Canada unveils details of its hydrogen tax credits, and promises future Contracts for Difference subsidy scheme
Manufacturers of electrolysers and H2 refuelling systems will also be eligible for another new tax credit
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Like the US tax credits, certain labour requirements will also need to be met — if they are not, the tax credit will be reduced by ten percentage points. These include “ensuring that wages paid are at the prevailing level, and that apprenticeship training opportunities are being created”.
Verification of each project’s carbon intensity would be based on an initial front-end engineering design study, and then be reassessed during operation by an independent third party.
The CHITC will also offer a 15% tax credit on equipment that converts clean hydrogen into ammonia.
Businesses will only be able to claim one of several new tax credits in the budget, which are available for CCS, clean electricity, clean technologies, and clean technology manufacturing.
“However, multiple tax credits could be available for the same project, if the project includes different types of eligible property,” the supplementary document explains.
Manufacturers of electrolysers, hydrogen refuelling systems, batteries, wind turbines, solar panels made in Canada will be able to benefit from the Investment Tax Credit for Clean Technology Manufacturing, which amounts to a 30% tax rebate on manufacturing costs.
The clean hydrogen tax credits come into force immediately, or as the supplementary budget document puts it: “This measure would apply to property that is acquired and that becomes available for use on or after Budget Day [28 March 2023].”
At the moment, only green and blue hydrogen will be eligible for tax credits, although the budget states that “going forward, the government will continue to review eligibility for other low-carbon hydrogen production pathways”.
The CHITC is expected to cost a total of C$5.46bn ($4.02bn) from now until 2028, and C$12.1bn between 2028 and 2034-35, when it will end.
How would a Carbon Contracts for Difference scheme work?
Under a Carbon Contracts for Difference (CCfD) scheme, end users would be paid a guaranteed amount by governments for avoiding CO2 emissions.
This is likely to offer a subsidy representing “the difference between a ‘strike price’ reflecting the cost of producing hydrogen and a ‘reference price’ reflecting the market value of hydrogen”.
Essentially, this would enable green hydrogen to be available to the market at the same price as grey hydrogen produced from unabated methane.