Introduction
The National Round Table on the Environment and
the Economy (NRTEE) has identified ecological fiscal reform
(EFR) as one of the government’s most powerful tools for
influencing economic and environmental outcomes. The NRTEE has
defined EFR as a strategy that redirects a government’s
taxation and expenditure programs to create an integrated set
of incentives to support the shift to sustainable development.
Many believe this policy lever has not been used to its full
capacity to address challenges related to climate change and
energy use. To explore EFR in this regard, the objective of
the NRTEE’s EFR and Energy program is to develop and promote
fiscal policy that consistently and systematically reduces energy-based
carbon emissions in Canada, both in absolute terms and as a
ratio to gross domestic product, without increasing other pollutants.
From the assumption that a number of emerging technologies have
the potential to help in the achievement of this long-term objective,
the NRTEE has commissioned this study on hydrogen. It is joined
with two others that are looking at the role of fiscal policy
in promoting renewable power and in energy efficiency, respectively.
The hydrogen sector, as defined for the purposes
of this project, is any energy system where the primary
fuel, at some point within the process, is hydrogen. Fuel
cells, because they use hydrogen as their primary fuel (even
though in a typical stationary fuel cell application, hydrogen
only exists for a short time and is contained completely within
the fuel cell system), are a major component of this sector.
This definition purposely excludes some of the most common uses
of hydrogen today. For example, hydrogen used in an oil refinery
to produce gasoline and other fuel products is not included
as hydrogen is not the primary fuel source, oil is. Hydrogen
used for medical or manufacturing purposes is also not included.
Hydrogen is envisaged as a key energy source
in the long run and is recognized for the role it could play
in reducing carbon emissions in the future. While challenges
related to hydrogen technologies are continually being overcome,
numerous technological challenges persist. In addition, the
relatively high capital cost of these technologies remains a
key barrier to significant market penetration. While Canada,
along with the United States, the United Kingdom, Japan and
Germany, is a leader in hydrogen technology developments, without
major policy interventions, mass commercialization and associated
long-term economic benefits of hydrogen energy in Canada are
unlikely.
Fiscal policy can play an important role in accelerating
hydrogen energy market penetration in Canada. However, key questions
that need addressing relate to the type of EFR appropriate in
promoting the long-term development of this sector and the effectiveness
of such policies in reducing carbon emissions over time. To
begin to answer these questions, the EFR and Hydrogen Development
Case Study will examine the role that fiscal policy can play
in promoting hydrogen-based energy systems. More specifically,
the purpose of this research is to provide a detailed look at
the emerging hydrogen economy with respect to its expected path
of development, as well as the ability of EFR at the federal
level to enhance this development.
This report describes in detail the baseline conditions
from which key ecological fiscal reform policies will be evaluated.
Specifically, in this report we describe the current state of
hydrogen development, potential hydrogen pathways, and the current
policy framework related to hydrogen, and we complete an initial
assessment of fiscal policies for facilitating hydrogen development
in Canada. The Economic Analysis Report, which accompanies this
Baseline Report, presents results of a modelling exercise undertaken
to evaluate the impact of a set of hydrogen-oriented fiscal
policy scenarios.
This report begins with a description of the methodology
employed in this analysis. We then describe the hydrogen sector,
as it currently exists in Canada, and the potential for market
development over time. Following this, the Hydrogen Pathways
section describes the hydrogen economy in the context of a host
of energy pathways and describes specific applications for further
consideration in this analysis. The policy context currently
governing hydrogen developments in Canada is subsequently described
along with the barriers limiting further market penetration
of hydrogen technologies in Canada. We then describe the role
that fiscal policies can play in overcoming these barriers and
evaluate an extensive list of policies according to a set of
evaluative criteria. The outcome of this evaluation is a refined
set of the most promising fiscal policies for facilitating market
penetration of hydrogen technologies in Canada. A sub-set of
these fiscal policies will be evaluated using the Energy 2020
model, which we describe in the final section of the report.
We conclude by summarizing the Baseline Report and identifying
next steps in the policy analysis.
