Understanding hydrogen in Canada

Focus on: Canada

Market Overview 

Hydrogen has long been of interest as a low emission or emission-free energy source.¹ For Canada, its use, production, and transportation loom as a new energy disruptor.² As a fuel, hydrogen is a clean power source that when combusted, produces no carbon dioxide emissions, only water vapour.³ Some methods used to produce hydrogen do, however, generate emissions.⁴ The way hydrogen is produced is often described by different colours, the most common of which include “Grey”⁵, “Blue”⁶ and “Green”⁷.

Canada is well positioned to become a significant player in the hydrogen sector moving forward. Depending on its form, hydrogen can be transported by tank (truck, ship and train), specialized gas pipeline or in bottles.⁸ The natural gas pipeline network’s existing infrastructure can also be used to transport hydrogen by mixing the fuel in with the natural gas stream.⁹ In Western Canada, blue hydrogen projects will benefit from an abundant and low-cost supply of natural gas located in mature and proximate reservoirs. The rail networks in the region (operated by Class I North American railways) are connected to ports on the Pacific coast that could facilitate the transport of hydrogen (with ammonia as the hydrogen carrier) to Asian markets.

British Columbia possesses a robust hydro power industry which could be used to support the production of green hydrogen. The province has established various policy initiatives to advance hydrogen projects which includes streamlining and assisting with the development and approval process. There is also potential for green hydrogen production in Eastern Canada. All four Atlantic Canadian provinces have hydrogen projects planned that are linked to onshore and offshore wind power.¹⁰ Hydrogen exports from Newfoundland also benefit from closer proximity to European markets than the United States Gulf Coast.

When its applications and uses are destined to take place far from its production site, hydrogen must be compressed, liquefied (using electricity), or converted to a hydrogen carrier substance like ammonia, making storage and long-haul transportation complex and costly.¹¹ Hydrogen can generally be transported in four forms: compressed hydrogen, ammonia, liquefied hydrogen, and in liquid organic hydrogen carriers (“LOHC”) such as naphthalene or benzene.¹² For this purpose, Canada benefits from having a well developed ammonia industry, with existing production and transportation infrastructure that includes some of the largest ammonia facilities in the world. Current exports of Canadian-produced ammonia are largely destined for the US market.

Canada: Hydrogen Projects

Canada is poised to rapidly expand its clean hydrogen production. In 2020, The federal government published a working paper titled Hydrogen Strategy for Canada: Seizing the Opportunities for Hydrogen (the “Hydrogen Strategy for Canada”).¹³ The Hydrogen Strategy for Canada highlights hydrogen production and distribution opportunities, end use opportunities, and potential target and export markets.¹⁴ In particular, the Hydrogen Strategy for Canada emphasizes that the country is well positioned to produce green hydrogen, due to Canada’s abundant hydroelectric resources and rapidly expanding wind and solar energy production,¹⁵ and blue hydrogen, due to Canada’s abundant fossil fuel resources and burgeoning carbon capture, utilization, and storage (“CCUS”) market.¹⁶

Presently, Canada is a leading hydrogen producer and is ranked 11^th in overall global production.¹⁷ Canada has 6 green hydrogen and 7 blue hydrogen projects currently in operation, with another 80 planned projects in various stages of development.¹⁸

East Coast

There are currently a number projects in the Atlantic Canadian provinces that intend to convert wind energy into green hydrogen that are in the planning stages.¹⁹ One example is EverWind Fuels’ Point Tupper Green Hydrogen/Ammonia Project in Nova Scotia which was the first to receive conditional approval from the provincial government in February 2023.²⁰ This is a green hydrogen and ammonia facility that plans to produce hydrogen from water supplied by a nearby lake powered by local wind-energy suppliers.²¹ The $6 billion facility is situated in an ice-free, deep-water port and has a planned capacity of up to 1.1 million tons of green hydrogen and ammonia per year.²² The ammonia produced is expected to be transported internationally to decarbonize industrial processes, including the production of ammonia based fertilizer.²³

Another notable proposal is World Energy GH₂’s Nujio’qonik Project, a green hydrogen and ammonia export facility located in Newfoundland and Labrador.²⁴ This project benefits from one of the world’s best wind resource regions and intends to produce roughly 280,000 tonnes of green hydrogen per year (1.6 million tonnes of green ammonia) for export to commodity markets in Europe.²⁵ ABO Energy Canada Ltd. and Braya Renewable Fuels have also announced their Toqlukuti’k Wind and Hydrogen Project in Newfoundland and Labrador.²⁶ This project is designed to supply green hydrogen to Braya’s Come-By-Chance refinery and produce green ammonia for global export.²⁷

Western Canada

In Alberta there have been a number of hydrogen projects and smaller pilot projects announced across the province.²⁸ This includes AirProducts’ $1.3 billion blue hydrogen liquefaction and CCUS facility located near Edmonton.²⁹ In August 2022, the provincial and federal governments announced approximately $475 million of funding into the project which is designed to help refining and petrochemical customers in the region decarbonize.³⁰ In April 2024, construction also began on Dow’s Fort Saskatchewan Path2Zero Expansion blue hydrogen project.³¹ This project is designed to create the world’s first net-zero emissions integrated ethylene cracker and derivates site.³² Another notable project proposal is Pembina Pipeline Corporation and Marubeni Corporation’s planned Hydrogen and Ammonia complex adjacent to Pembina’s Redwater Fractionation Complex near Fort Saskatchewan.³³ This project is intended to be part of a future end-to-end supply chain of low-carbon ammonia from Western Canada to Japan and other Asian markets.³⁴

Development and support regime

Hydrogen ITC’s

On 21 June, 2024 the Canadian federal government passed into law various Investment Tax Credits (”ITC’s”) for hydrogen, ammonia and CCUS projects.³⁵ The Clean Hydrogen ITC is a refundable tax credit that project proponents may claim on the capital costs of eligible property acquired for use in a qualified low carbon hydrogen project acquired after 28 March, 2023 and before 2034.³⁶ The credit is available for projects which produce hydrogen that has a carbon intensity of less than 4 kg of CO_2e per kg of hydrogen produced; and if applicable, to the production of low carbon ammonia that uses feedstock of low carbon hydrogen produced by a qualified project.³⁷ The credit rate varies between 40 percent, 25 percent or 15 percent, depending on the carbon intensity of the hydrogen that is produced and the type of application.³⁸ The credit rate is 15 percent for low carbon ammonia equipment acquired and available for use in a low carbon hydrogen project.³⁹ As well, The CCUS ITC is a refundable tax credit ranging between 37.5 percent to 60 percent for certain qualified CCUS expenditures used in a qualified CCUS project.⁴⁰ The CCUS ITC is available for qualified expenditures incurred between 1 January, 2022 through to the end of 2040.⁴¹

Canada-Germany Hydrogen Alliance

Another significant development was the announced Canada-Germany Hydrogen Alliance in August of 2022, committing the two countries to collaborate in the export of green hydrogen from Canada to Germany.⁴² A Memorandum of Understanding was signed by the two federal governments in March 2024 to coordinate supply and demand side auctions in an effort to connect Canadian hydrogen exporters with German buyers and facilitate the completion of commercial contracts for the sale of green hydrogen and its derivates within certain timelines.⁴³ In July 2024, the federal government announced $300 million in funding, matched by Germany, that will be allocated through a competitive auction process to be launched by the end of the year.⁴⁴

Provincial Support

In addition to federal support, several provincial governments in Canada have indicated support for increased hydrogen production. To date, 6 provinces have published formal hydrogen strategies.⁴⁵ In British Columbia, for example, the provincial government has established a formal Hydrogen Strategy and BC Hydrogen Office.⁴⁶ The scheme is designed to streamline and assist projects through the development approval process.⁴⁷ In November 2021, the Alberta government similarly announced its Hydrogen Roadmap to help support the development of hydrogen energy in the province.⁴⁸ In particular, the Hydrogen Roadmap aims to build new market demand, utilize CCUS infrastructure, de-risk investment, deploy new technologies and facilitate the export of hydrogen globally.⁴⁹

Alberta has the Technology Innovation and Emissions Reduction Regulation (“TIER”) which established emission reduction benchmarks and an emission credit scheme for large industrial emitters.⁵⁰ In 2023, TIER was amended to include facilities that import over 10,000 of hydrogen per year and it is expected to issue tradable carbon credits created from blue hydrogen/ammonia production.⁵¹ Alberta has also enacted the Alberta Petrochemicals Incentive Program (“APIP”) to promote the development of petrochemical, hydrogen and fuel projects in the province.⁵² Eligible hydrogen projects can receive grants of up to 12 percent of their capital costs and in 2022 the AirProducts’ blue hydrogen project was granted $161 million in funding under APIP.⁵³ Lastly, the Alberta Carbon Capture Incentive Program (“ACCIP”) was launched to support the engineering design and construction of CCUS projects in Alberta, which is expected to indirectly provide benefits to blue hydrogen projects in the future.⁵⁴

Canada: Opportunities

Use in Transportation

For road transport, hydrogen powered vehicles have shorter refuelling times and are lighter weight than both gasoline and battery-powered electric vehicles which makes them especially useful for long-haul and heavy-haul transportation.⁵⁵ Currently Japan, the United States, South Korea and the EU have the largest fleets of hydrogen-powered vehicles  and Canada could be following suit.⁵⁶ There is pressure to decarbonize Canada’s transportation sector and policy initiatives like the federal government’s Electric Vehicle Availability Standard⁵⁷ announced in December 2023 and Quebec’s Plan for a Green Economy⁵⁸ announced in November 2020, which aims to prohibit the sale of new gasoline powered vehicles by 2035, could accelerate the adoption of hydrogen fuel cell vehicles. Hydrogen can also be used for transport by rail and ship.⁵⁹ Hydrogen trains can be refuelled in under 20 minutes, run up to 18 hours without refuelling and cover distances of up to 1,000km at a maximum speed of 180 km/h.⁶⁰ In November 2024, Canadian Pacific Kansas City (“CPKC”) completed construction of hydrogen production and refuelling facilities in Calgary and Edmonton.⁶¹ These facilities are part of CPKC’s Hydrogen Locomotive Program which includes the retrofitting of a number of diesel locomotives with hydrogen fuel cells so they can operate without directly generating emissions.⁶²

At the time of writing this report, due to declining sales in electric vehicles, the current federal government is facing increased pressure from automakers to repeal the Electric Vehicle Availability Standard.⁶³ Automakers assert the decline is due in part to a lack of funding for iZev, a federal electric vehicle rebate program which allowed consumers to obtain a rebate of $5,000 towards the purchase of new electric vehicles.⁶⁴ However the federal government has indicated that it intends to bring back some form of rebate for consumers. This may indicate that the federal government will continue with its plan to eventually phase out traditional gas-powered vehicles.⁶⁵

Use in Chemical Products

Perhaps the most immediate opportunity is the use of hydrogen to decarbonize heavy industry in Canada. Hydrogen is a core component of a large number of chemical industrial processes, notably the refining of petroleum and production of fertilizer, ammonia and methanol.⁶⁶ Using clean hydrogen helps reduce the emissions these processes generate.⁶⁷ Moreover, Alberta, Saskatchewan and British Columbia have extensive world-class carbon dioxide sequestration reservoirs, which will support numerous CCUS projects, decarbonize existing industrial processes and enable the production of blue hydrogen.

Mixing of Hydrogen

Another opportunity is the addition of green or blue hydrogen to other fuels like diesel and natural gas to help make them less carbon intensive.⁶⁸ The distinct properties of hydrogen do, however, require fiber-reinforced polyethylene or polymer distribution pipes.⁶⁹ Mixing hydrogen into the existing gas infrastructure is currently being tested in several countries throughout the world, including in Canada. Up to 20 percent of hydrogen can be added to natural gas in pipelines without altering its energy properties.⁷⁰,⁷¹

In Quebec, Evolugen, a subsidiary of Énergie Brookfield, and Gazifère Inc., a subsidiary of Enbridge, announced the construction of an electrolyser in the city of Gatineau, close to Evolugen’s hydro-electric power plants.⁷² The green hydrogen produced on this site will be injected into Gazifère’s natural gas distribution network. A few weeks earlier, Enerkem, Shell, Suncor and Proman announced a biofuel plant project in Varennes, Quebec that will be powered by the green hydrogen produced by Hydro-Québec.⁷³ Similarly, ATCO’s Hydrogen Blending Project in Fort Saskatchewan Alberta started injecting up to 5 percent hydrogen by volume into part of its residential natural gas distribution network in October 2022.⁷⁴ The project currently sources hydrogen from local providers but ATCO hopes to source hydrogen from an on-site electrolyser by late 2024 and increase the blended hydrogen volume in its natural gas stream from 5 percent to 20 percent.⁷⁵

Canada: Challenges

High Costs

For green hydrogen, water must be electrolyzed using renewable energy. Even though renewable energy costs are dropping, they remain too high to make producing green hydrogen economically viable in Canada without government support.⁷⁶ It costs two to seven times more to produce green hydrogen than grey hydrogen which is produced using unabated natural gas.⁷⁷ There is also the added cost of arranging for the provision of CCUS technology for blue hydrogen projects. Arranging the transportation and sequestration of carbon dioxide emissions, and the creation and ownership of the associated emission credits on commercially reasonable terms remains a challenge needing to be overcome but progress is being made as the CCUS industry in Canada matures.

Natural gas supply and transportation

There remain challenges for arranging a long-term supply of natural gas and associated pipeline transportation services on commercially reasonable terms. And despite hydrogen being non-toxic, it remains a highly flammable gas which makes its transportation, storage and handling a costly and complex affair that requires specialized equipment.⁷⁸ There are also various challenges related to the transportation of ammonia, a discussion of which can be found below.

Indigenous Duty to Consult

Canada’s Constitution recognises and affirms existing Aboriginal and treaty rights and thus indigenous groups benefit from special protection in law. The Crown has a constitutional duty to engage with Indigenous peoples in Canada in meaningful consultation and often accommodation where its actions (including the issuance of regulatory permits for significant resource or industrial projects) may adversely affect established or credibly asserted Aboriginal and/or treaty rights. The Supreme Court of Canada has also confirmed that decisions related to permits or other approvals issued by a regulatory tribunal (including energy regulators) can trigger the duty to consult. In such cases (and subject to the legislation governing such regulator), the regulatory tribunal may consider that duty to consult through a regulatory hearing process. The duty to consult applies to all federally regulated energy and infrastructure projects on or that impact Crown land, potentially including hydrogen developments, particularly where there may be an associated international export component.

New Federal Government

As of the time of writing, the most recent Canadian Federal Election was held on April 28, 2025.⁷⁹ Since the election, the federal government has not passed any legislation nor made any press releases that specifically contemplate hydrogen production. In the lead-up to the election, the Liberal Party platform indicated that part of its plan was to “kickstart the clean energy supply chain” and “get clean projects built quickly across Canada.”⁸⁰ The federal government was recently successful in getting the Building Canada Act passed, a piece of legislation aimed at accelerating project regulatory approvals. However, nothing the federal government has released since the election has specifically indicated any plans to increase development of hydrogen projects in Canada.

Uncertainty of National Carbon Price

In the lead up to the election, the consumer-facing carbon tax was removed but federal carbon pricing for industrial emitters remains in place.⁸¹ Large-scale emitters are currently subject to industry specific emissions thresholds that require facilities exceeding benchmarks to pay and granting credits that can be sold to others for those falling below.⁸² The Federal government administers their industrial carbon pricing regime, the Output Based Pricing System, in Manitoba, Prince Edward Island, Nunavut and Yukon, whereas the remaining provinces have their own programs in place that are backstopped by Federal standards.⁸³ The current backstop price for carbon is $95 per tonne, and is set to increase $15 per year until 2030.⁸⁴ The new federal government has indicated its desire to review, maintain, and harmonize the existing industrial carbon pricing system, but has yet to announce whether it will raise the price, lower it, or keep it as-is.⁸⁵

On May 12, 2025, the Government of Alberta announced that it will freeze the price of carbon emissions under the TIER program at $95 per tonne, and not increase the price from 2026 - onwards.⁸⁶ While there is no explicit request for a total removal of a levy on emissions, a stagnation or decrease in the provincial carbon price could challenge the economic feasibility of hydrogen projects moving forward, given that hydrogen has been touted as a low carbon fuel that can be used in industrial processes to lower a facility’s carbon footprint.

Canada: Hot Topics

The Building Canada Act

On June 26, 2025, the federal government enacted the Building Canada Act (“BCA”). The BCA is a piece of legislation aimed at streamlining the regulatory approval process for projects the federal cabinet deems to be in the “national interest.”⁸⁷

Classification of National Interest Projects

The BCA allows the federal cabinet to, on the recommendation of the minister, classify certain infrastructure projects as being in the national interest, and place such projects on a list in Schedule 1 of the BCA (the “List”). 

The BCA includes a non-exhaustive list of factors the cabinet may consider when deciding whether to place a project on the List, namely whether the project will:⁸⁸

1. strengthen Canada’s autonomy, resilience and security; 
2. provide economic benefits;  
3. have a high likelihood of success; 
4. advance the interests of Indigenous peoples; and  
5. contribute to clean growth and Canada’s climate goals.

Once a project is placed on the List, the project is deemed to be in the national interest (a “National Interest Project”) and to have every favorable determination, opinion, and finding it requires to be granted any applicable permit, licence, or approval (each an “Authorization”) required by certain prescribed acts and regulations set out in Schedule 2 of the Act needed to carry out the project. Notwithstanding, the proponent still must submit an application for each applicable Authorization to the appropriate agency, provide all required information, and pay any applicable fees.⁸⁹

National Interest Project document

After a National Interest Project has been placed on the List, the minister must issue to the proponent a document (“Document”) that enumerates all the Authorizations that the project would normally require to proceed, with the Document acting as a substitute for each Authorization. Before the Document is issued, the minister must:⁹⁰

1. ensure the proponent has taken all measures normally required to obtain each Authorization specified in the Document; 
2. consult with the minister responsible for issuing each Authorization set out in the Document to identify any conditions that should be specified in the Document; 
3. undertake a national security review for all state-owned or foreign investments and ensure measures have been taken to protect national security interests; and  
4. have consulted with any Indigenous groups who may be adversely affected by the project. 

Effectively, the BCA may have major implications for proponents of hydrogen projects. Should certain hydrogen projects be deemed to be in the national interest, proponents of such projects would be able to receive federal approvals for certain projects up front, thereby reducing regulatory uncertainty in the approval process. A stated policy goal of the BCA is to issue Documents to project proponents within 2 years,⁹¹ however, the timelines for the issuance of Documents remains uncertain and is not specifically addressed in the BCA.

Rail Transportation of Hydrogen in the form of Ammonia

An immediate focus area is the difficulty associated with the transportation of ammonia by rail as a hydrogen carrier. These challenges have impacted the advancement of export focused hydrogen projects in Western Canada. Rail transport issues include the availability of multiple carrier options, tariff versus contract-based rail pricing arrangements, service obligations, infrastructure development and, especially, the availability of appropriate insurance coverage for transportation of large volumes of ammonia by rail. With no existing insurance product available to Canadian rail carriers or their customers, there are ongoing consultations between all levels of government, industry working groups, railway companies and insurers to address this challenge.

There are also issues at ports for the offtake of ammonia from Canadian terminals. This includes terminal use, sale and purchase agreements and shipping and regulatory requirements. For marine transport, there remains uncertainty regarding contracts of affreightment, charterparties of vessels to deliver exported cargo to foreign customers, contracts with export terminals, marine services and transportation providers, the bankability of offtake agreements, sales contracts and assisting with export permits as well as risk management and transportation disputes. We anticipate these issues can be resolved as the hydrogen industry evolves, but ongoing work remains.