Canada’s clean hydrogen investment tax credits passed into law | Policy

Clean hydrogen investment tax credits proposed as part of Canada’s budget have been passed into law.

The CAD $5.6bn Clean Hydrogen Investment Tax Credit (ITC) was revealed last March. Now the Budget Implementation Act, 2024, has received Royal Assent, seeing the ITC and other measures pass into law.

Offering between 15 and 40{c431b1036349617aea55b35aa92592c3cb3fecc7f94273a754a3b674e9a603ce} of the investments for eligible hydrogen projects, using a carbon intensity-based tier structure, the ITC is hoped to supercharge Canada’s hydrogen development.

Under the scheme, projects producing less than 0.75kg CO2/kg H2 would secure 40{c431b1036349617aea55b35aa92592c3cb3fecc7f94273a754a3b674e9a603ce}, with 25{c431b1036349617aea55b35aa92592c3cb3fecc7f94273a754a3b674e9a603ce} available for projects with 0.75-2KG CO2/kg H2, and 15{c431b1036349617aea55b35aa92592c3cb3fecc7f94273a754a3b674e9a603ce} for 2-<4kg CO2/kg H2.

The rules also extend a 15{c431b1036349617aea55b35aa92592c3cb3fecc7f94273a754a3b674e9a603ce} tax credit for equipment to convert clean hydrogen into ammonia for transportation.

For green hydrogen producers looking to secure support from the ITC, power purchase agreements (PPAs) allowing project owners to purchase clean electricity from the grid will be eligible.

Rules published in December showed additionality and geographic correlation requirements will apply to the PPAs, meaning producers will have to purchase power from new renewable energy assets in the same province as the hydrogen plant.

The rules are significantly less prescriptive than those set out in Europe and currently under consideration in the US, which both set hourly matching criteria which would see electrolysers only operate during the hours that renewable assets are producing energy.

While the US had captured much of the hydrogen interest in North America, Ivette Vera-Perez, President and CEO of the Canadian Hydrogen Association (CHA), previously told H2 View, that challenges posed by the US rules offered a “unique window” for Canada to draw global investments.

Read more: Analysis: Could Canada be about to steal US green hydrogen investments?

Trent Vichie, founder and CEO of EverWind Fuels, which is developing a large-scale green ammonia project in Newfoundland, said the ITC’s passage was a “major step forward” Canada.

“Having these incentivise in place before US measures sends a signal to the world to choose Canada, which is exactly what we’ve done,” he said.