Recovery Through Reform: Advancing a hydrogen economy while minimizing fossil fuel subsidies

This brief explores recent momentum on hydrogen and evaluates potential implications for subsidies for fossil fuel-based hydrogen given the government's commitments on fossil fuel subsidies.

By Estan Beedell on February 25, 2021
  • There is a risk that new blue hydrogen projects may, by 2030, be at a competitive disadvantage, at least from that point forward.

  • Funding for carbon capture projects already represents a significant source of fossil fuel subsidies in Canadian jurisdictions.

  • Given Canada's commitment to phasing out inefficient fossil fuel subsidies and reach net-zero by 2050, and the need to rapidly transition to clean energy, a very high bar must be set to justify subsidies for blue hydrogen.

Spending on hydrogen has the potential to significantly influence the direction taken by the world’s energy systems. In December 2020, Canada unveiled a national hydrogen strategy following the announcement of a strengthened climate plan. The strategy emphasized both blue and green hydrogen. As the government considers whether to provide subsidies for hydrogen, we recommend government:

  • Ensure that any subsidies for hydrogen are in line with the government’s commitments to phase out inefficient fossil fuel subsidies by 2025 and meet net-zero by 2050.
  • Thoroughly evaluate the potential efficiency of subsidies for hydrogen against robust social, environmental, and economic criteria. • Improve transparency by publicly reporting on direct spending and tax expenditures for hydrogen production.
  • Follow international best practices being set by Canada’s peers. For example, Germany and Spain have laid out hydrogen strategies prioritizing green hydrogen.

Based on IISD's analysis, subsidies for hydrogen based on natural gas without significant levels of carbon capture and storage (CCS) should not be eligible for government assistance. Subsidies for blue hydrogen should only occur if blue hydrogen can meet the same level of environmental performance (including emission intensity) and is at or below the cost of green hydrogen.

This brief is one of three International Institute for Sustainable Development (IISD) policy briefs in its Recovery Through Reform series, which assesses how efforts to achieve a green recovery from COVID-19 in Canada rely on—and can contribute to—fossil fuel subsidy reform.

Brief details

Climate Change Mitigation
Focus area
IISD, 2021