Canada has big plans to use hydrogen to cut emissions

Canada's main crude-producing province Alberta looks to use hydrogen to fuel expansion of its oil sands without increasing emissions, even as Prime Minister Justin Trudeau promises strong action against climate change, officials with the two governments said.

Alberta will announce no later than October a strategy to develop "blue hydrogen" as a cleaner alternative to using natural gas to extract crude at steam-driven oil sands sites, Associate Minister of Natural Gas Dale Nally told Reuters in an interview.

Deploying cleaner feedstock will allow Alberta to produce more oil without exceeding its 100 megaton annual limit on provincial carbon emissions, Nally said.

"Hydrogen will allow us to continue to move the bar and reduce the carbon intensity of the oil sands until you get to a point where there is no difference in (greenhouse gases) in conventional oil and oil sands," he said, adding that Alberta's hydrogen plan is synchronized with Ottawa's.

"Reducing the carbon intensity of the oil sands would allow of course more expansion."

Blue hydrogen is produced from natural gas, with the carbon byproduct captured and stored.

A green agenda to be launched by Trudeau this month is expected to map out a course to the 2050 zero-emissions target, and likely to include a strategy describing hydrogen as a "net-zero moon shot" for the petroleum sector, said a government source familiar with the federal plan.

According to a draft 14-page summary of the federal strategy seen by Reuters, hydrogen will leverage the fossil fuel sector's "expertise and infrastructure... to decarbonize and diversify into a leading global clean fuels exporter," the document reads.

"If (Alberta) is staying under their 100 megaton cap, how they choose to do that, or how they choose to employ hydrogen to do that, isn't really our concern," said the government source.

"Cleaning up the oil and gas sector is going to be a necessary event if we are going to meet our 2050 target" of net-zero emissions, the source added.

Oil sands growth has slowed, with Teck Resources scrapping plans for a new mine this year and the pandemic crushing oil demand, resulting in temporary production cuts.

The hydrogen plans raise flags for some environmental groups familiar with the federal strategy. Some major investors like Norway's $1 trillion wealth fund have shunned oil sands companies because of their tarnished environmental reputation.

"Hydrogen is like a lifeboat for (the oil sands)," said Julia Levin, climate and energy program manager at Environmental Defence, about the federal strategy. "It's a significant fossil fuel subsidy at a time when we're making no progress on eliminating fossil fuels."

The federal government's draft plan - three years in the making - says several provinces could produce hydrogen, some using renewable energy, and by 2050 the industry could create 100,000 jobs, generate more than C$5 billion in annual revenue and reduce annual greenhouse gas emissions by 100 megaton.

Some say hydrogen is not likely to transform the oil industry anytime soon.

"We still don't have a good understanding of the economics, how much it's going to cost and what we're going to use it for," said Allan Fogwill, chief executive of the Canadian Energy Research Institute. (1 Canadian dollar = 0.6470 euros)

(Reporting by Steve Scherer in Ottawa and Rod Nickel in Winnipeg, Manitoba; Editing by Lisa Shumaker)

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