Quebec is ideally placed to lead in the growing green hydrogen market. But we must accelerate investment to avoid ceding advantage to others.
Green hydrogen (H2) could be a game-changer—both for the climate and for Quebec. This relatively low-cost energy source, produced using renewable energy and electrolysis, is likely to become the leading decarbonization pathway for industries such as steel, ammonia, trucking, rail, and shipping that are among the world’s heaviest emitters.
Quebec has the potential to claim a sizeable share of this market, given our robust hydro resources and proximity to some of the largest expected centers of hydrogen demand in North America. By focusing on high-value applications that build on our natural advantages, Quebec could claim a leading position in the wider green H2 value chain, generating economic and environmental benefits for decades to come.
But Quebec is currently underinvesting in this market. Compared to the USD $9 billion that the German government is pouring into green H2, and the $1.2 billion that Australia is investing in this space, the Quebec government has earmarked just CAD $20 million in the 2021-2022 budget. Strategic planning in Quebec and Canada is also less developed than in many peer geographies. Although the Quebec government is expected to publish an H2 strategy later this year and the federal government released a high-level strategy last year, other countries are already implementing their green H2 agendas.
To avoid being locked out of the rapidly growing green H2 market, Quebec must act thoughtfully and decisively now.
While green H2 currently costs more than grey alternatives (e.g., natural gas, coal, diesel), production costs are expected to drop by 30% to 60% over the next 10 years, driven by declines in renewable energy costs and in electrolyser capex (forecast to fall by up to 66% over the next decade). By 2040, green H2 could be a $290 billion1 Notes: 1 Based on $2/kg market globally, with North America representing 21% of total demand, an estimated 40-146 megatonnes (mt) annually. Much of this demand will come from heavy industry and transport.
Many steel producers, for instance, are moving from the blast furnaces production pathway to the direct reduced iron (DRI) - electric arc furnaces (EAF) pathway. Switching to DRI using natural gas can reduce scope 1 and 2 emissions by 45%. But switching to DRI using green H2 would reduce emissions by 92%. Given that potential, steel mills in neighbouring Ontario have already committed to transition to H2-DRI and several H2-DRI pilot projects are underway in Europe. By 2050, steel producers in North America might need up to 2 mt of H2 ($4B1 Notes: 1 Based on $2/kg ) annually, with potential for up to 125kt of that demand to come from Quebec alone. By building the needed infrastructure now, Quebec could become a net exporter of H2-produced DRI. Unlike other areas that must rely on intermittent renewable energy sources and expensive storage to achieve continuous production, Quebec has the benefit of continuous clean electricity supply from hydropower. This advantage can be coupled with our extensive reserves of high-grade iron ore to produce H2-based DRI, allowing Quebec to take an important role in decarbonizing the steel industry.
Shippers are also evaluating H2-derivative fuel sources such as methanol and ammonia as they accelerate efforts to decarbonize. By 2040, our estimates suggest that demand for H2 from shipping in North American could be as high as 1.4 mt ($2.8B1 Notes: 1 Based on $2/kg ) annually and could reach 4.4 mt by 2050. Boosting Quebec’s H2 production could help us capture greater share of this demand.
H2 is also likely to be of significant interest to heavy transport and rail operators. Because H2 fuel cells weigh less than the typical electric battery, take up less cargo space, and can be fuelled as much as 15 times faster than their electric counterparts they could provide heavy transport and trains with longer ranges and faster refuelling times. As a result, while electric batteries are advantaged for light-duty vehicles in North America, freight vehicles, busses, and other heavy transport are likely to switch to H2 over the next several years. Our estimates suggest demand from heavy-duty transport across Quebec and nearby locales could grow to between 40 and 190kt annually by 2030. (See Exhibit 1). There is also an opportunity for Quebec to support H2 in rail, with multiple companies investing across the value chain, from locomotive engine design to refuelling infrastructure, and train service and maintenance.
Green H2 can unleash powerful economic benefits for Quebec. Those benefits will become progressively larger as infrastructure, partnerships and the broader ecosystem mature. Quebec can play a role in the full value chain, from producing hydrogen to hydrogen-derived products such as ammonia, methanol, and sustainable aviation fuels as well as developing enabling technology and manufacturing equipment.
Quebec enjoys three competitive advantages that can make leadership in green H2 both attainable and sustainable.
Now is the time for Quebec to play to our strengths, focusing on applications that require a continuous H2 supply and avoid those that are unlikely to pan out, such as fuel cells for passenger vehicles. Funding a mix of near-term and longer-term opportunities and balancing risk-reward is also important. To help Quebec leapfrog other markets that are building comparable access to low-cost renewable energy, we advise the following steps.