The Government of Québec is committed to reducing greenhouse gas (GHG) emissions by 37.5% from 1990 levels by 2030. In addition, the government is aiming to reduce the consumption of petroleum product by 40% by 2030 and to reach net zero emissions by 2050.
We can agree that this is an ambitious goal. Even more ambitious is the fact that this target needs to be met at a time when Québec already has a good base, i.e., hydroelectric production. This means that the decarbonization of the economy will essentially be achieved by reducing our GHG emissions, nearly 70% of which come from oil, natural gas and coal.
The government intends to act on supply and demand and, in this regard, the legislature amended the Act respecting the Régie de l’énergie in September 2021 with the addition of the concept of “renewable natural gas,” which is defined as: “methane from renewable sources with interchangeability characteristics that allow it to be delivered by a natural gas distribution system.”
The government has announced that it wants to increase bioenergy production by 50% by 2030, and, with this in mind, it will adopt a regulatory target of 10% renewable natural gas that will have to be introduced into the natural gas system. The current framework provides for 5% by 2025.
Similarly, in December 2021, the government passed the Decree (Order-in-Council) concerning the Regulation respecting the integration of low-carbon-intensity fuel content into gasoline and diesel fuel, which aims to increase the use of low-carbon transportation fuels to 15% in gasoline and 10% in diesel fuel in 2030.
The role of green hydrogen
Green hydrogen is the term used to describe hydrogen produced from renewable electricity or biomass. This term is used in contrast to the grey hydrogen produced from fossil fuels. In Québec and around the world, the production of green hydrogen is marginal, i.e., around 2%.
This means that, in the words used in the Strategy, “significant and sustained investment is required to achieve green hydrogen.” [translation]
In 2020, the government released a Study on the Techno-Economic Potential of the Development of Québec’s Hydrogen Sector and its Potential for the Energy Transition, which concluded with suggestions for government interventions; these included:
- Establish a coherent and supportive political, legal and regulatory framework to help de-risk private investment;
- Set up financial incentives (grants, tax reductions, regulations and showcase projects) to encourage investments.
Later we will see what the government intends to do in this regard. But first let’s take a look at how bioenergy has been traditionally described in the energy sector.
The role of bioenergy
Released on May 25, 2022, the Strategy notes that bioenergy represented about 8% of Québec’s primary energy supply in 2019; this supply is divided into three families: (a) forest, (b) agricultural and (c) municipal, commercial and industrial.
In Hydro-Québec’s Strategic Plan 2022–2026, the Crown Corporation announced that it would accelerate the deployment of demand management tools and, to that end, plans to roll out a new bioenergy rate offering for business customers.
How to increase the role of green hydrogen and bioenergy
Clearly, the government is considering that it will need to financially support green hydrogen and bioenergy development projects and is, to that end, letting developers know what the project approval criteria will be, namely:
- The project’s relevance to direct electrification, supported by a no-regret vision, with the aim of prioritizing uses through an informed approach;
- The contribution to the energy transition and the reduction of GHG emissions in Québec that may result from these projects, and the time frame in which these effects will materialize;
- The level of investment required and the expected economic impacts, particularly in the regions;
- The structuring effect of the project on the value chain (for example, stimulation of demand in current or new niches, development of Québec expertise and innovation, consolidation of a local manufacturing base, or creation of technological complementarity);
- Technical feasibility (maturity of technologies and the necessary infrastructures), market volume and long-term potential for use and the duration for which State financial support would be required.
We will now return to the issue of renewable natural gas. The government states that it will ensure an orderly supervision of the introduction of renewable gas, i.e., green hydrogen, into the gas network.
Hydro-Québec’s Strategic Plan 2022–2026 states the following concerning the Crown Corporation’s contribution to the development of the green hydrogen market:
Québec will be turning to green hydrogen to indirectly electrify activities, such as chemical and industrial processes as well as certain types of heavy transport, where direct electrification is not technically or economically feasible.
Our role will consist in supporting the development of the green hydrogen market in order to lay a solid foundation for this sector. This support will take many forms, including:
- Participating in the implementation of the Québec government’s green hydrogen and bioenergy strategy;
- Assessing the strategic nature of the proposed green hydrogen projects and the required conditions for success, in part to minimize the impact of connecting the facilities to the grid.
On the supply side, the government has announced that financial support will be provided for various high-potential initiatives that could quickly reach the level of commercial maturity required in the production of renewable gas by methanization.
As for bioenergy itself, the government has announced that it wants to create a dynamic and predictable market, and to that end it states, on page 36, “For this purpose, it will improve its program offerings and adapt various economic and regulatory mechanisms to promote demand within its territory. This local demand will in particular be supported by exemplary actions by the State vis-à-vis renewable energy consumption, including bioenergy.” [translation]
In the short term, this will result in a preference for bioenergy production projects that will allow the use of available residual biomass by mature technologies such as residual forest biomass heating, biogas capture, the production of certain biofuels and the methanization of organic matter.
The initial roadmap for green hydrogen and bioenergy
This “roadmap” describes the initiatives that will be implemented over the next five years, and has three areas of focus: (1) business environment; (2) knowledge and innovation; (3) collaboration, information and promotion. Here it will suffice to say a few words about the objectives for the first area of focus.
The first objective is to develop the production and distribution infrastructure, and it should be pointed out that, of the so-called flagship measures proposed, the government says that it wants to provide tax credits for the production of biofuel and pyrolytic oil.
Examples of ongoing initiatives include financial assistance programs for biogas and renewable natural gas production and the redesign of the tax credits mentioned above.
As a second objective, the government announced the following in the so-called flagship measures category (page 45):
- Adapt the regulatory framework to require minimum renewable content (or a maximum carbon intensity index) in fuels and fossil fuels;
- Make regulatory and administrative changes to ensure the safe and sustainable deployment of green hydrogen and bioenergy, as well as the harmonization of standards;
- Continue and intensify the deployment of green hydrogen and bioenergy technologies;
- Temporarily cover operating costs for conversion to renewable electricity, green hydrogen or bioenergy. [translation]
In addition to the regulations mentioned above, the Regulation respecting the integration of low-carbon-intensity fuel content into gasoline and diesel fuel and the Regulation respecting the minimum volume of renewable natural gas, the government has stated that it intends to increase the thresholds for renewable gas that will be introduced into the gas system.
The government added three noteworthy examples of initiatives:
- Assess the possibility of extending regulations to promote minimum renewable content (or a maximum carbon intensity index) to all fossil fuels;
- Financial assistance programs to purchase equipment for the use of bioenergy and green hydrogen in the industrial, commercial, institutional and transport sectors;
- An initiative to reduce the price gap between fossil fuels or fossil hydrogen and their renewable alternatives.
Fonds CRNE
It should be noted that the government has already set up a Natural Resources and Energy Capital Fund (Fonds CRNE) managed by Investissement Québec with funding of $1 billion to support projects that have profitability prospects and significant economic spinoffs. Eligible businesses must carry out at least one of the following activities (page 47):
- The exploitation or transformation, in Québec, of natural resources, provided that, with respect to transformation, a portion of these resources was first exploited in Québec;
- The production, storage, transport and distribution of fuels which, as substitutes for other fuels, including fossil fuels, reduce carbon intensity;
- The production, storage, transport and distribution of renewable energies or materials that substitute for fossil fuels, provided, in the latter case, that these materials allow the reduction of GHG emissions or contribute to the supply of clean energy or hydrogen in Québec;
- The development, commercialization or implementation of technologies that promote transition, innovation or energy efficiency, reducing fugitive emissions or enabling the activities referred to in the preceding paragraph;
- The processing of forest products carried out within facilities located in Québec. [translation]
Renewable Natural Gas Production Support Program (PSPGNR)
This program, established by the Ministère des Ressources naturelles, is intended to provide financial assistance in support of renewable natural gas production and injection projects in the natural gas distribution system to meet the targets set out in the Regulation respecting the quantity of renewable natural gas that must be delivered by a natural gas distributor.
The government has announced its intention to increase the envelope allocated to this program to $200 million by 2026.
There are other provinces in Canada that have published hydrogen strategies; Québec is now adding its own contribution. So, we will need to see how these strategies translate into projects. We have reason to believe that there will be some obstacles along the way. Click here to read our bulletin entitled “Promoting Hydrogen in Canada: Cross-Country Check-Up” which we wrote a month ago about the hydrogen strategies of the federal government and the provinces of British Columbia, Alberta and Ontario.
