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Case Study on the
Role of Fiscal Policy in Hydrogen Development
Baseline Report
Pembina Institute and the Canadian Energy Research Institute
May
10, 2004
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Current Policy Framework
Before analyzing
the impact of new fiscal policies on the market penetration
of hydrogen technologies, it is important to consider the policy
framework that already exists in Canada with respect to these
technologies. Each of the table components below describes a
hydrogen-related policy that is currently in place in Canada.10
The policies are largely focused on the federal level as this
is of most relevance to the current study. Also worth noting
is the focus of government support in the form of direct expenditure
either through grants, support for research and development
or demonstration projects. There are very few tax initiatives
(for example credits, refunds and exemptions) targeted at the
hydrogen sector in Canada. The policies also demonstrate a focus
on hydrogen technology development in British Columbia.11
Table 4 Hydrogen Fiscal Policy
Framework in Canada
| NAME OF INITIATIVE:
Technology Partnerships Canada (TPC) |
| Description: TPC is a technology
investment fund for research, development and innovation.
The program is designed to encourage private sector investment,
and maintain and grow the technology base and technological
capabilities of Canadian industry. |
| Jurisdiction: Federal |
| Year of implementation: 1996
|
| Objective: To increase economic
growth, create jobs and wealth, and support sustainable
development in Canada. |
| NAME
OF INITIATIVE: Partnership between Western Economic Diversification
Canada (WEDC), National Research Council Innovation Centre,
and Fuel Cells Canada |
| Description: The federal
government invested $2.7 million to help Fuel Cells Canada
develop six new research laboratories in Vancouver. Western
Economic Diversification is contributing $1 million and
the National Research Council of Canada (NRC) $1.7 million
towards the new hydrogen-safe laboratories located at NRC’s
Fuel Cell Technology Center at the University of British
Columbia. In June 2003, Fuel Cells Canada announced that
it received a $1.5 million contribution from WEDC. |
| Jurisdiction: Federal |
| Year of implementation:
2002 |
| Objective: To further develop
the fuel cell cluster in Vancouver, British Columbia. |
| NAME
OF INITIATIVE: Western Economic Partnership Agreement (WEPA) |
Description: The federal
and BC governments agreed, under WEPA, to invest $13 million
in the fuel cell industry. Several projects were funded
through WEPA:
• Six fuel cell projects in British Columbia received
$5.2 million.
• A $980,000 contribution established Fuel Cells Canada.
• Almost $4.6 million was invested in testing and
evaluating fuel cell bus engines.
|
| Jurisdiction: British Columbia
with funding from the federal government |
| Year of implementation:
2000 to 2003 |
| Objective: The objective
of WEPA is to extend the international competitiveness of
the BC economy and provide economic development opportunities
for communities throughout the province. |
| NAME
OF INITIATIVE: Canadian Transportation Fuel Cell Alliance
(CTFCA)12
|
| Description:
This is a $23 million federal government initiative that
will demonstrate and evaluate fuelling options for fuel
cell vehicles in Canada. |
| Jurisdiction:
Federal |
| Year of implementation:
2001 |
| Objective:
To demonstrate greenhouse gas emission reductions and evaluate
different fuelling routes for fuel cell vehicles, and to
develop the necessary supporting framework for fuelling
infrastructure, including technical standards, codes, training,
certification and safety. |
| NAME
OF INITIATIVE: Action Plan 2000 |
Description:
Action Plan 2000 is a $500 million, 5-year commitment by
the federal government that contains a package of activities
to reduce greenhouse gas emissions in Canada. Some of the
initiatives included in Action Plan 2000 that relate to
hydrogen and fuel cell development are:
• Hydrogen Refueller: Stuart Energy Systems developed
a hydrogen fuel delivery system that uses water electrolysis
to produce hydrogen.
• Technology Development for use in Natural Gas and
Fuel Cell Vehicles: In partnership with Saskatchewan Research
Council this project aimed to develop intelligent control
systems that will render natural gas and fuel cell vehicles
more cost competitive with conventional vehicles.
• Gas Separation Technology for the Industrial Oxygen
and Fuel Cell Markets: Questair Techs Inc. is developing
a gas separation technology that strips nitrogen and other
gases from the air stream that feeds fuel cells, thereby
increasing overall efficiency of the fuel cell by 20 to
25%.
• Solid Oxide Fuel Cell Combined Heat and Power Demonstration
Plant: This is a project to build and demonstrate a prototype
solid oxide fuel cell combined heat and power plant.
• Personal Fuel Appliances: Stuart Energy Systems
Inc. is developing a hydrogen-refuelling appliance, consisting
of a water electrolyser that produces hydrogen for zero
emissions fuel cell vehicles. |
| Jurisdiction:
Federal |
| Year of implementation:
2001 |
| Objective:
To reduce greenhouse gas emissions in key sectors, positioning
Canada for sustained economic growth and increased Canadian
competitiveness. |
| NAME
OF INITIATIVE: National Research Council (NRC) Fuel Cell
Program |
| Description:
NRC’s Fuel Cell Program is a cross Canada program
delivered by NRC institutes across Canada to serve Canadian
Industry. The Innovation Center at the University of British
Columbia is one component of the program and is the administrative
headquarters. In collaboration with industry, universities
and other government agencies, the program provides research
and innovation support in the areas of component development,
system integration and manufacturing, design, and environmental
control and assessment of fuels research. In August 1999,
the federal government provided $30 million to further strengthen
the fuel cell industries research and development, including
$14 million managed by Natural Sciences and Engineering
Council (NSERC) and NRC, designed to lever private sector
support for new industry collaborations with researchers
in NRC institutes and Canadian universities; $10 million
from NSERC and $4 million from NRC for the creation of a
Network Coordination Office; funding for the creation of
five Industrial Research Chairs; targeted project funding
for university research that involves collaboration with
Canadian industry and NRC institutes; and support for the
training and education of students through Industrial Postgraduate
Scholarships. The Innovation Centre is a strategic partnership
between the National Research Council (NRC), the Natural
Sciences and Engineering Research Council (NSERC) and Natural
Resources Canada (NRCan). In 2002, Minister of Industry,
Alan Rock, announced $20 million in additional funding to
fuel cell research and development at its NRC Innovation
Centre. |
| Jurisdiction:
Federal |
| Year of implementation:
1999 |
| Objective:
To strengthen university research capacity in the area of
fuel cells; link industries, universities and NRC institutes
to encourage collaborative research; ensure effective and
efficient technology transfer to industry; and provide scientific
career and skills development opportunities to young Canadians.
|
| NAME
OF INITIATIVE: Vancouver Fuel Cell Vehicle Program |
| Description:
This three year, $5.8 million initiative will test vehicles'
performance, durability, and reliability and help accelerate
the commercialization of fuel cell vehicles. The Government
of Canada is supporting this initiative through a $2 million
contribution by NRCAN, the Technology Early Action Measures
(TEAM) Component of the Climate Change Fund and Technology
Partnerships Canada. |
| Jurisdiction:
Federal |
| Year of implementation:
2003 |
| Objective:
To demonstrate five third-generation Ford fuel cell vehicles
in "real world" conditions. |
| NAME
OF INITIATIVE: Innovation Excellence |
| Description:
$20 million will be invested in advancing Canada's leadership,
through support for research, development and proof-of-concept
demonstrations in hydrogen technologies. The Canadian Fuel
Cell Commercialization Roadmap will provide strategic direction
for these investments. This is one of three components of
the Government of Canada's investment in the foundations
of the hydrogen economy. |
| Jurisdiction: Federal |
| Year of implementation:
2003 |
| Objective: To
reduce costs and improve the reliability, durability and
longevity of hydrogen technologies, including production,
distribution and storage technologies and those involving
different energy pathways. |
| NAME
OF INITIATIVE: Partnership for a Hydrogen Infrastructure
Through Sustainable Development Technology Canada |
| Description:
Sustainable Development Technology Canada will invest $50
million to expand its investments in partnerships that are
demonstrating the potential of hydrogen. Sustainable Development
Technology Canada will act as a primary catalyst to build
a hydrogen infrastructure in Canada. |
| Jurisdiction:
Federal |
| Year of implementation:
2003 |
| Objective:
To develop partnerships related to early development and
demonstration of technological solutions addressing climate
change and air quality. |
| NAME
OF INITIATIVE: Capital Equipment for Scientific Research
and Experimental Development |
| Description:
Eligible Capital expenditures for the provision of premises,
facilities or equipment used for scientific research and
experimental development in Canada may be fully deducted
in the year they are incurred. |
| Jurisdiction:
Federal and provincial |
| Year of implementation:
|
| Objective:
To encourage research and development in Canada that will
lead to new, improved, or technologically advanced products
or processes. |
| NAME
OF INITIATIVE: Capital Cost Allowance |
| Description:
A capital cost allowance provides a deduction against income
for depreciated property. Many classes of depreciable property
exist. Fuel cell and hydrogen technologies currently qualify
for a 30% declining balance capital cost allowance. |
| Jurisdiction:
Federal |
| Year of implementation:
|
| Objective: To
account for the depreciation of capital investments over
time and make it more attractive for investors to undertake
capital investments. |
| NAME
OF INITIATIVE: Vehicles Powered by Alternative Fuels (Ontario) |
Description: People
who purchase or lease new or used vehicles may qualify for
a refund of retail sales tax (RST) if the vehicles operate
or are converted to operate:
• On electrical energy
• On propane, natural gas, ethanol, methanol, or other
manufactured gases; or
• As dual-powered vehicles (vehicles that use one
of the alternative fuels mentioned above and that can also
be powered by gasoline or diesel fuel).
In addition to the 8% RST, the tax for fuel conservation
(TFFC) paid on new passenger cars or new sport utility vehicles
may be refunded if the vehicles operate or are converted
to operate exclusively on an alternative fuel. Hybrid vehicles
operating on both gas and electricity also qualify for the
refund. |
| Jurisdiction:
Ontario |
| Year of implementation:
1996 |
| Objective: To
increase sales of alternatively powered vehicles. |
| NAME
OF INITIATIVE: BC Tax Credit for Alternative Fuel Vehicles
and Alternative Motor Fuel Tax Concessions |
| Description: Several
provisions are provided in BC for alternative fuels and
alternative fuel vehicles. Alternative fuel vehicles qualify
for a partial refund of the provincial social service tax.
Alternative fuel vehicles that are passenger vehicles and
that are subject to the 8%, 9% or 10% provincial sales tax
rates may be eligible for a reduced tax rate. Kits to convert
motor vehicles to eligible alternative fuels, and services
to install, repair and maintain such equipment, are exempt
from tax. And there are exemptions and preferential tax
rates for certain alternative fuels that are environmentally
preferable to gasoline or diesel fuel. Qualifying alternative
fuel vehicles include those that operate exclusively on
electricity, ethanol, methanol, natural gas or propane;
as hybrid electric vehicles that are propelled by a combination
of stored electricity and gasoline, diesel, hydrogen, natural
gas, propane, methanol or ethanol; or as bi-fuel vehicles
that have two separate fuel storage tanks so the vehicles
can be propelled by an alternative fuel or by gasoline or
diesel fuel. |
| Jurisdiction: Provincial |
| Year of implementation:
Refunds, reduced rates and exemptions were introduced and
revised in 2001 and 2002. |
| Objective: To
increase purchases of alternative fuel vehicles and alternative
fuels in British Columbia. |
While the focus of this study is on fiscal policies
rather than regulations, it is worth highlighting regulatory
initiatives related to hydrogen technologies. Key government
departments working on codes and standards in Canada are Natural
Resources Canada and Transport Canada.13
Natural Resources Canada is responsible for developing codes
and standards related to technology performance and efficiency,
while Transport Canada focuses on the development of safety
standards and regulations. Currently, there are no internationally
recognized codes and standards for hydrogen technologies. Transport
Canada is undertaking a study to develop fuel system standards
for hydrogen-fuelled vehicles and related work is taking place
internationally. Specifically, a draft regulation has been prepared
by the United Nations related to hydrogen-fuelled road vehicles.
Canada, as a signatory to a 1998 UN resolution, would be obligated
to adopt this regulation. 14
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