OTTAWA — The federal government will provide $300 million from its flagship innovation fund to help finance Air Products’s $1.6-billion Edmonton-area hydrogen facility, scheduled to begin production in 2024, The Logic has learned.

The deal comes as Ottawa bets on hydrogen to help meet its climate goals, net-zero economic ambitions and energy-security commitments to allies.

Lehigh Valley, Pa.-headquartered Air Products has also been in negotiations with Invest Alberta to back the plant, which will initially supply clients in the energy industry. The federal support will take the form of a partially repayable contribution from the Strategic Innovation Fund (SIF), a $17-billion-plus program that finances foreign direct investment and industrial emissions-reduction projects as well as domestic scale-ups. 

Air Products’s plant will be in Sherwood Park, Alta., just outside Edmonton. It will turn natural gas into hydrogen, capturing carbon-dioxide emissions and sequestering them. The firm announced the project in June 2021, saying construction and engineering on the facility will employ 2,500 people. It’s projecting output of 165,000 million standard cubic feet per day, half of which Imperial Oil will buy for a forthcoming diesel refinery to be located nearby. 

The chemical giant Air Products brought in US$10.3 billion in sales in 2021, with 41 per cent of that in the U.S. and Canada. It has three existing hydrogen facilities in Alberta, as well as a network of pipelines and oil-and-gas clients. It also plans to sell the gas to the transportation sector. 

Air Products did not respond to The Logic’s request for comment. Innovation Minister François-Philippe Champagne’s office declined to comment. The federal government has yet to announce the award, but details about the SIF financing, including the amount, were disclosed in its grants and contributions database. 

The Liberal government is counting on hydrogen as a key contributor to its green goals. Ottawa’s federal climate plan, unveiled in December 2020, dubbed it “one of Canada’s most exciting economic transformation opportunities,” which could “dramatically reduce emissions in the industrial sector.” The federal hydrogen strategy, released the same month, said the sector could employ up to 350,000 people and generate over $50 billion in annual revenue by 2050, accounting for 30 per cent of end-use energy. 

Meeting those targets means exporting the gas. In August, Canada and Germany signed a deal for the latter to buy hydrogen produced here starting in 2025, with the two countries also pledging to cooperate on project financing and to establish a bilateral supply chain. However, the agreement primarily focuses on “green” hydrogen—derived from water using renewable power—from the Atlantic provinces rather than the “blue” variety made in Western Canada from fossil fuels.

Environmental groups have questioned the environmental benefits of hydrogen derived from natural gas, noting that carbon capture itself requires considerable energy. In a report published in April, the federal environment and sustainable-development commissioner found that Ottawa had “overestimated hydrogen’s potential to reduce greenhouse gas emissions,” and recommended it do a comprehensive modelling. But sector executives note that blue hydrogen remains significantly cheaper than green. 

The Liberal government has established or promised a number of incentives to foster the hydrogen sector’s growth across the country. The Canada-Germany agreement cited the SIF’s Net Zero Accelerator—an $8-billion stream focused on industrial emissions reduction that Ottawa is also using to attract electric-vehicle battery plants. It also pointed to the $1.5-billion Clean Fuels Fund, which is due to announce its delayed project selections by late December. 

This month’s fall economic statement promised further support. Finance Canada will shortly launch consultations on a hydrogen investment tax credit, with payouts tied to emissions levels and labour standards. The incentive, modelled on the one in the U.S. Inflation Reduction Act, will take effect on the day of next year’s budget and phased out from 2030 onwards. The new $15-billion Canada Growth Fund, scheduled to launch by the end of the year, will also support hydrogen projects. The program’s financing offerings will include price assurances, where the fund would pay operators the difference between a lower market rate and higher price target for their output. 

In recent years, energy firms have cancelled a number of megaprojects, citing the length of environmental reviews and amid opposition from local Indigenous communities. Prime Minister Justin Trudeau and Deputy Prime Minister Chrystia Freeland have both signalled the Liberal government may be willing to fast-track or ease regulatory processes for energy facilities that contribute to the security of Canada’s international allies. 

Champagne’s office did not answer questions about whether Ottawa would provide any expedited approvals or assessments for the Air Products project. The company initially announced memoranda of understanding with the federal government and Invest Alberta to support the Edmonton plant last June. The provincial petrochemicals-incentive program offers grants of up to 12 per cent of project capital costs once a facility is in production.

The office of Alberta Premier Danielle Smith did not immediately respond to a request for comment.

With files from Jesse Snyder in Calgary