Challenges and opportunities in scaling up Canada’s clean hydrogen economy: drawing attention to the potential of nuclear energy

What types of government policies are needed (if any) to scale up the production of clean hydrogen in Canada?

This executive summary lays out highlights from the report Challenges and opportunities in scaling up Canada’s clean hydrogen economy: drawing attention to the potential of nuclear energy, written by Max Bell School Master of Public Policy students as part of the 2022 Policy Lab.

Access the summary and presentation below, and read their full report here.

The signatories of the Paris Agreement committed to achieving net-zero carbon emissions by 2050. To reach this goal, the global energy transition away from fossil fuels is essential. Hydrogen will play a crucial role in this transition and in the associated diversification of energy resources – particularly in sectors where reducing emissions is difficult and expensive.  

Canada is among the first countries to strategize its priorities for producing and utilizing low carbon-intensity hydrogen as a key enabler for energy diversification. The federal government recently pledged to accelerate its emissions reductions, now targeting a 40-45% reduction by 2030. Canada is well-placed in this transition because, due to their technical and human resource capacity, natural resource feedstocks, political will, and well-established fuel cell production technology, the country has a comparative advantage. 

This policy brief considers various competitive production pathways to make hydrogen. It focuses particularly on nuclear-to-hydrogen pathways, recognizing a general lack of discussion within the hydrogen industry and federal government about its potential.  

Scope of this report: This policy brief explores various hydrogen production pathways, Canada’s comparative advantage, the role of nuclear energy, necessary market mechanisms for upscaling, end-use demand for hydrogen, and some challenges associated with the emerging hydrogen economy. It ultimately provides recommendations for both federal and provincial governments regarding the measures needed for realizing the potential of clean hydrogen in Canada. 

Methodology: As part of this report the team conducted a thorough literature review, analyzed relevant data, and conducted key informant interviews. Limitations are discussed in section 3.3.  

Key Insights 

Production pathways 

Hydrogen is a versatile energy carrier in that it can be produced from various feedstocks and with several different processes. Primary pathways to produce low-carbon hydrogen include fossil fuels via steam methane reforming, with the option of using carbon capture and storage (CCS) or renewable and nuclear energy resources via electrolysis. Canada has an advantage in producing hydrogen with these feedstock and processes, as it has abundant hydrocarbon resources and low-cost clean electricity. The diverse geography of Canada extends distinct opportunities for regions to each devise their production policies based on the resources available to them, while also considering the cost and carbon-intensity of different hydrogen production processes. 

Hydrogen production via steam methane reforming is one of the most cost-effective processes, however, since the feedstock is fossil fuels, it produces significant carbon dioxide (CO2) emissions and the need to capture up to 90% of these increases cost and complexity, making is less favourable. Nonetheless, this pathway is well-established in resource-rich jurisdictions like Alberta and Saskatchewan and can play a transitory role on the path to net-zero if coupled with CCS. Since large industrial clusters already need and use hydrogen, the demand market could be further realized through this pathway. 

This could pave the path for clean hydrogen production via electrolysis in the medium- to long-term, where the hydro, wind, solar, or nuclear energy resources could be deployed to further reduce emissions. Electrolysis uses electricity to separate hydrogen and oxygen atoms from water, however, it is electricity-intensive, thus it is best to use clean electricity to power the production. 

Nuclear energy extends a significant opportunity to the net-zero transition by being a low-emission, high-density feedstock. Nuclear energy can also be used to power electrolysis in a clean manner, with the electricity being generated in either large nuclear generating stations or small modular reactors (SMRs).   

End-use demand for hydrogen 

The transition to net-zero requires both higher supply and demand of hydrogen so that economies of scale can be developed. Today’s high hydrogen production costs lead to low end-use demand. Without higher demand, Canada will not achieve economies of scale, thus production costs will remain high. To address this circular causality problem, the federal government must encourage and support the development of both the demand and supply sides of the hydrogen economy.  

Hydrogen does have a substantial market in industrial applications such as oil refining, ammonia production, methanol production, and steel production. Hydrogen demand in the transportation sector is also expected to rise in the medium- to long-term. Given that transportation is Canada’s second-largest contributor to national carbon emissions, it would benefit from a full transition to net-zero fuel sources. Although hydrogen is not expected to have market demand for use in light-duty vehicles in the short- to medium term, however, it has enormous potential in heavy-duty vehicles in the medium to long-term. Canadian heavy-duty fuel cell vehicles are more economically efficient than many other low-carbon alternatives; however, these vehicles are limited in supply and the fueling station network is currently insufficient to accommodate a greater supply of vehicles. Hydrogen could also become a promising fuel for long-distance marine vessels, although further research is required to demonstrate the safety of storing hydrogen fuel on ships. 

Market barriers to scaling hydrogen production 

There are certain market barriers making it difficult to scale and balance supply and demand. Key ones include the high production costs, high-risk investments, and a lack of storage and transportation infrastructure.  

Because transportation infrastructure is limited, most of the hydrogen produced in Canada is used on site at various types of industrial locations including petrochemical, fertilizer, and steel complexes. Hydrogen can be transported by vehicles, pipelines, trains, or ships; however, the required infrastructure technologies are costly and therefore difficult to scale. Thus, transporting hydrogen remains a major barrier to being able to achieve scale by using hydrogen off-site. Nevertheless, technological progress in compressor designs has shown promise to cater to the challenges associated with its transportation. 

Hydrogen storage poses a major challenge. Hydrogen transporting requires compression which is quite costly and poses safety concerns. Canada is fortunate to have geological formations in the Canadian Shield where hydrogen can be stored in a safe and cost-effective manner, however given the transportation challenges, hydrogen cannot be transported to these regions and their use is therefore limited. Canadian industries that have the potential to use hydrogen could, while transportation is further developed, benefit from hydrogen hubs which enable the widespread use of hydrogen in a condensed geographical area.  

Policy recommendations 

Overarching Recommendation #1: The CNA advocates for policies that support nuclear-based pathways for clean hydrogen production in the medium to long-term, while supporting other (non-nuclear) production pathways in the short-term to help build robust hydrogen supply chains. 

1a. CNA to advocate and support for the dedicated use of nuclear energy (including SMRs) for clean hydrogen production 

1b. CNA to encourage the federal government to systematically phase out high carbon-emitting hydrogen production by supporting and requiring CCS to abate CO₂ emissions in the short-term as a bridge until hydrogen production using clean electricity—solar, wind, hydro, and nuclear can be fully established. 

1c. CNA should engage with governments at all levels to abandon the use of color schemes that are used for hydrogen production pathways. 

1d. Thorough engagement and benefit sharing by CNA members with affected Indigenous communities. 

1e. The CNA should engage more with the nuclear industry and federal and provincial governments to improve nuclear waste treatment technology and improve the waste minimization strategy, with a particular focus on SMR technology and the challenges around safe transportation and storage. 

Overarching Recommendation #2: The CNA should advocate for policies that increase end-use demand for clean hydrogen while also mitigating investment risks. 

2a.  CNA to encourage and lobby with the government to allow tax credits for companies using electrolysis to produce hydrogen 

2b. CNA to engage with all tiers of government to explore opportunities for developing SMRs near industrial complexes 

2c. CNA to engage with members and other stakeholders for ensuring market certainty for fuel cell electric vehicles by supporting private sector for building hydrogen refueling infrastructure 

2d. CNA to advocate for clear municipal policies to expand fuel cell electric buses as means of public transportation 

2e. The CNA should influence the federal and provincial governments to develop a roadmap for expanding fuel cells for long-distance ships and to implement pilot projects to help develop safety protocols. 

Overarching recommendation #3: Promote research and development, and evidence-based policy advocacy. 

3a. In collaboration with the nuclear industry, the CNA should design a government relations campaign to urge the government for more R&D expenditures for clean, nuclear-based hydrogen production and for the timely allocation of current resources allocated in the 2022 federal budget 

3b. CNA should collaborate with the Canadian Hydrogen and Fuel Cell Association for advocacy and communication campaigns to promote sustained support for R&D for innovative technologies, subsidies and cost reduction of fuel cell technologies to support the sector. 

3c. CNA to collaborate with think tanks, academia, and other research institutions to conduct research to better understand public and industrial perception, knowledge, and willingness about moving towards a hydrogen-based economy, particularly one that emphasizes nuclear-based production 

3d. CNA to develop a communications plan for the financial sector that focuses on the financial needs of nuclear hydrogen producers 

Overarching recommendation #4: Advocating for removing market barriers for hydrogen producers through infrastructure development. 

4a. CNA to engage with players in all parts of the value chain to gather an understanding of key legislative and regulatory gaps so that they can be addressed appropriately 

4b. CNA to assist with and learn from the ongoing technical assessment that evaluates hydrogen export from Canada 

4c. CNA and members to work with other stakeholder to provide technical expertise to improve the storage and transportation component of hydrogen and conduct mapping of regions where hydrogen can be stored underground 

4d. CNA to conduct mapping of existing and potential infrastructure for hydrogen hubs and work with the nuclear industry to establish SMRs in regions where hydrogen deployment hubs are feasible 

Download the full version of this report here.

This Policy Lab was presented by our MPPs on July 11, 2022. Watch the video below:

About the authors:

Umer FarooqUmer Farooq

MPP Class of 2022

Montajima TasnimMontajima Tasnim

MPP Class of 2022

Muhammad Hamza AbbasMuhammad Hamza Abbas

MPP Class of 2022

Jaclyn Danusia VictorJaclyn Danusia Victor

MPP Class of 2022

See the rest of the 2022 Policy Lab reports


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