There's a fossil fuel fox in the henhouse as Ottawa develops a clean hydrogen economy

Natural Resources Canada tapped a fossil fuel lobby group to help provide recommendations on expanding the nascent hydrogen sector, documents obtained by Canada’s National Observer reveal.

The Canadian Gas Association (CGA) is a fossil fuel lobby group that is under investigation by Canada’s Competition Bureau for alleged greenwashing, and whose membership includes gas giants like Enbridge, FortisBC, TC Energy and others. The CGA served as “industry co-chair” of NRCan’s natural gas working group under Canada’s hydrogen strategy, as co-chair of the “infrastructure working group,” and sat on NRCan’s strategic steering committee, overseeing the entire hydrogen strategy development.

“To say it’s putting the fox in charge of the henhouse would be too kind,” said Keith Stewart, senior strategist for Greenpeace Canada in an interview with Canada’s National Observer. “You shouldn't be having fossil fuel interests steering a process that's supposed to be getting us off of fossil fuels.

“Spoiler: they're not going to come up with great advice.”

While in this position of influence, the fossil fuel industry's priorities were secured, including favourable tax credits worth billions of dollars and ensuring a role for natural gas derived hydrogen in the country’s energy transition.

To grow the hydrogen sector, which Natural Resources Canada estimated could be worth between $1.9 trillion globally by 2050, the federal government has introduced an investment tax credit for “clean” hydrogen expected to cost $5.7 billion over the next five years; a carbon capture, utilization and storage tax credit also worth $5.7 billion over five years; and a $1.5 billion Clean Fuels Fund that, as of October, has provided hydrogen projects with over $300 million.

In other words, a tremendous sum of capital is being made available to grow the hydrogen sector in a bid to help companies capture this growing market. The funding is not tied to a specific industry, but the fact it does not rule out fossil fuel derived hydrogen is an issue for environmentalists and climate scientists.

To supporters of the hydrogen industry, hydrogen can be used in industrial purposes like cement or steel manufacturing, can be blended into natural gas pipelines to steadily decrease emissions, and could be used in vehicles. But to critics, the hydrogen hype is overblown given the intense greenhouse gas emissions associated with its production when using natural gas, and is yet another delay tactic by the fossil fuel industry to slow the transition toward electric vehicles, high efficiency heat pumps, and fully decarbonized heavy industries.

For that reason, environmentalists are concerned that a federal hydrogen strategy that allows for the continued role of fossil fuels misses the mark, and is evidence of the fossil fuel industry hijacking the country’s hydrogen ambitions.

Stewart said that oil and gas companies are attempting to protect their market share by producing hydrogen from natural gas and keeping the Canadian economy using fossil fuels instead of electricity.

“They're basically trying to keep us on the technological pathway we're on, where fossil fuels are the dominant energy source, rather than replacing it,” he said.

Within the natural gas working group are “task teams” that produced four reports for the federal government. The reports looked at the benefits and challenges of natural-gas-produced hydrogen; future demand; technical feasibility of blending hydrogen into gas pipelines; and an emissions intensity threshold for certifying natural gas home appliances.

Natural Resources Canada did not make the reports available before publication time.

In emails obtained through a federal access to information request, Natural Resources Canada policy analyst John Lau asked Suncor’s director of government relations Daniel Goodwin, and hydrogen lead Carlos Giraldo, if they would like to participate or lead one of the task teams.

Lau also noted in his email to Suncor that other fossil fuel giants including oilsands major Canadian Natural Resources, pipeline giant TC Energy, and Arc Resources (which is heavily invested in the Montney gas play in northern British Columbia), are all participating.

“These industry-led Task Teams will help provide data and advice to the Government of Canada in support of the implementation of Canada’s Hydrogen Strategy,” he wrote. “Industry participation will help ensure that our planning for Canada’s future hydrogen economy occurs in a collaborative manner, which reflects industry views and realities.”

One notable industry view comes from the Pathways Alliance, which represents Canadian oilsands majors Suncor, Cenovus, Imperial Oil, MEG Energy, Canadian Natural Resources and ConocoPhillips. Like the CGA, the alliance is also under investigation for alleged greenwashing, and both see a role for fossil fuel companies in Canada’s hydrogen economy.

In a January 2023 letter sent to Finance Canada, which Canada’s National Observer received through a federal access to information request, the Pathways Alliance urged Ottawa to design a clean hydrogen investment tax credit that would leave the door open to hydrogen made with natural gas, by claiming it should “avoid disadvantaging any specific production pathway.”

In the same letter, Pathways Alliance president Kendall Dilling also called on the federal government to let solvent technology used to increase oilsands production be considered “clean” to allow member companies to claim clean technology tax credits, and allow the various tax credits to stack with other provincial and federal funding.

Taken together, it’s evidence Canada’s oil and gas industry is looking to hydrogen as a way to continue using fossil fuels, and it wants taxpayers to help them capitalize on this emerging market.

The CGA, Suncor and Pathways Alliance did not return requests for comment.

The natural gas working group is one of 16 working groups launched under the strategy. But out of nine strategic reports provided to Ottawa to date, four have come from it, suggesting increasing natural-gas-derived hydrogen is a major priority for policy makers. As previously reported by Canada’s National Observer, meeting notes obtained through an access to information request revealed federal policymakers were interested in figuring out how “to persuade financial institutions to invest in blue hydrogen.”

That’s deeply concerning to experts, who say there is significant risk to the climate by building up a hydrogen economy using fossil fuels, even if equipped with carbon capture technology.

Because hydrogen can be produced in many ways, sometimes a rainbow-like codification is used. When hydrogen is produced using renewable energy it’s called green. When produced using nuclear energy it's called pink. When made with natural gas it’s grey, but if made with natural gas and carbon capture technology, it’s called blue. More recently, the hydrogen industry and policy makers have largely dropped the colours and now say the focus is on producing “low-carbon hydrogen.”

A 2021 briefing note about Canada’s hydrogen strategy, prepared for Energy and Natural Resources Minister Jonathan Wilkinson, notes the working groups are developing a clean hydrogen “standard” to formally define the carbon intensity of hydrogen so it can be considered clean. This is a deliberate decision to “move past the use of colours,” according to the briefing note, and develop a common definition to help investors tap into global hydrogen markets. It also helps to distinguish between hydrogen of the same “colour” produced in Canada versus the U.S., one government analyst pointed out in a letter to Canada’s National Observer, because of the differences in electricity generation on both sides of the border.

One reason for the brand change, suggests Robert Horwath, a Cornell University professor of ecology and environmental biology, who in recent years has turned his research attention to hydrogen and has advised Canada’s Senate on the topic, is because evidence suggests blue hydrogen isn’t environmentally friendly.

“Blue hydrogen is a creation of the fossil fuel industry,” he said in an interview with Canada’s National Observer. “It's clearly the gas industry's view of how to keep natural gas going indefinitely into the future in a carbon neutral world.”

In 2021, Horwarth and Mark Jacobson, a Stanford professor of civil and environmental engineering, published the first peer-reviewed study of blue hydrogen’s greenhouse gas emissions and uncovered a startling fact. Far from being clean, blue hydrogen has a greenhouse gas footprint more than 20 per cent higher than burning natural gas.

After that research was published the industry’s messaging switched, he said. “They no longer talked about blue hydrogen, and it's all about carbon intensity and low intensity,” he said.

To grow Canada’s hydrogen sector, the federal government launched a hydrogen strategy in 2020 (and published a progress report in April) that details a number of measures Ottawa is taking. Other than the tax credits and clean fuels fund, other steps include:

• The Strategic Innovation Fund - Net Zero Accelerator that has provided over $300 million for two hydrogen projects
• The $15-billion Canada Growth Fund, which has a strategic objective to help deploy low-carbon hydrogen
• The Canada Infrastructure Bank which has committed $777 million to hydrogen infrastructure

Funding for hydrogen projects is also possible through regional development agencies like PacifiCan, PrairiesCan, FedDev Ontario and the Atlantic Canada Opportunities Agency.

Natural Resources Canada said it designed the hydrogen tax credits “to only provide support to low-carbon hydrogen production projects.”

“The levels of support will vary from 15 per cent to 40 per cent of eligible project costs, depending on the life cycle emissions of the hydrogen produced,” Natural Resources Canada said. “The tier thresholds for the [clean hydrogen investment tax credit] are clearly defined, with the highest supports for the cleanest projects, and ensuring no support for GHG intensive production projects.”

– With files from Jimmy Thomson