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Ottawa has instituted tax credits for carbon capture projects as an incentive to invest, but Canadian cleantech executives worry capital for green projects is being diverted to the United States to take advantage of the richer subsidies

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Carbon Engineering CEO Daniel Friedmann, right, talks with Toby Stedham, vice president of operations, at the company's direct air capture pilot plant, in Squamish, B.C., on Jan 26.DARRYL DYCK/The Globe and Mail

Canadian technology to extract carbon dioxide from the air is taking shape in West Texas in the form of a US$1.1-billion project, aided by a massive new package of U.S. green incentives seen as a competitive threat for startups in Canada.

Carbon Engineering Ltd., which won early backing from well-known billionaires including Bill Gates, is providing the direct air capture system it developed to its partner, Occidental Petroleum Corp. CE OXY-N has been working on the technology since 2009, and remains focused on fine-tuning it at its recently completed innovation centre in Squamish, B.C.

When operational in 2025, the Texas plant will be the largest of its kind, with CO2 removal capacity of one million tonnes a year, equivalent to taking 217,000 cars off the road. It is expected to be the first of many.

The concept differs from most other carbon capture projects under consideration. Rather than stripping climate-warming greenhouse gases from a refinery or a power plant smokestack, CE’s equipment extracts ambient air with the aid of fans and isolates the CO2 in a chemical process so it can be injected into the Earth or used as a feedstock for sustainable fuels.

This design allows the direct air capture plants to be built just about anywhere there’s available land, ample renewable energy to run the gear and geology suited to injecting CO2. So why isn’t the first plant being built in Canada?

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Mr. Friedmann says the strategy to let others make the massive capital investments to build projects will contribute to CE remaining headquartered in Canada.DARRYL DYCK/The Globe and Mail

Daniel Friedmann, CE’s chief executive officer, said the U.S. Inflation Reduction Act, with its US$369-billion of subsidies and tax breaks for green projects, was “absolutely” beneficial for the project to proceed in the oil-rich Permian Basin, about 570 kilometres west of Dallas.

CE’s business plan involves licensing its technology to other companies, and it hopes hundreds of plants will be built around the world as part of the race to get to net-zero emissions. Supportive government policies such as the U.S. one kickstart such developments, allowing the market for the carbon credits the plants earn to then develop.

“That’s the beauty about this technology,” Mr. Friedmann said during a recent tour of CE’s testing facility built on former industrial land in the shadow of the mountains near the end of Howe Sound, about an hour’s drive north of Vancouver. “Now, it doesn’t mean that we should go about our lives without any change and expect this to magically appear everywhere because when you do the math, it just doesn’t work.”

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In other words, efforts to decarbonize the economy, from slashing fossil fuel use to rethinking how to manufacture cement, steel and other materials, must proceed apace; as they do, direct air capture can make a dent in the CO2 that’s already in the atmosphere to extend a global carbon budget that is still shrinking as countries seek the Paris Agreement goal of net-zero emissions by 2050.

In his former career as long-time CEO of MDA Ltd. (MacDonald Dettwiler and Associates) MDA-T, Mr. Friedmann saw the scale of the growing climate crisis as the Canadian space technology company’s satellites mapped the poles, the Amazon basin and other fragile regions suffering the effects, he recalls. “Although the satellite business was not directly on climate, I was super aware of climate change because we were monitoring the whole Earth all the time.”

Direct air capture does pretty much what the name suggests. Fans installed in long banks of towers called air contactors pull air through plastic honeycombs that are wet with a potassium hydroxide solution, which bonds to the CO2, creating a carbonate salt.

Then CE’s chemical process begins. The fluid flows into a reactor to separate the salt from the solution into calcium carbonate pellets. The pellets are fed into a cylinder called a calciner, where they are heated to 900 C, to release the CO2 as a pure gas. The calcium is then rehydrated in a slaker, so it can be reused in the process.

A big plus is that the major equipment is repurposed from other industrial processes, from petroleum to mining to water treatment, so operations and upkeep are well understood. At the Squamish facility and lab, CE is working to keep improving the guts of its technology, testing processes and chemical combinations by running a single train of the process. A commercial project will consist of dozens more of the units.

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Top, Carbon Engineering's direct air capture pilot plant in Squamish, B.C. Bottom, lab technician Annika Brickwood tests samples in the plant's lab.DARRYL DYCK/The Globe and Mail

“We’d really like this thing to be so cheap that everybody has one,” Mr. Friedmann said. “But the reality is that today, every industry and every individual is trying to figure out how they’re going to decarbonize, and there are certain things that are quite difficult to decarbonize and some things that are impossible to decarbonize. And they all have a cost, and to the extent that we’re below that cost we’re the right solution.”

As the technology scales up, it will take time for the cost to fall to an eventual goal of US$100 per tonne of CO2 removed. It’s now much higher, and the subsidies in the U.S. legislation close that gap by US$180 per tonne.

Ottawa has instituted tax credits for carbon capture projects as an incentive to invest, but Canadian cleantech executives worry capital for green projects is being be diverted to the United States to take advantage of the richer subsidies. Many carbon capture plans are in a holding pattern.

One issue is the risk that carbon prices do not rise on time and to the level that federal Liberals have set out. The industry has called for the government to offer carbon contracts for difference, which would lock in higher prices and help projects get financing by guaranteeing revenues regardless of future governments’ climate policies.

That strategy to let others make the massive capital investments to build projects will contribute to CE remaining headquartered in Canada, Mr. Friedmann said.

Houston-based Occidental has said it is so confident in CE’s technology that it aims to build 100 such projects over the next dozen years under the banner of its subsidiary, 1PointFive. The incentives in the Inflation Reduction Act prompted the company last year to up its target from 70 facilities.

The company also leased 43,000 hectares southwest of Corpus Christi, Tex., enough area to build up to 30 plants. At today’s costs, the price tag would be roughly US$30-billion for 30 million tonnes a year of removal capacity.

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CE’s technology attracted the oil company because of its use of modular, off-the-shelf equipment, which allows the partners to build on an industrial scale quickly, Occidental spokesman William Fitzgerald said in an e-mail. The company is also one of the largest producers of chemicals used in the process.

U.S. government incentives are key today, but the goal is to reduce the costs over time as companies build more facilities and buyers line up for removal credits to deal with their own emission reduction targets.

Inflation Reduction Act provisions are expected to bolster the all-important voluntary market for credits. “Solving the atmospheric CO2 issue needs a commercial market to create scale,” Mr. Fitzgerald said. Direct air capture could also be eligible for grants under President Joe Biden’s Infrastructure Act, accelerating the push to commerciality.

Occidental’s plans show the huge potential for the technology, David Keith, the Ottawa-raised physicist who founded Carbon Engineering and serves as a director, said in a phone interview. “Obviously those aren’t hard commitments, but that’s definitely motivated by a combination of IRA and the fact that it really does seem like there are customers who are willing to pay for large blocks of CO2 removal.”

A similarly friendly business climate and government willing to provide incentives on a similar scale would set in motion more carbon capture development in Canada, as would a large pool of willing buyers for the credits, he said. Another draw for developers is cheap, low-carbon energy to power the gear.

His small company gained attention for its early investment by Mr. Gates and Canadian oil and gas financier Murray Edwards. In 2019, CE took the next step when BHP Group, Chevron Corp. and Occidental, as well as Canadian billionaire Peter J. Thomson, invested $68-million. The government of Canada chipped in $25-million that year.

But 2022 was clearly a breakout year. Jet maker Airbus SA agreed to buy 400,000 tonnes of carbon removal credits from the new Texas facility. And last month, the NFL’s Houston Texans added the team’s name to the roster of buyers, which also includes Shopify Inc. and ThermoFisher Scientific. After the project got the green light, Airbus and Air Canada, both looking for ways to counteract the high emissions from air travel, invested millions in CE.

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CE has been developing direct-air capture technology since 2009, and remains focused on fine-tuning it at its recently completed innovation centre in Squamish, B.C.DARRYL DYCK/The Globe and Mail

Besides sequestration, CE is studying the potential for CO2 as feedstock for sustainable aviation fuel. Its use will be a wash in terms of greenhouse gases in the atmosphere, but it will not add to the problem. Other benefits: The feedstock is unlimited and its production will not use land that is necessary for food production.

CE is not the only company developing direct air capture technology. Swiss-based Climeworks AG has a two-step process to remove carbon dioxide and inject it underground as a liquid. It offers businesses and individuals a subscription plan to pay monthly for removal. In 2021, the company began operating a project in Iceland called Orca that removes 4,000 tonnes of CO2 per year.

For Prof. Keith, who is a professor of applied physics at the Harvard School of Engineering and Applied Sciences and a professor of public policy at the Harvard Kennedy School, as well as a mountain climber, the Texas project vaults his company closer to a commercial stage that can be elusive for startups – even those with star backers.

“The really big news is definitely construction,” Prof. Keith said. “Getting investments in cleantech companies isn’t very hard these days, but actually building real commercial-scale hardware is the real thing. So, from my perspective, that’s the thing that makes it feel completely different than it did a year ago.”

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