Policy Ecosystem

Canada has continued to bring forward measures to reduce energy-related emissions by supporting the development and use of renewables, non-emitting electricity and cleaner fuels, including low-carbon hydrogen. While some measures directly apply to low-carbon hydrogen projects, others have a broader reach but can be accessed by participants across the low-carbon hydrogen value chain.

Clean Hydrogen Investment Tax Credit (CHITC)

Canada has announced a refundable investment tax credit for investments made in clean hydrogen production based on the lifecycle carbon intensity of hydrogen.

The levels of support will vary between 15 and 40% of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support:

Proposed tax credit incentive structure for clean hydrogen production

Carbon intensity tiersFootnote 1	Tax credit rateFootnote 2 (applied to eligible costs)
Less than 0.75 kg	40%
0.75 kg to less than 2.0 kg	25%
2.0 kg to less than 4 kg	15%
4 kg or higher	N.A.

In addition to the CHITC, several related tax credits were announced in Budget 2023 that could also support reductions in the initial capital cost of low-carbon hydrogen projects:

• The Clean Electricity Investment Tax Credit or the Clean Technology Investment Tax Credit
  • Offers a credit of up to 30% on electricity generation systems, such as wind or solar
  • Provide significant support for large amounts of electricity required for electrolysis-based hydrogen production
  • Available as of March 28, 2023
• The Clean Technology Manufacturing Investment Tax Credit
  • Offers a credit of up to 30% for new machinery to manufacture technologies, including the manufacturing of electrolysers
  • Can lower the costs of hydrogen project equipment manufactured in Canada
  • Available from January 1, 2024
• The Investment Tax Credit for Carbon Capture, Utilization and Storage
  • Offers a credit of 37.5% to 60% on the equipment necessary to capture, transport, and store carbon emissions
  • Benefits facilities producing hydrogen from natural gas
  • Announced in August 2022 and is available as of January 1, 2022

Clean Fuels Fund

In Budget 2021, Canada committed to invest $1.5 billion in a Clean Fuels Fund (CFF), with the objective to increase domestic production of clean fuels, including hydrogen and synthetic fuels.

Strategic Innovation Fund – Net-Zero Accelerator

The Net-Zero Accelerator (NZA) initiative supports the Hydrogen Strategy for Canada by offering up to $8 billion in funding to support large-scale investments in key industrial sectors across the country.

Canada Growth Fund

Announced in the Fall 2022 Economic Statement, the Canada Growth Fund (CGF), is a $15 billion fund designed to offset some of the risks that may deter private capital from flowing into clean energy and technology. One of the strategic objectives of the fund is to accelerate the deployment of low-carbon hydrogen. CGF’s mandate is to invest in the scale-up of projects that are beyond the pilot and demonstration phase and have a reasonable expectation of return on capital.

Canada Infrastructure Bank

The Canada Infrastructure Bank provides financing for decarbonization projects, including through:

• Charging and Hydrogen Refuelling Infrastructure Initiative: $500 million to help remove barriers to zero-emission vehicle adoption
• Project Acceleration Program: loan financing for front-end engineering and design (FEED) expenditures for hydrogen production projects

Zero-Emission Vehicle Infrastructure Program

A $680 million initiative providing funding towards the deployment of electric vehicle (EV) chargers and hydrogen refueling stations across Canada.

Zero-Emission Transit Fund

Provides $2.75 billion in funding to public transit and school bus operators in Canada to accelerate the adoption of zero-emission buses.

Incentives for Medium and Heavy-Duty Zero-Emission Vehicles

A $547.5 million initiative providing up to $200,000 per vehicle for businesses and communities across Canada to make the switch to zero-emission medium and heavy-duty vehicles.

Zero-Emission Trucking Program

A $75 million initiative to accelerate safe deployment of medium and heavy-duty zero-emission vehicles.

Canada’s Regional Development Agencies

Canada’s regional development agencies work closely with businesses and innovators in their regions to fuel economic growth that creates more well-paying middle-class jobs for Canadians. From 2020 to 2024, they provided over $30 million for various hydrogen opportunities, including hub development plans and electrolyser manufacturing facilities.

Clean Fuel Regulations

The Clean Fuel Regulations are an important part of Canada’s climate plan to reduce emissions, accelerate the use of clean technologies and fuels, and support sustainable jobs in a diversified economy. The regulations require fossil-based transportation fuels to reduce carbon intensity by 15% (compared to 2016) by 2030. The regulations establish a credit market for regulated parties (producers and importers). Credits are proportional to the carbon intensity of the hydrogen that is used.

The following uses of hydrogen can create CFR credits:

• Hydrogen used as a fuel or feedstock in the production of liquid fossil fuels
• Hydrogen used as a fuel or feedstock at a low-carbon-intensity fuel production facility
• Hydrogen used as a fuel in stationary applications (for example, hydrogen injected in natural gas pipelines)
  • This use of hydrogen creates gaseous credits, which can only be used by regulated parties to satisfy up to 10% of their annual obligation
• Hydrogen supplied for use in transportation (for example, refueling hydrogen fuel-cell vehicles)

Carbon Pollution Pricing

Canada’s approach to Carbon Pollution Pricing creates an incentive for projects that use low-carbon hydrogen, especially in industry or transport. For example, hydrogen could support the decarbonization of industry through high-temperature heat applications (for example, steel and iron production) and as a direct input in heavy oil upgrading and the chemical sector (for example, ammonia for fertilizers).