While politicians are on the campaign trail, the federal bureaucracy is still working away at a major, time-sensitive and contentious component of Canada’s climate policy.
A big new subsidy for carbon capture, utilization and storage (CCUS), through an investment tax credit, is currently in public consultations scheduled to end next week. Per the April federal budget, in which the measure was promised, it’s to take effect sometime in 2022, requiring a swift implementation process.
Meanwhile, the Natural Resources department is in the midst of preparing a more comprehensive strategy for how Ottawa can support CCUS’s growth. An early draft obtained by The Globe and Mail is boosterish – noting that Canada has been a leader on CCUS innovation, is home to one-fifth of large-scale CCUS projects currently in operation, and has unique potential for massive carbon-storage hubs in Alberta and Saskatchewan. But it does not yet include specific policy recommendations beyond the tax credit to get there.
All this makes CCUS an example of an important aspect of the governing Liberals’ agenda that they disrupted with their early election call.
But the disruption could be a blessing, if it leads to much-needed public discussion around where CCUS fits into Canada’s emissions reduction plans.
Carbon capture is a pivotal component of the broader question about what role the resource sector will play in the transition to a clean economy – back in the news this week, with the Liberals promising to start setting five-year emissions targets for the oil and gas industry.
As the Natural Resources document makes clear, fossil fuel companies have been leading the CCUS push in Canada, have the readiest expertise and infrastructure to capitalize on it, and may be reliant on it for “long-term viability” in a world striving for net-zero emissions.
It’s likely that federal financial support for CCUS, increasingly identified by entities such as the International Energy Agency as an inescapable aspect of global decarbonization, will follow the election regardless of the vote’s result.
The Conservatives argued for the tax credit before the Liberals committed to it, and the Tories’ platform commits them to introducing it as part of a $5-billion CCUS package. The NDP platform doesn’t mention carbon capture one way or the other.
But despite agreement between the two leading parties on the need to subsidize this form of technology, which in varying ways captures emitted carbon and uses it in industrial processes or buries it underground, there is lots of room for debate about how exactly they back CCUS.
Few issues are more divisive for Canadian environmentalists. Some groups, such as the Pembina Institute, have aligned with the Alberta government in advocating for major federal support. They argue that for petroleum and other hard-to-decarbonize sectors, such as steel and cement, CCUS is a valuable transitional tool to counterbalance unavoidable emissions and remain competitive.
Proponents also point to the need to keep pace with the United States, where there is already a large production tax credit for CCUS.
Other groups, such as Environmental Defence, are much more skeptical. They portray CCUS as greenwashing that distracts from the need to wean off oil and gas. Carbon capture may counterbalance some of the pollution from production of those fuels, but they say it won’t negate emissions over petroleum’s life cycle, the bulk of which come from consumption. Critics also worry about leakage of the captured carbon.
They are somewhat more open to CCUS for non-resource industries, but generally suggest it’s a cop-out from the harder work of climate transition, giving false comfort because it’s insufficiently scalable.
Those competing voices are still making their cases as the federal consultations collide with the campaign, and many key questions are still very much in play.
Perhaps the most obvious question is what share of total emissions reductions can be met by pulling carbon out of the air.
When the Liberals promised the tax credit, they said it would reduce Canada’s annual carbon emissions by at least 15 megatonnes by 2030, little more than 5 per cent of the total reductions they have promised by then. Advocates who have led the push, such as Beth Hardy of the International CCS Knowledge Centre in Regina, suggest the impact could be much greater: perhaps 60 to 70 megatonnes.
It’s difficult to pinpoint, because of unpredictable factors such as technological advances and global cost curves. But targets could be instructive in setting the policy path.
From there flows the question of how big the tax credit should be, which the Liberals did not indicate in their budget and the Conservatives have not specified despite their pledge of $5-billion for CCUS in general. Proponents expect the credit to cover more than 50 per cent of CCUS projects’ capital costs, but acknowledge some federal Finance officials would prefer a much lower proportion.
There are other cost considerations, such as whether to make the tax credit refundable. Or whether to offer premium rates for certain enticing but more expensive forms of CCUS such as direct air capture, which pulls carbon from the atmosphere rather than catching site emissions from specific industries. That’s an area where Canadian companies have made advances but not found as much early investment here as elsewhere.
How long and how generously to subsidize investment, until CCUS become economical on its own, partly depends on the ramp-up of domestic carbon pricing and whether an international carbon trading market takes shape.
As for how much the fossil fuel industry benefits, the biggest question may be about what is done with the captured carbon.
Currently, the most common use is enhanced oil recovery, which involves injecting carbon underground into oil deposits. It helps reduce the environmental impact of the extraction process, and most injected carbon stays in the ground, but it could lead to more oil production than would otherwise be the case.
This is where there could be the most daylight between the federal parties backing CCUS.
The Liberals have explicitly said enhanced oil recovery will be excluded from the tax credit. But the document from Natural Resources, which tends to be more sympathetic to the oil and gas industry than other federal departments, makes several positive references to enhanced oil recovery.
Such enthusiasm could find a more receptive audience with the Conservatives. They haven’t specified whether enhanced oil recovery would qualify for the credit, if they’re elected; given their relative closeness to the industry, it seems likely.
There could also be differences in the parties’ openness to other forms of financial backing for CCUS projects that would benefit oil producers, such as direct funding for infrastructure to transport captured carbon between sites.
It’s hard to know how big those differences are, because the parties have yet to shed much new light on their carbon capture plans so far this campaign.
It may not be realistic to expect them to delve into all the nuances in the midst of a race in which they’re trying to woo voters with high-level promises.
But a stronger sense of the values and priorities that will steer such an important component of Canadian climate policy – one that will involve billions of public dollars, and help determine the future place of the fossil fuel industry in our economy – would be valuable before the election of the government that will implement it.
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