Market Snapshot: Hydrogen Production in Energy Futures 2021

Release date: 2022-08-03

Canada’s Energy Futures 2021 report (EF2021) has a dedicated section on hydrogen supply and demand. Hydrogen plays a key role in the reduction of unabated fossil fuels^Definition* in the EF2021 Evolving Policies Scenario, in which action to reduce greenhouse gas emissions from our energy system continues to increase at a pace similar to recent history both in Canada and globally^Footnote 1. Hydrogen offsets natural gas use in buildings and industrial sectors, and diesel fuel used by heavy duty vehicles for freight transportation. This snapshot explores the processes and fuels used to produce hydrogen in our Evolving Policies Scenario, and what those results mean for Canada’s transition to a low-carbon economy.

Recently, interest has increased in low-carbon hydrogen as an important fuel in Canada and the world’s transition to a low-carbon economy. Many countries, including Canada, have released hydrogen strategies. Canada’s Hydrogen Strategy lays out an ambitious framework for actions that aim to position hydrogen as a tool to achieve the federal government’s goal of net-zero greenhouse gas emissions by 2050.

Hydrogen has the potential to be a valuable fuel in a low-carbon world because it has a high energy content and because it can be used in sectors where other low-carbon options like electricity are too expensive or have technical constraints. Importantly, the carbon intensity of using hydrogen depends on how it is produced.

How do we model hydrogen production?

In our analysis low-carbon hydrogen is produced through two processes. The first process, called natural gas with carbon capture and storage (CCS)^Definition* uses natural gas as a feedstock^Definition* in a type of chemical reaction called reforming^Footnote 2 to produce hydrogen and carbon dioxide. We assume that over 90% of the carbon dioxide produced by reforming is captured and stored permanently using CCS technology.

The second hydrogen production process considered in EF2021, called hydrogen electrolysis, uses electricity to split water into hydrogen and oxygen. In our analysis, this electricity is supplied through the electrical grid (grid electrolysis) or from purpose-built renewable electricity generation (renewable electrolysis). The carbon footprint^Definition* of the hydrogen produced via electrolysis largely depends on the carbon footprint of the electricity used to produce it. For instance, electrolytic hydrogen produced using electricity from a grid that mainly uses natural gas-fired generation would have a larger carbon footprint than hydrogen produced using electricity generated by wind turbines. In EF2021, most of the hydrogen produced by electrolysis uses renewable electricity. Figure 1 shows how much natural gas and electricity is used to produce hydrogen in our projection through different processes.

Figure 1: Fuel Demand, Low-Carbon Hydrogen Production^Footnote 3

Electricity and natural gas amounts used to produce hydrogen increase

As low-carbon hydrogen production grows over our projection, so does the demand for natural gas and electricity. In the EF2021 Evolving Policies Scenario, the amount of natural gas and electricity used for low-carbon hydrogen production becomes a noteworthy portion of the total demand for those fuels in Canada (see Figure 2). In 2040, 0.87 billion cubic feet per day (Bcf/d) (338 petajoules (PJ)) of natural gas is used to produce hydrogen, accounting for 8.7% of total demand. In 2050, 1.1 Bcf/d (422 PJ) of natural gas is used to produce hydrogen, accounting for 13.3% of total demand. In 2040, 25.3 terawatt-hours (TWh) (91 PJ) of electricity is used to produce hydrogen, accounting for 3.6% of total demand. In 2050, 89.7 TWh (323 PJ) of electricity is used to produce hydrogen, accounting for 11% of total demand.

Figure 2: Share of total demand, fuels used to produce low-carbon hydrogen^Footnote 4

The context for the growth of electricity and natural gas used to produce hydrogen is different between the two fuels in our Evolving Policies Scenario. On one hand, the electricity used in hydrogen electrolysis adds to overall increasing electricity demand across the economy, driven by end-use electrification (e.g., heat pumps being installed in buildings, electric vehicles). Conversely, the amount of natural gas used in other applications (e.g., power generation, oil, and gas production) falls, with the natural gas used to produce hydrogen being a key exception, partly offsetting declining use in other sectors.

It is important to note that the Evolving Policies Scenario is unlikely to achieve Canada’s goal of reaching net-zero emissions by 2050. If hydrogen plays a large role in Canada’s path to net-zero, larger amounts of electricity and/or natural gas may be needed to produce it than shown here. Although there is excitement about hydrogen’s potential role in Canada’s low-carbon economy, it is still an emerging area, and therefore there are uncertainties around it. Because producing low-carbon hydrogen involves using electricity and/or natural gas, hydrogen production is a significant uncertainty for electricity and natural gas demand as well.

Date modified:

2023-11-28