The Canadian government is taking significant steps toward building a sustainable and renewable energy future. Here’s a quick overview of the Investment Tax Credit for clean hydrogen.
As part of the 2022 Fall Economic Statement, the government has proposed the introduction of a refundable investment tax credit for clean hydrogen, also known as the Hydrogen ITC. This tax credit aims to incentivize the production of clean hydrogen through electrolysis or natural gas with carbon capture, utilization, and storage (CCUS) technologies. In this blog post, we will explore the details of the Hydrogen ITC, including eligibility criteria, phased-out timelines, and benefits for businesses.
Eligibility for the Hydrogen ITC
The Hydrogen ITC would apply to equipment that is purchased and installed after March 27, 2023, and before 2034, and is used for the production of hydrogen from electrolysis or natural gas with emissions abated using CCUS. The rate of the tax credit would depend on the assessed carbon intensity (CI) of the hydrogen produced, with rates of 15%, 25%, or 40% available.
To be eligible for the Hydrogen ITC, equipment used for electrolysis must be primarily used for the production of hydrogen through the electrolysis of water. This includes electrolyzers, rectifiers, ancillary electrical equipment, water treatment and conditioning equipment, and equipment used for hydrogen compression and on-site storage.
Equipment used for the production of hydrogen from natural gas with emissions abated using CCUS would also be eligible for the Hydrogen ITC, with certain exclusions. However, equipment that is eligible for the CCUS ITC would not be eligible for the Hydrogen ITC.
It’s important to note that the equipment must be made available for use in Canada to qualify for the Hydrogen ITC.
Phased-Out Timelines
The Hydrogen ITC would be phased out starting in 2034 and would be fully phased out for property that becomes available for use after 2034. This means that businesses need to plan their investments in clean hydrogen production equipment accordingly to maximize the benefit of the tax credit.
Labour Requirements for the Hydrogen ITC
To qualify for the full Hydrogen ITC, certain labour requirements must be satisfied. However, specific details regarding these labour requirements will be provided at a later date by the government.
Other Tax Credits and Benefits
Businesses would be able to claim only one of the Hydrogen ITC, the CCUS ITC, the Clean Tech ITC, the Clean Electricity ITC, or the Clean Tech Manufacturing ITC if a particular property is eligible for more than one of these tax credits. However, multiple tax credits could be available for the same project if it includes different types of eligible property. Businesses would also be able to fully benefit from both the Hydrogen ITC and the Atlantic Investment Tax Credit.
The government has also announced that it will continue to review eligibility for other low-carbon hydrogen production pathways, indicating its commitment to promoting clean hydrogen production in Canada.
Conclusion
The ITC for Clean Hydrogen is a significant tax incentive aimed at promoting the development and use of clean hydrogen in Canada. It has the potential to contribute to Canada’s renewable energy future by encouraging investment, innovation, and job creation in the clean energy sector. However, businesses interested in accessing this tax credit should review the specific eligibility criteria, requirements, and limitations in their jurisdiction, and seek professional advice if needed to ensure compliance and maximize the potential benefits of the Investment Tax Credit for Clean Hydrogen.
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