B.C. positions itself to lead hydrogen development with new policy framework

On July 2, 2021, British Columbia unveiled its B.C. Hydrogen Strategy [PDF] (the Strategy), a new policy initiative aimed at supporting British Columbia’s energy transition away from fossil fuels. The Strategy is the most recent plank in the CleanBC plan [PDF] and builds on existing efforts the province has taken toward reducing fossil fuel dependence in the local and regional economy such as the low-carbon fuel standard and Zero-Emission Vehicles Act. (For more detail, see Osler’s summary of these efforts.) The Strategy bolsters British Columbia’s ostensible commitment to achieving net-zero emissions by 2050 by establishing a policy framework to incentivize the production of low-carbon hydrogen, create regional hydrogen hubs and markets, and implement a regulatory framework to accommodate the emerging hydrogen industry.

A Canadian hydrogen leader

In adopting the Strategy, British Columbia becomes the first province in Canada to put forward concrete efforts to harness the development of hydrogen resources. (The federal government released its own policy [PDF] at the end of 2020, which is summarized here.) The Strategy positions British Columbia to lead in the development and use of both “green” and “blue” hydrogen, as well as “waste” hydrogen. Green hydrogen is produced from water by electrolysis using renewable electricity, and has no associated carbon by-products. Blue hydrogen [PDF] is produced from fossil fuels (typically natural gas) and uses carbon capture and storage (CCS) technology to sequester carbon by-products. So-called “grey” hydrogen is the production of blue hydrogen without the use of CCS, releasing some carbon into the atmosphere. “Waste” hydrogen is defined by British Columbia in the Clean or Renewable Resource Regulation as “hydrogen gas produced by a commercial process the primary purpose of which is not the production of hydrogen gas.” The Strategy covers all forms of hydrogen but, as discussed below, the Province is prioritizing green and waste hydrogen.

The Strategy includes 63 actions the Province plans to undertake over the short term (2020–2025), medium term (2025–2030) and long term (2030–beyond), including the following commitments over the short term:

• Stimulate hydrogen production through direct support and incentives.
• Provide policy support to utilities who choose to produce or purchase hydrogen.
• Work with industry partners to establish hydrogen deployment hubs in British Columbia.
• Amend regulations to allow the BC Oil and Gas Commission to regulate hydrogen production, storage and transportation if produced from fossil fuels.
• Amend Water Sustainability Act-related regulations to include hydrogen production as an authorized industrial water use purpose and set new water fees and rentals.
• Enable hydrogen as a pathway for natural gas utilities to reduce emissions.
• Establish carbon-intensity targets for hydrogen production pathways.
• 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.
• Support hydrogen injection trials into natural gas and/or propane distribution systems.
• Pilot the use of hydrogen fuel cells in medium- and heavy-duty vehicles, marine, rail, aviation, off-road and other commercial transportation applications.
• Provide monetary and non-monetary incentives for fueling infrastructure and vehicle purchase.
• Collaborate with industry stakeholders and international partners regarding export opportunities.
• Promote B.C. internationally as an attractive jurisdiction for investment in hydrogen production for domestic supply and export.

Regulatory amendments

The Strategy contemplates an incremental approach where existing standards, such as the Water Sustainability Act and Oil and Gas Commission regulations, are amended to reflect the growing emphasis on hydrogen. As a first step in this approach, the provincial government has amended the Greenhouse Gas Reduction (Clean Energy) Regulation to permit an increase to the production and use of green and waste hydrogen by public utilities in the province. These changes will allow gas utilities in British Columbia to make certain investments in green and waste hydrogen (as well as biomass and lignin) production to support the growth of a domestic market for hydrogen fuels. Specifically, the amendments provide for:

• increasing the amount of green and waste hydrogen that utilities can acquire and supply from five per cent to 15 per cent of their total annual supply of natural gas
• permitting gas utilities to obtain green and waste hydrogen by producing or upgrading it themselves, contracting a third party to do so, or purchasing hydrogen to replace natural gas at customers’ facilities
• allowing the $30-per-gigajoule price cap utilities can pay to acquire hydrogen to increase with inflation

Notably, these amendments do not cover blue or grey hydrogen.

Conclusion

The momentum for hydrogen development is growing, both in Canada and globally. If the additional measures contemplated by the Strategy moving forward are executed, we expect that the Strategy will lead to new economic opportunities as a regional hydrogen market in British Columbia begins to take form. Companies looking to capitalize on these new opportunities should follow the roll-out and implementation of the Strategy closely, with respect to both government action and industry activity, to align business plans with key government objectives and to take advantage of the incentives the Strategy provides.