must be in order to score the top tax break.
“We’ve been promised them now for some time and of course they’re working their way through the bureaucracy and we understand that,” said John Risley, chairman of World Energy GH2, the largest proposed project in Newfoundand. “We would have hoped to see them in October, but we were told that we can expect to see them very soon and I’m not sure I could define ‘very soon’ for you.”
John Risley.
John Risley i one of the directors of World Energy GH2, a company proposing more than 300 wind turbines on Newfoundland’s west coast and a green hydrogen and ammonia production facility in Stephenville, N.L. (Patrick Butler/Radio-Canada)
At issue are concepts like additionality, deliverability and time-matching. What does that mean? Well, boiled down, strict rules on these issues would mean projects would have to ensure they’re always using energy from clean sources within their operating area in order to qualify for a 40 per cent tax credit.
That means when the wind isn’t blowing, projects can’t rely on energy from fossil fuels as a backup to power their plants and still expect to be taxed as green hydrogen.
Risley believes that would benefit Newfoundland companies because their backup power source would likely be the provincial grid, of which 80 per cent of energy comes from renewable sources.
It would also give them a competitive advantage over companies in other areas, including neighbouringprovinces. Any company requiring power from the grid in Nova Scotia, for example, would be drawing from a system that gets about 51 per cent of its power from coal and coke.
Risley said one his biggest concerns is the various “shades of green” that would emerge if projects that relied on backup power from non-renewable sources were treated the same as projects powered solely by clean energy.
Don’t subsidize fossil fuels, says Sierra Club
Those watching the industry say the fine print for the tax credit is about more than just handing out money to corporations. It’s about determining whether or not hydrogen will actually be a clean energy source.
Gretchen Fitzgerald, national programs director with Sierra Club Canada, said she doesn’t want to see companies relying on non-renewable resources get the full tax credit.
A woman wearing a headset sits in front of a banner for the Sierra Club Canada Foundation.
Gretchen Fitzgerald is a national programs director with the Sierra Club CanadaFoundation. (Zoom)
Fitzgerald said the Sierra Club is supportive of “green hydrogen that is truly green,” but warned against how that term can be manipulated when backup power is less than green.
“Our position is green should really be green,” she said. “If you were allowing them to get that level of subsidy, like a 40 per cent subsidy, and then they’re drawing electricity from coal or bunker C, or God forbid incentivizing new hydro, I think it would just be a big injustice.”
American spat good news for Canadian companies
These concepts became hot-button issues in the United States when draft regulations were leaked to the media earlier this month, as first reported by Bloomberg and Politico. It appears the Biden administration is prepared to come down strict on the definition of green hydrogen, prompting a deep division within the emerging industry.
Companies dedicated to powering their projects with only renewable sources of electricity are cheering, while those who were hoping torely on cheaper backup power from coal or fossil fuels say the regulations will destroy the industry before it ever begins.
Risley felt the leaked American rules were good news for Canadian companies, which will be competing in a global marketplace.
“The worst thing that could have happened to us would have been that the U.S. government set a very low bar and provided an enormously generous subsidy for product that was, let’s say adulterated, if you like, by fossil fuel-generated electricity,” he said. “So we like these rules and we would hope that Canada would adopt very similar rules.”
A man with a beard and black hair, wearing a suit, standing at a podium in front of a microphone.
Ravi Sood is the executive chairman of EVREC, a company bidding for a massive wind-to-hydrogen project anchored in Botwood. (Ryan Cooke/CBC)
Ravi Sood is also hoping for similar rules in Canada and beyond.
As executive chairman of the Exploits Valley Renewable Energy Corporation, Sood has a lot riding n a green hydrogen proposal in central Newfoundland that would see hydrogen exported to Europe.
Having universal standards across countries and continents would be a huge benefit to the development of the local industry, he said.
“We are encouraged to see that [the U.S. is] likely to be required to meet similarly strict standards,” he said. “The more standardized the requirements are across geographies the more level the playing field for the economics of all projects.”
The United States was expected to release its regulations by the end of the year. However, they still have not been unveiled. The European Union has also delayed decisions on the same issues.
It’s not known when Canada will release its regulations.
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