Green Income Trusts Can Propel Alberta’s Hydrogen Industry

From losing 130,000 payroll jobs between 2015 and 2017 to entering into a mild recession at the end of 2019, Alberta’s economy, historically driven by its oil and gas sector, has been through a series of turmoil. The disruption caused by COVID-19 was the final nail in the coffin causing the global oil price to plummet even further.

In October 2020, the government of Alberta published its natural gas strategy. It focused largely on hydrogen as an instrument for economic recovery and energy transition. The plan calls for further investment into the sector, however, hydrogen projects are typically avoided by private sector investors due to their initial lower rates of returns. 

To attract capital investments, Alberta should launch green income trusts to provide tax benefits for individual and institutional investors in hydrogen projects. The Canadian National Hydrogen Strategy has also prioritized attracting investments in the hydrogen economy and Alberta’s effort in introducing green income trusts will align with the federal government’s goal. 

Income trusts are investment funds that hold income-producing assets and distribute payments to unitholders, or shareholders on a periodic basis. In the early 2000s, a corporation in such an agreement was allowed preferential tax treatment. Until the Harper government decided to eliminate this arrangement in October 2006, income trusts played a vital role in driving the capital-intensive energy sector in Canada.

According to a report by the University of Calgary and Transition Accelerator, Alberta’s hydrocarbon resources can be mobilized to capture a $100 billion/year market in hydrogen-based energy. The province’s large reserves of oil and gas and the reservoir of talents previously employed by this sector are two of the most important market forces in this proposed scenario. 

Presently, five companies are producing 2250 tonnes of hydrogen a day in Alberta. Around 41% of this is blue hydrogen and the rest is grey hydrogen. When hydrogen is generated from natural gas with a carbon-capturing mechanism, it is labelled as blue hydrogen, but without carbon capture, it remains as grey hydrogen. 

While larger companies are trying to identify and scale large-scale carbon capture and storage technologies to produce more blue hydrogen, smaller firms are still facing obstacles in accessing growth capital. If more private sector investments can be channelled to this sector, it will increase not only the production volume of existing firms, but it will also assist struggling oil and gas companies in shifting to hydrogen production. The previously stated source also reported a hike in jobs and royalties in the province once the hydrogen industry reaches the estimated capacity. 

If Alberta launches the proposed green income trusts for individual and institutional investors, there is a chance of losing tax revenue. However, the perceived benefits of increased jobs and royalties as well as the positive environmental impact and opportunity to become a leader in the North American hydrogen market, exceed the perceived costs. Careful evaluation of the investors’ proposal before granting the promised tax benefits will also minimize the risks of tax evasion using green income trusts. 

In a world where oil is not even worth the barrel it is sitting in, Canada’s search for energy diversification has become imperative. Both the federal and Alberta governments have realized the need for investment in the hydrogen economy. This goal alignment has opened up a policy window for the Government of Alberta to make the next call to action introducing the country’s first green income trust for investment in the hydrogen sector.

About the Author: Silvia Rozario is an MPP student at the University of Calgary. She has three years of work experience in management consultancy in Bangladesh. Energy, capital market, financial inclusion, emerging economies are some of her many interest areas.