Canadian Schemes Falling for Gas Firms’ Hydrogen Promises
Utilities accused of gaslighting investors and policymakers over transition role, as report challenges viability of hydrogen on path to net zero.
Canadian pension funds are putting beneficiaries at risk by failing to scrutinise global gas utilities’ plans to utilise hydrogen to forge a role in the low-carbon transition.
A report by campaign group Shift has revealed that some of Canada’s largest pension funds are exposed to significant financial risks and climate impacts through multi-billion-dollar investments in gas infrastructure companies which face terminal decline as the energy transition accelerates.
“We have seen a lot of progress from Canadian pensions in their understanding of the climate crisis and their changing investment strategies,” Adam Scott, Shift’s Executive Director, told ESG Investor.
“However, a big blind spot we continue to see is Canadian pension plans having very large holdings in gas infrastructure – they are viewing gas differently from other fossil fuels, misunderstanding it as a transition fuel.”
Part of this misunderstanding is being fuelled by gas utilities’ claims that transporting and utilising hydrogen will extend the life of their business operations into a low-carbon world, the report said.
Nine Canadian pension fund managers – including British Columbia Investment Management (BCI), Canada Pension Plan Investment Board (CPPIB) and Ontario Teachers’ Pension Plan (OTPP) – collectively own 22 private gas companies that operate nearly 350,000 kilometres of pipelines globally.
BCI owns 27.7% of the UK’s National Gas and 32% of Germany’s Open Grid Europe. Meanwhile, OTPP is a majority owner (69.4%) in Italy-based Società Gasdotti Italia.
These pension funds are “making bets against climate safety” and are “at risk of having their investments stranded or regulated out of existence”, Shift argued.
“Gas pipelines cannot be used to transmit hydrogen-based energy based on fundamental physics, and hydrogen production, even with carbon capture, causes many problems of its own,” said Julie Segal, Senior Programme Manager of Climate Finance at Canada-based Environmental Defence Canada.
“Canadian pension funds should be smart enough to see through gas companies’ misinformation and recognise that gas investments are both risky and polluting.”
This view of gas as a transition fuel also stretches to the policy level, Segal noted, with the Canadian government arguing for gas as a transition fuel under its planned sustainable finance taxonomy.
No room for grey or blue
The report pointed to a recent scientific review of hydrogen’s role in a net zero economy, which concluded that replacing gas with zero- or low-carbon hydrogen has several challenges that depend on currently unproven solutions.
“The only projects we have seen are, at best, tiny pilots that are not commercially viable,” said Shift’s Scott.
“It’s not a climate solution [for gas], and it would be wildly expensive and impractical if used within existing gas networks.”
The International Energy Agency’s (IEA) 2050 roadmap calls for 306 million tonnes (MT) of green hydrogen to be produced each year, which would require annual investment in pipelines and hydrogen-enabling infrastructure to reach US$40 billion by 2030.
Total production of hydrogen worldwide reached 94 megatonnes (Mt) in 2021, the majority of which was produced from fossil fuels either unabated or in tandem with carbon capture technologies – also known as grey and blue hydrogen. Green hydrogen – which is derived from clean energy sources – accounted for less than 1 Mt.
The future use of green hydrogen will likely to be limited to hard-to-abate industrial processes and highly localised in its production and use, the Shift report said.
A 2024 report by Moody’s said green hydrogen will play no significant role in the decarbonisation of the global economy for at least a decade.
Electrification over gas
Rather than continuing to invest in the gas industry, Scott called for increased investment by pension schemes in the electrification of the energy system.
“The solution for the energy system transition is electrification,” said Scott.
“We have cheap renewable energy. We have cheap battery storage technology. We have cost-effective and very effective heat pumps to replace boilers. And those are the technologies that already exist and are already more competitive than gas.”
Increased electrification via heat pumps, renewable energy and batteries means utilities face the prospect of lower demand for gas transmission and distribution.
“Pension funds often argue that they can’t sell the assets because someone else who cares less [about climate change] might own them – but a pension fund’s fiduciary responsibilities are strictly about maximising risk-adjusted returns for its members,” said Scott, warning that “market corrections following a gas death spiral could be quite dramatic”.
“We hope [these pension funds] absorb this information and do their own due diligence to see that there are no viable [net zero] pathways on the horizon for these [gas] assets to remain viable in the long-term and they are already being disrupted,” Scott added.
He said Shift “We’re not advocated for a managed wind-down of fossil fuels across energy systems, rather than ing for “turning the gas taps off overnight”. , but rather a careful, managed wind-down of fossil fuels across our energy systems.”
Canadian pension fund managers mentioned in the report either didn’t respond to or declined a request for comment on the findings.
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