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Natural Resources Minister Jonathan Wilkinson acknowledged the Inflation Reduction Act had put industry supports in Canada behind those south of the border in the hydrogen and minerals sectors.Adrian Wyld/The Canadian Press

Canada will examine its tax supports for the hydrogen processing industry in the wake of the Inflation Reduction Act recently passed in the United States in a bid to ensure the country remains competitive in the sector.

The move comes as the federal government continues its push to expand Canada’s hydrogen sector. Ottawa’s hydrogen strategy, released in late 2020, targets a robust domestic hydrogen market worth up to $50-billion, with 350,000 jobs created by 2050. In August, the Canadian and German governments signed a deal to co-operate on exporting hydrogen fuel to Europe, setting an ambitious target of 2025 to begin shipments from Eastern Canada.

Hydrogen is light, storable and energy-dense. Produced through natural gas or water, it produces no direct emissions of pollutants or greenhouse gases when used as a fuel, which has drawn the attention of countries targeting net-zero emissions.

Natural Resources Minister Jonathan Wilkinson said while the Inflation Reduction Act was an “important step forward” for U.S. action on climate change, he acknowledged it had put industry supports in Canada behind those south of the border in the hydrogen and minerals sectors.

“We are certainly looking at that in the context of ensuring that Canada remains competitive. Those are two areas that we see as very important from an economic perspective going forward,” he told The Globe and Mail in an interview.

While the federal government mulls over supports for the hydrogen industry, it’s unlikely there will be an overhaul of Ottawa’s new investment tax credit for carbon capture, utilization and sequestration (CCUS), a technology by which captured carbon dioxide can be injected deep underground to prevent it from being released into the atmosphere.

Canada’s oil and gas industry has asked the federal government to increase the tax credit here to keep pace with the supports available in the U.S., where the tax credit equates to about 85 per cent of project expenses – similar to the rate in Norway. In Canada, on the other hand, CCUS tax credits will cover 50 per cent of capital expenses for most CCUS projects through 2030.

Mr. Wilkinson said there are other tools the government is looking to implement to ensure Canadian CCUS incentives remain comparable to those of the U.S., including contracts to provide pricing certainty. The industry also needs to wait and see what the Alberta government comes to the table with in terms of further CCUS supports, he said, adding the province has indicated it will also provide some incentives to be used alongside federal supports.

“We need to see where that shakes out, and I know the government of Alberta is working on that with industry,” he said.

Mr. Wilkinson was in Calgary on Monday and Tuesday for a swath of meetings with industry, the Calgary Chamber of Commerce, and provincial and municipal officials about various energy issues, including renewables and the oil and gas emissions cap.

Despite the global energy crisis, Mr. Wilkinson said it’s crucial to rein in emissions in every facet of the economy – including oil and gas – “because climate change hasn’t gone away and remains an existential threat to the future of this planet.”

And even as countries moves toward net-zero and greener energy, “there will continue to be a reasonable volume of hydrocarbons” needed in the world. By 2050, he said, that will mostly be for non-combustion purposes such as the production of bitumen, hydrogen and petrochemicals.

“The producers that are actually producing with ultralow emissions are going to be the ones that actually are left standing, so it is in the interest of the Canadian government, the Alberta government and the industry itself to drive emissions down rapidly,” he said.

That’s why he’d like to see oil and gas companies invest their current record profits in emissions-reducing activities, though he’s not yet moving toward mandated spending rules.

“I am more interested in finding ways to align and persuade at this stage, and I actually am not finding that there’s a lot of pushback from industry on this,” he said. “You only get into the mandate-type discussion if you actually don’t see progress, and I think we are seeing progress.”

Mr. Wilkinson told media in Calgary on Tuesday that “it’s hard to give an absolute guarantee” that the emissions cap will not lead to oil and gas production being halted, but said that wouldn’t happen “absent a decline in the demand for oil around the world.”

He said the government is having “thoughtful and collaborative conversations” with the oil sands industry group targeting net-zero emissions, called the Pathways Alliance, “about how we can do this in a manner that will help us to meet our emissions-reduction goals, but also do it in an economically sound way.”