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Canada already has many of conditions needed to build a competitive e-fuels industry: abundant low-carbon electricity, hydrogen and carbon-management expertise, established energy infrastructure, and access to global export markets. However, targeted changes to federal policy are still needed to help translate those advantages into commercial-scale investment.
That is the central message of the e-NG Coalition’s September 8 submission to the Government of Canada’s 2026 Pre-Budget Consultations. The submission recommends five practical updates to existing rules and incentives. Together, they would give developers clearer treatment of low-carbon hydrogen, captured carbon dioxide, and the equipment used to convert those inputs into e-NG and other e-fuels.
e-NG is a synthetic form of methane produced by combining low-carbon hydrogen with captured carbon dioxide. Because it has the same chemical properties as natural gas, it can be transported, stored, and used through existing gas infrastructure and in established end-use applications. The same basic inputs can also support the production of e-methanol, synthetic aviation fuels, and other e-fuels.
Several Canadian provinces have abundant low-carbon electricity. The country also has established expertise in hydrogen and carbon management, together with gas, industrial, rail, port, and marine infrastructure that can support domestic use and exports. These strengths could allow Canadian producers to serve growing demand for lower-carbon fuels in markets such as maritime transport and aviation.
Realizing that opportunity will require federal policy to recognize how e-fuels are produced and how their emissions performance should be measured. The Coalition’s recommendations focus on improving the operation of frameworks Canada already has in place.
The Coalition recommends consistent life-cycle carbon accounting rules for e-fuels across federal programs. These rules should assess fuels according to their demonstrated emissions performance and account for the carbon intensity of hydrogen and electricity inputs, upstream emissions, transport, the origin of the carbon feedstock, and emissions at the point of use. The treatment of captured carbon is central to this approach. Biogenic carbon dioxide and carbon captured directly from the air have different life-cycle implications from fossil carbon. Eligible recycled carbon can also provide an emissions benefit when an industrial carbon stream that would otherwise be released is captured and reused. Federal methodology should recognize those distinctions through clear system boundaries and safeguards against double counting.
Greater alignment among the Clean Hydrogen Investment Tax Credit, the Carbon Capture, Utilization and Storage Investment Tax Credit, the Clean Fuel Regulations, and other federal clean fuel measures would give project developers more predictable investment conditions. Alignment with established international methodologies would also help Canadian fuels demonstrate their environmental attributes in major export markets.
The Clean Hydrogen Investment Tax Credit supports hydrogen production equipment and certain downstream uses, including specified clean ammonia equipment. The Coalition recommends comparable treatment for equipment that converts clean hydrogen into other derivatives, including e-NG. For many applications, hydrogen becomes easier to store, transport, and use after it is converted into another molecule. Methanation combines clean hydrogen with captured carbon dioxide to produce e-NG that can use existing gas infrastructure. The submission therefore proposes definitions for clean methane and clean methane equipment, along with amendments that would make qualifying derivative equipment eligible for a 15% investment tax credit, comparable to eligible clean ammonia equipment.
Canada’s low-carbon electricity systems should be a competitive advantage for hydrogen and e-fuels production. Under the current Clean Hydrogen Investment Tax Credit methodology, however, projects connected to highly renewable grids may receive less favorable treatment than the actual electricity mix suggests. The Coalition proposes a straightforward threshold, meaning that projects connected to provincial grids with at least 90% non-emitting generation would automatically qualify for the highest carbon-intensity tier, provided that applicable verification requirements are met. This would provide greater certainty for developers in provinces such as Quebec, British Columbia, and Manitoba and help those provinces use their low-carbon power systems to attract new industrial investment.
Carbon dioxide is an essential feedstock in the production of e-NG and other carbon-based e-fuels. The Coalition therefore recommends expanding the Carbon Capture, Utilization and Storage Investment Tax Credit to cover eligible utilization pathways when captured carbon is used to produce e-fuels. Canada’s current framework places significant emphasis on permanent geological storage. Storage remains important, but it should not be the only supported pathway when captured carbon can be used productively and deliver a verifiable emissions benefit. Recognizing eligible utilization could also support projects in regions where geological storage is unavailable or uneconomic and any expanded eligibility should remain subject to rigorous life-cycle accounting and safeguards against double counting.
Some existing industrial processes, including brine electrolysis, produce hydrogen as a by-product. That hydrogen may be underused, directed to relatively low-value applications, or vented. When life-cycle analysis shows that it meets the relevant carbon-intensity requirements, federal policy should allow it to serve as an eligible clean hydrogen feedstock for e-NG and other e-fuels. Eligibility should depend on the hydrogen’s verified emissions profile rather than whether hydrogen production is the primary purpose of the facility. This would allow Canada to make productive use of an existing low-carbon industrial stream while avoiding the need to build additional hydrogen production capacity solely to satisfy policy eligibility rules.
The Coalition’s recommendations do not require an entirely new federal program. They focus on making current policies more coherent, technology neutral, and responsive to the way e-fuel projects operate. Clear life-cycle rules and targeted adjustments to existing investment tax credits could help Canadian developers move projects forward, strengthen domestic supply chains, and compete in international clean fuel markets.
The e-NG Coalition thanks its members StormFisher, Teralta, and TES for spearheading this effort and contributing practical Canadian project perspectives to the submission. Their work helped identify where focused policy changes could turn Canada’s resource and infrastructure advantages into investable e-fuels projects. With low-carbon power, industrial expertise, and established energy infrastructure, Canada is well positioned to become a leader in e-fuels technologies. A clearer and more consistent federal framework would help convert that potential into projects, jobs, and export opportunities.
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For more information, contact Sam Lehr at sam.lehr@eng-coalition.org
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