Modelling Framework and Scenarios

The general framework for the modelling analysis employed in this research is described in the flow chart below. The modelling began with the completion of a “Reference Case” modelling run. The Reference Case is essentially a business as usual scenario. It is a projection of how the economy and the energy sector will evolve if we continue on our current path of development. The Reference Case is calibrated to Canada’s Emissions Outlook, An Update (CEOU),³ and therefore does not account for any significant government policies associated with Kyoto greenhouse gas emission reduction targets other than those policies that were already in place when the CEOU was developed. In addition, the Reference Case does not account for the potential for technological breakthroughs or possible developments in hydrogen technologies in other regions such as the United States, Germany or Japan (global leaders in hydrogen developments). Canada will inevitably be influenced by developments and breakthroughs in other regions, yet the results presented in this report do not account for the possibility of such changes. It is important to keep these factors in mind when interpreting the Reference Case results of this analysis. Once we completed the Reference Case modelling run, we then added producer incentives to the Reference Case and completed a second run. For the third run, we combined the Reference Case and producer incentives with consumer incentives.

Figure 1 General Modelling Framework

Within the framework described in Figure 1 above, six key scenarios were simulated using the Energy 2020 model.⁴ Two scenarios are Reference Cases and four scenarios involve fiscal policy stimulus. Table 1 below presents the hydrogen pathways that were incorporated into the Reference Cases and Fiscal Scenario runs. The Reference Cases reflect two different business as usual scenarios, each describing a different hydrogen production method for transportation applications: hydrogen production using steam methane reformers (SMR) (Pathway 2 in Table 1), and hydrogen production using electrolyzers (Pathway 3 in Table 1). Both of the Reference Cases include Pathway 1- fuel cells in the residential and commercial sectors.

Table 1 Hydrogen Pathways Incorporated into Energy 2020⁵

More specifically, the six modelling scenarios that were completed as part of this analysis are described below.

Note that the modelling results presented in this report focus on those sectors to which the hydrogen pathways are relevant and that are most directly affected by the fiscal policy scenarios. Thus, results include modelling outputs for the residential, commercial and transportation sectors.

Fiscal Scenarios

Of the modelling scenarios described above, four of them represent the fiscal scenarios simulated in this analysis. The table below identifies the four fiscal scenarios, and the producer and consumer incentives are described in more detail following the table.

Table 2 Fiscal Scenarios Simulated Using Energy 2020

Producer Incentives

To simulate the producer incentives, a producer tax credit or grant designed to lower the cost of hydrogen production was simulated. The cost of hydrogen fuel was initially decreased by 10%. The same modelling run was subsequently repeated with a 25% decrease in hydrogen fuel.⁹ To simplify the presentation of the results and give a better sense of the impact of the fiscal policy, in this report we focus on the impact of the 25% producer tax credit. The tax credit was applied in every year using the Energy 2020 model, beginning in 2000 and extending to 2020.

Consumer Incentives

Consumer incentives took the form of reductions in the purchase price of hydrogen-related vehicles and stationary fuel cells. The price of fuel cell vehicles (light-duty vehicles and buses), hydrogen internal combustion engines (light-duty vehicles), and stationary fuel cells for residential and commercial applications were reduced by 10% and subsequently by 25%. To simplify the presentation of the results in this report, we focus on the impact of reducing relevant prices by 25%. This reduction could be accomplished through use of a consumer tax credit awarded against income tax when taxes are filed or a grant awarded at the time of purchase. As was the case with the producer incentive, the consumer incentives were applied on an annual basis using the Energy 2020 model, beginning in 2000 and extending to 2020.

Note that the Fiscal Scenario results presented in this report reflect the impact of the combination of producer incentives and consumer incentives. In addition, it is important to note that the results presented in this report concentrate on the year 2030. The version of the Energy 2020 model used in this analysis (the one calibrated to Canada’s Emissions Outlook, An Update) only runs to 2020. However, to allow for a sufficient amount of time for the hydrogen technologies to actually penetrate the market and for comparability of results with those of other studies completed on behalf of the NRTEE (studies on the role of fiscal policies for renewables and energy efficiency), the results were extrapolated exogenously to 2030. The extrapolation was based on the trend in penetration that took place within the Energy 2020 model up to 2020.