The necessity to transition from excessive carbon-emitting fossil fuels to cleaner, renewable power stays outstanding as the specter of local weather change continues. Whereas the main focus has historically been on options comparable to wind, photo voltaic and hydroelectric energy era, it now seems that nuclear energy, power storage and hydrogen might show to be essential instruments in attaining Canadian low carbon targets. Our earlier piece mentioned among the technical challenges that inexperienced hydrogen producers in Canada might face, and the necessity to set up the authorized and regulatory groundwork to facilitate hydrogen manufacturing, storage, and distribution (see Challenges in growing the hydrogen business: Greater than sizzling air – Half 1). In Half 2, we focus on methods to beat a few of these challenges and to kick begin Canada’s power revolution.
HURDLES TO CLEAR
Among the hurdles mentioned in “Greater than sizzling air – Half 1” for hydrogen producers to think about embrace:
- Land Acquisition
- Regulatory hurdles
- Manufacturing and transport
- Offtake Agreements
- Different Contracts
- Threat Allocation
How can we overcome a few of these challenges so as to introduce extra inexperienced hydrogen initiatives in Canada and create a greener future? Whereas numerous applications and initiatives have been created to entice hydrogen improvement in Canada, we suggest a couple of concepts to speed up this course of.
WAYS TO OVERCOME HURDLES
Canadian governments have usually internalized the purpose of lowering greenhouse gases and selling hydrogen improvement. Canada has applied the “Hydrogen Technique for Canada: Seizing the Alternatives for Hydrogen, A Name to Motion” (December 2020), and Ontario itself promotes hydrogen improvement in “Ontario’s Low-Carbon Hydrogen Technique.” Whereas these initiatives are an awesome begin, there are a selection of issues Canadian governments may think about doing to speed up the event of hydrogen initiatives in Canada:
- An omnibus approval for initiatives overlaying a number of ranges of presidency processes in a single condensed approval
- Introducing a requirement for provinces and/or municipalities to designate a certain quantity of land as eligible for inexperienced hydrogen initiatives with lowered approval obligations
- Utilizing Crown land for inexperienced hydrogen initiatives
- Making it simpler for venture builders to benefit from funding tax credit and different tax advantages
The necessity to assist the creation of the hydrogen business and induce others to contribute to mandatory developments needs to be on the forefront of the minds of our legislators. Canadian governments can look to previous venture lodging, comparable to together with an omnibus approval for hydrogen manufacturing services just like the Renewable Vitality Approval (“REA”) beneath Ontario’s Inexperienced Vitality Act (the “Ontario Act”). To increase the inexperienced hydrogen business in Canada, the federal government also can think about what different international locations are doing, past adopting a tax credit score regime just like the U.S.
Renewable power initiatives could be topic to all kinds of approvals and permits based mostly on the kind and dimension of the venture. As well as, a developer might require approvals from a lot of regulatory our bodies on the federal, provincial and municipal ranges. The onus is on the developer to make sure that their venture meets all regulatory necessities. Provided that inexperienced hydrogen initiatives are comparatively new in Canada, this may increasingly pose a deterrent for builders as long as the regulatory panorama stays unclear and varies between provinces, and even between municipalities.
A possible resolution to this can be to create one omnibus approval for inexperienced hydrogen initiatives that may cowl most or all regulatory necessities. This has already been finished in Ontario with the REA, which concerned one utility beneath the Ontario Act. To cowl most provincial and municipal approval processes, the Ontario Act successfully exempted renewable power initiatives (the “Tasks”) from sure provisions of the Planning Act,which enabled land house owners to enter into leases for the siting of renewable power era services for as much as 50 years, and exempted Tasks from restrictions arising from official plans, zoning by-laws and any improvement allow processes.
Nevertheless, efficient January 1, 2019, the Ontario authorities handed the Inexperienced Vitality Repeal Act, 2018, which modified the Planning Act to revive municipal authority over siting renewable power initiatives.Leases for Tasks with a time period of 21 years or longer now require Planning Act consent if for lower than a whole property, and zoning restrictions are once more making use of to initiatives. Builders that need to introduce a big renewable venture now want to point out demand for the electrical energy they may generate so as to get an approval, along with assembly different necessities, comparable to beneath the Planning Act. Whereas some municipalities inspired inexperienced power venture improvement, many Ontario communities resented the lack of management over the siting of initiatives, and had been happy to see the repeal of the laws. The lesson discovered shouldn’t be that there’s an inherent drawback with there being just one authorities approval course of for a venture, however reasonably that no stage of presidency or public participation needs to be excluded from the overview course of for such an omnibus approval.
MUNICIPAL REQUIREMENTS FOR DESIGNATING A CERTAIN AMOUNT OF LAND FOR GREEN HYDROGEN PROJECTS
As acknowledged, when the Ontario Act was repealed, it restored municipalities’ planning authority associated to siting renewable power era services beneath the Planning Act. If municipalities proceed to have fulsome management over reviewing and approving Tasks, then it could be useful to have a requirement that a certain quantity or proportion of vacant land inside a municipality be designated for hydrogen-related services. Designating a certain quantity of land for inexperienced hydrogen services may induce municipalities to raised work with venture builders, however with out eradicating municipal oversight utterly. Municipalities may designate areas appropriate for venture improvement just like how they designate land for industrial improvement.
USING CROWN LAND FOR GREEN HYDROGEN PROJECTS
Crown land in Ontario is managed by the Ministry of Pure Assets and Forestry and isn’t topic to the Planning Act. Actions on Crown land should align with land use planning ideas and each Crown land-related determination by the Ministry takes under consideration components comparable to socio-economic advantages and environmental ecological impacts.It might be useful to develop inexperienced hydrogen services on Crown land so as to incentivize venture improvement with out having to barter the method of municipal approvals.
PRE-APPROVALS FOR CERTAIN ASPECTS OF GREEN HYDROGEN PRODUCTION, STORAGE AND DISTRIBUTION
If having one omnibus approval that covers all features of hydrogen manufacturing, storage and distribution shouldn’t be deemed palatable given the renewable power expertise in Ontario, it could be extra reasonable to have sure pre-approvals put in place for the hydrogen business. For instance, there could possibly be a blanket approval all through a province permitting the transport of a sure proportion of ammonia in pre-existing pipelines, with rules amended to permit for the inclusion of ammonia. There is also pre-approvals put in place for hydrogen services to have the flexibility to transform hydrogen into ammonia with none additional permits or consents.
TAKING ADVANTAGE OF INVESTMENT TAX CREDITS AND OTHER TAX BENEFITS
The federal authorities launched new funding tax credit within the 2023 Funds or wind, photo voltaic, power storage and different clean-energy applied sciences. Most notably, the “Clear Hydrogen Funding Tax Credit score” launched a refundable 40% funding tax credit score for investments made in clear hydrogen manufacturing. The Clear Hydrogen Funding Tax Credit score additionally introduces a 15% tax credit score for gear wanted to transform hydrogen into ammonia so as to transport the hydrogen; though it solely applies to the extent the ammonia manufacturing is related to the manufacturing of fresh hydrogen.
Evan Wilson, Senior Director of Coverage and Authorities Affairs Canada, famous that “[t]he option to pursue funding tax credit for clear know-how, like wind, photo voltaic, storage and inexperienced hydrogen, will permit Canada to take a aggressive lead in accelerating the decarbonization of the power sector.”
The 2023 Funds displays a federal authorities need to speed up the decarbonization of the power sector. Nevertheless, so as to promote this purpose and entice financing for these initiatives, venture builders should concentrate on the assorted tax incentives obtainable to them at each the federal and provincial stage. It might even be useful for an organization to construction itself as a Canadian-Managed Personal Company (“CCPC”) so as to benefit from tax incentives solely obtainable to CCPCs. Even when an organization shouldn’t be Canadian-controlled, it will possibly nonetheless be thought of a CCPC if it meets sure standards. In Canada v. Bioartificial Gel Applied sciences (Bagtech) Inc., 2013 FCA 164, the court docket discovered that although European buyers owned 62.5% of the voting shares of Bagtech, Bagtech was thought of a CCPC as a result of the entire shareholders entered right into a unanimous shareholder settlement with a provision that the Canadian resident shareholders had been entitled to elect a majority of the administrators, amongst different concerns.
Moreover, venture builders may benefit from the accelerated funding credit score established by the improved first-year allowance for sure eligible property that’s topic to the capital price allowance guidelines. As proposed within the 2021 Funds, “accelerated capital price allowance for clear power gear was prolonged to gear utilized in pumped hydroelectric power storage, renewable gas manufacturing, hydrogen manufacturing by electrolysis of water, and hydrogen refuelling.”
Underneath Courses 43.1 and 43.2 in Schedule II of the Revenue Tax Rules, “sure capital prices of techniques that produce power by utilizing renewable power sources or fuels from waste or that preserve power by utilizing gas extra effectively are eligible for accelerated capital price allowance.” As well as, the Revenue Tax Rules permit sure bills to be totally deducted within the yr they’re incurred if they’re related to the event and start-up of renewable power and power conservation initiatives. These deductions could be carried ahead indefinitely and deducted in future years, or transferred to buyers beneath a flow-through share settlement.
Offering clear steerage to venture proponents and buyers as to how these tax incentives work and permitting them to be allotted flexibly, comparable to the place sure companions in a venture are tax-exempt or low-tax entities (as an illustration, municipalities, government-owned, arm’s size corporations or First Nations-related entities), can be helpful in insuring that the inducement applications put in place are utilized to convey initiatives to industrial operation.
Overcoming hurdles within the Canadian inexperienced hydrogen business can be a workforce effort that begins with laying the right authorized and regulatory groundwork to facilitate hydrogen manufacturing, storage and distribution. To the extent hydrogen is a instrument obtainable to assist cut back carbon emissions, Canada is well-positioned to reap rewards if it capitalizes on the chance to develop a regime for the hydrogen business that advantages builders, financers, and shoppers alike.
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