BC continues to advance its transition to clean energy through its new hydrogen strategy

British Columbia ("BC") continues to lead the way on advancing the role of hydrogen in the transition to clean energy, having recently become the first Canadian province to launch a coordinated plan to develop and support its hydrogen sector.

By way of its recent Hydrogen Strategy released on July 6, 2021, BC joins a growing number of jurisdictions around the world (including the federal government) that are pursuing hydrogen as a way to generate economic growth while also reducing greenhouse gas ("GHG") emissions. BC's Hydrogen Strategy adopts an approach similar to that of the federal government by setting out a timeline with targets at five year intervals, but is unique in particularizing the regulatory and legislative initiatives needed to achieve these targets.

This article, the latest in Gowling WLG's Hydrogen Series, highlights key features of BC's new Hydrogen Strategy and offers insight on the legal and policy implications arising therefrom.

Why hydrogen?

Hydrogen is the lightest and most abundant element in the universe, and is found in compounds such as water and natural gas. Hydrogen gas split from water or derived from organic material is a versatile energy carrier that can be used to deliver electricity and heat. Because hydrogen is GHG emission-free when consumed, its use as a clean fuel is gaining global momentum as an alternative to fossil fuels and a key pillar of the global transition to clean energy.

Hydrogen is generally classified according to the three different processes used for its production. "Grey hydrogen," the most carbon intensive method of production, is made from fossil fuels (primarily natural gas). Grey hydrogen combined with carbon capture and storage technologies is called "blue hydrogen," which has reduced lifecycle carbon emissions but at greater production costs than grey hydrogen. And finally, "green hydrogen" is hydrogen produced by a GHG-emissions free process using renewable energy to power electrolysis.

BC aims to scale up green hydrogen production using its large supply of renewable energy in the province. The Province has also acknowledged an important role for blue hydrogen in the short term to assist in transitioning to a lower emissions future, and intends to establish a regulatory framework to enable blue hydrogen production.

The cornerstones of BC's new Hydrogen Strategy

Following a previous patchwork of incentives and policy statements, BC's new Hydrogen Strategy provides an ambitious, comprehensive, and coordinated approach that signals clear support for the industry by targeting every stakeholder and segment of the hydrogen economy. The Strategy makes it clear that BC will invest heavily in hydrogen as a means to help meet its climate policy commitments under its CleanBC plan, along with its mandated requirements under the Clean Energy Act, the Zero Emission Vehicles Act (the "ZEV Act"), the Climate Change Accountability Act, and the Declaration on the Rights of Indigenous Peoples Act.

Below, we provide an overview of BC's new Hydrogen Strategy by its sections: (1) Producing Hydrogen in BC, (2) Using Hydrogen in BC, and (3) Fueling Economic Development.

1 - Producing hydrogen in BC

Supporting hydrogen production and infrastructure

BC's Hydrogen Strategy outlines a staged approach to expanding hydrogen production:

Between 2020 and 2025, BC plans to stimulate hydrogen production, provide policy support for increasing hydrogen demand to utilities working with hydrogen, advocate for the increased production and use of hydrogen, and work with industry partners to establish hydrogen deployment hubs across the province.

Thereafter, between 2025 and 2030, BC plans to assess whether to introduce electricity rate designs to support hydrogen production, promote hydrogen production at scale, and determine if brownfield sites can be used for industrial parks that include hydrogen production.

Beyond 2030, BC aims to support long-term self-sufficiency in hydrogen supply and use it for new economic developments, as well as support the development of hydrogen liquefaction, distribution and transmission infrastructure.

As hydrogen production expands, so will the needs for infrastructure to transport it. Hydrogen can be transported in liquid or gas form, and it can be distributed via liquid chemical carriers (such as ammonia), existing natural gas pipelines, or tanks that are generally located on truck trailers or tanker ships. Each of these transportation approaches have their own challenges, and BC therefore intends to review its hydrogen infrastructure requirements, support distribution trials, and establish an enabling regulatory environment for hydrogen distribution.

Addressing the cost of hydrogen production

BC also plans to address the cost disparity between different hydrogen production methods.^[1] Currently, emissions-intensive grey hydrogen (which is derived from natural gas) remains the most cost-competitive to fossil fuels, while the price of green hydrogen (created from an emission-free source such as hydroelectricity) remains stubbornly high. BC's Hydrogen Strategy highlights BC's intent to achieve cost parity between green hydrogen and fossil fuels, and sets a price target for green hydrogen of less than $3/kg by 2030. To date, the detail on how BC will achieve this ambitious goal remains pending.

Regulating the industry

BC's Hydrogen Strategy emphasizes the importance of existing agencies helping to regulate the hydrogen industry and ensure that associated natural resources (i.e., water and natural gas) are produced and used responsibly. As such, hydrogen projects may need to be regulated in accordance with their production pathways. For example, there may be parallels in the treatment of hydrogen produced from fossil fuel sources with oil and gas activities. Regulations and permitting requirements will therefore need to be consistent to enable sector-coupling and trade opportunities.

In its Hydrogen Strategy, BC has indicated that it will take the following regulatory actions with respect to hydrogen production:

• Review provincial, federal, and international codes, standards, and regulations for hydrogen production and establish a compatible regulatory framework;
• Amend regulations to empower the BC Oil and Gas Commission to regulate hydrogen production, storage and transportation if produced from fossil fuels;
• Amend Water Sustainability Act regulations to include hydrogen production as an authorized industrial water use purpose and set new water fees and rentals;
• Ensure regulatory frameworks relating to hydrogen production and use are aligned to encourage continued reductions in carbon intensity over time;
• Establish carbon-intensity targets for hydrogen production pathways; and
• Develop carbon management frameworks to encourage at-scale production of low-carbon hydrogen and transition policy incentives from direct support to market-based mechanisms.

While the current announcements are sparse in details, further detail is expected, and we will continue to report as future developments arise.

2 - Using hydrogen in BC

Taking the carbon out of BC's heating and power

At present, the use of natural gas in processes (such as space and water heating, and power generation) represents the greatest source of carbon emissions in the built environment. Importantly, hydrogen can be blended with natural gas to reduce the carbon intensity of these processes – for example, existing natural gas infrastructure can support blends of up to 5% to 15% hydrogen without adversely impacting infrastructure and appliances. Given that CleanBC requires that 15% of natural gas consumption come from renewable gas (such as hydrogen) by 2030, we can expect an increased emphasis on hydrogen blending in the future, which in turn should drive higher demand for hydrogen over time. For further information on applications of hydrogen blending, see our previous article: How about some clean, green hydrogen with that natural gas?.

BC is already advancing this approach, with Fortis BC currently progressing to pre-feasibility planning and technical analyses for introducing hydrogen into the natural gas supply, and assessing options for the large-scale and centralized production of hydrogen in the province. Further, between now and 2030, BC intends to support the blending of hydrogen and natural gas through a variety of policy initiatives, including establishing a regulatory framework for injecting hydrogen into natural gas and propane distribution systems. Such a framework would include:

• Adding hydrogen as a prescribed undertaking under the Greenhouse Gas Reduction Regulation (which, among other things, may allow public utilities to recover the costs of providing hydrogen, pursuant to s. 18 of the Clean Energy Act);
• Supporting hydrogen injection trials into natural gas and/or propane distribution systems; and
• Mandating that new or modified natural gas or propane pipelines be hydrogen compatible.

Hydrogen's key role in the transportation sector

Hydrogen has the potential to reduce BC's emissions by 7.2 megatonnes of CO₂-equivalent emissions per year by 2050, which is equal to 11% of BC's 2018 emissions. Nearly 60% of these reductions will come from the transportation sector. Hydrogen can be used to fuel passenger vehicles, medium and heavy duty vehicles, municipal transit systems, trains, planes, and ships. Hydrogen can also be used as a fuel directly in fuel cell electric vehicles ("FCEVs")^[2], or indirectly, as a feedstock for developing lower carbon conventional fuels such as jet fuel.

BC's Hydrogen Strategy recognizes programs, policies and legislation that are already in place to promote the adoption of zero emission vehicles ("ZEV") for both consumer and commercial transportation in BC. For full details, see our previous articles: Electric vehicles: Accelerating in BC and beyond and British Columbia electric vehicle recharging.

BC also plans to support and build out hydrogen fuelling infrastructure to support FCEVs by:

• Providing funding to expand the public hydrogen fuelling station network;
• Providing further funding and incentives for FCEV consumers;
• Directing federal funding towards hydrogen fuelling infrastructure; and
• Supporting "Hydrogen Hubs" - regional locations where hydrogen production is co-located with end-use applications.

To encourage the use of hydrogen in producing low-carbon and synthetic fuels for transportation, BC's Hydrogen Strategy proposes to continue existing initiatives under the BC Low Carbon Fuel Standard in order to meet the CleanBC target of 650 million litres of renewable fuel being produced by 2030.

Decarbonizing industrial processes

Much of current industrial hydrogen demand comes from its use as a feedstock for industry, including fossil fuel refineries, biocrude processing, ammonia production, methanol production, and steel production. As most hydrogen is currently produced from fossil fuels, encouraging greater production of low-carbon hydrogen for use in these industries is a priority, as it will reduce the carbon intensity of final products. BC's Hydrogen Strategy also proposes exploring carbon intensity targets for hydrogen feedstock inputs under the Low Carbon Fuel Standard.

Hydrogen has the potential to displace natural gas use in heavy industries that require high temperature process heat and are therefore not practical to electrify. BC's Hydrogen Strategy proposes to support pilot projects for use of hydrogen in such industries as upstream fossil fuel extraction, downstream refining, cement manufacturing, pulp and paper processing, and other steam reliant processes. Such pilot projects would likely be a key component of the initiative to develop new "Hydrogen Hubs".

Novel applications of hydrogen

To advance hydrogen as a source of clean energy, novel applications of hydrogen are also expected to be adopted, by phasing out propane and supporting the injection of hydrogen into propane distribution systems. For example, the federal government's Clean Fuel Standard contains mechanisms for producers or importers to generate credits by switching to a lower carbon intensity fuel, like hydrogen, in their vehicles. This aims to promote the use of hydrogen in transportation over propane and natural gas. Additionally, companies in the US have begun blending hydrogen into distribution systems already containing propane injections.^[3] Similar applications of hydrogen into propane distribution systems will likely be pursued in BC.

Hydrogen use - Summary of regulatory initiatives

BC plans to take the following regulatory actions in response to this increase in hydrogen use:

• Establish a regulatory framework for injecting hydrogen into the natural gas and propane distribution systems;
• Include hydrogen as a prescribed undertaking under the Greenhouse Gas Reduction Regulation;
• Mandate that new or modified natural gas or propane pipelines be hydrogen compatible;
• Allow medium and heavy-duty vehicle sales to generate credits under the ZEV Act; and
• Include targets for medium- and heavy-duty vehicles in the ZEV Act.

3 - Fueling economic development

Hydrogen in indigenous and remote communities

BC's Hydrogen Strategy recognizes the potential economic and emission-reduction benefits of using hydrogen in off-grid Indigenous and remote communities to reduce their reliance on fossil fuels. Hydrogen has the potential to provide a cleaner source of electricity and a hydrogen generating station could serve as a back-up power source to support additional wind, solar and micro-hydro renewable energy generation. Hydrogen could also be used to power local FCEVs.

A more ambitious future would have communities connected to hydrogen-powered "microgrids" which could deliver both heat and electricity, and could provide a form of grid-scale energy storage through the local production and use of hydrogen.

To advance these developments, BC proposes a comprehensive study on hydrogen use in communities, which would: further education and engagement on the potential for hydrogen; explore novel applications of hydrogen; identify capacity building tools for community clean energy and hydrogen projects; and include a case study with a medium-sized fossil-fuel-reliant community to investigate the feasibility of moving to 100% renewable energy with a hydrogen component.

Targeting the export market

The global market for hydrogen is expected to exceed 230 million tonnes annually by 2050. BC's potential production capacity is estimated to be over 2.2 million tonnes annually.^[4] BC's Hydrogen Strategy notes that BC is well-positioned to capitalize on demand from international markets due to its abundant low-cost natural gas reserves, abundant existing and forecast clean electricity, experience and capabilities in exporting natural resources, and existing natural gas infrastructure that can be leveraged for exporting hydrogen. BC is further advantaged by its proximity to key trading partners like China, Japan, South Korea and California, who are predicted to account for almost 50% of global demand by 2050, with a combined market size of $305 billion.

Between now and 2030, BC plans to develop the export market through policy initiatives, including collaborating with industry stakeholders and international partners regarding export opportunities, promoting BC as an attractive jurisdiction for investment in hydrogen production for domestic supply and export, continuing to promote BC's fuel cell technology abroad, promoting the province as a supplier of low-carbon fuel, and attracting domestic and international investment for the development of supply chains to export hydrogen.

Conclusion and takeaways

BC's new Hydrogen Strategy is an ambitious step forward for the hydrogen sector and the province's quest for a low-carbon future. The Strategy focuses on ten years in the future and imagines a decarbonized transportation, energy, and industrial heating landscape dominated by hydrogen to help it achieve its goal of net-zero carbon emissions by 2050. To get there, BC has committed to significant law reform, meaningful funding programs, strong incentives, and a streamlined regulatory landscape that enables hydrogen projects and removes unnecessary red tape.

Whether, how, and on what timeline this vision will come true is unclear. To some extent, the answer depends on whether the existing cost premiums on hydrogen as compared to fossil fuels can be displaced. Other factors that will play an important role in advancing the hydrogen industry include the scope of regulatory instruments, carbon pricing, clean fuel standards, zero-emission vehicle mandates, scale and the build-out of infrastructure, and market forces (such as climbing consumer demand, increased pressure by investors on ESG commitments, and broad societal concerns over climate change). Public education and perception will play a key role in advancing such latter market forces.

We will continue to report on these developments as they evolve in the emerging hydrogen economy. Please contact any member of our Environmental or Indigenous law groups if you wish to discuss this article in further details or have questions.