Carbon capture’s role in reducing Canada’s environmental footprint will come into sharp focus in this week’s budget, with Ottawa expected to release details of a new investment tax credit to make the technology more economically attractive.
The federal Liberal government announced its intention to create an investment tax credit for carbon-capture projects a year ago. While critics argue that carbon capture is an expensive technology that doesn’t incent the structural changes to the energy system needed to address climate change, proponents say Canada needs to use every tool in its emissions-reduction toolbox if it’s to meet its goal of net zero by 2050.
Carbon capture, utilization and storage (CCUS) facilities force carbon-dioxide emissions deep into the ground to keep them out of the atmosphere. The technology can be used in various major industrial sectors, including fossil-fuel production, power generation and manufacturing.
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Canada saw a flurry of CCUS announcements last year in the wake of Ottawa’s plans for a tax credit. That included a new facility at Shell Canada Ltd.’s Scotford refinery complex, as well as partnerships between Suncor Energy Inc. and Atco Ltd. for a CCUS and hydrogen facility, and Pembina Pipeline Corp. and TC Energy Corp. for a carbon transportation and sequestration system.
In Alberta’s oil sands, CCUS anchors a plan to make production net zero by 2050. The first step? A new carbon-dioxide pipeline system, which will link oil sands facilities in Fort McMurray and Cold Lake to a sequestration hub for storing captured carbon.
Alberta Energy Minister Sonya Savage told The Globe and Mail that Ottawa’s new tax credit will have to cover at least half of project construction costs for carbon-capture projects to be remotely feasible. That’s because CCUS is both expensive and lacks revenue streams outside of enhanced oil recovery (in which captured carbon is pumped into mature wells to boost production).
The tax credit must also be stackable, she said in a recent interview, so that proponents can combine it with other incentives and grants offered at a provincial level.
The federal government wants Canada to cut its emissions by at least 40 per cent below 2005 levels by 2030, and hit net zero by 2050. And its new climate plan says oil and gas sector emissions must be cut 42 per cent by 2030. A key part of that is CCUS, and Ms. Savage is adamant Ottawa won’t see the take-up it needs if the tax credit doesn’t hit 50 per cent.
“It’s their climate plan, it’s their targets, and there’s no way for them to reach it without CCUS,” Ms. Savage said.
“I guess we’ll see how badly they want to reach their own targets by the ambition of their tax credit.”
But it’s not just the energy sector banking on Ottawa’s new program.
Lehigh Cement Co. is currently developing North America’s first full-scale CCUS facility for the cement industry at its Edmonton plant, with the goal of capturing about 780,000 tonnes of carbon dioxide each year. Not far away, Capital Power Corp. is working on a CCUS project at its Genesee power plant to capture up to three million tonnes of CO2 each year.
They’ve both joined forces with pipeline company Enbridge Inc. to develop an open-access carbon hub in the Wabamun area, just west of Edmonton.
Once built, the hub will be among the largest integrated CCUS projects in the world, able to capture almost four million tonnes of carbon each year – about as much as all projects in Canada capture today.
Three other sequestration hubs are being explored for the Edmonton region, too: Bison Low Carbon Ventures Inc. is looking north of the city, Enhance Energy Inc. south, and Wolf Midstream Inc. has partnered with other companies for a hub east of Edmonton.
The Alberta government announced last week that applications for carbon-storage proposals across the rest of the province will open April 25.
But CCUS projects rely on investor certainty, says Jan Gorski, the director of oil and gas with the Pembina Institute, a think tank.
“It comes down to risk mitigation,” he said in an interview. “There’s still a difference between announcing a policy and actually putting a policy in place.”
Certainty also comes in the form of regulations that govern CCUS, clean-fuel standards and companies knowing how much a carbon tax will cost them, he said.
Adam Chalkley is the director of low-carbon development at Enbridge. Speaking with The Globe about the new Wabamun hub proposal, he said “the majority – if not the vast majority – of all carbon-capture projects contemplated in Canada likely hinge on the investment tax credit.”
Like. Mr. Gorski, he cites the need for a broader policy framework that supports CCUS, including regulations around tenure, liability and how to award pore space (the geological formations that store captured carbon).
Global interest in CCUS enjoyed something of a renaissance in 2021, with more than 100 new facilities announced around the world and global capacity on track to quadruple in the coming years.
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