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Grant Mitchell is adviser and Craig Golinowski is managing partner at Carbon Infrastructure Partners.

Canada’s recent announcement of an investment tax credit to stimulate major carbon capture utilization and storage (CCUS) projects is a significant step forward in solving the complex energy and climate change puzzle facing Canada and the world.

Nine and a half years and 29.5 years are extremely short timelines to meet Canada’s 2030 emissions reduction target of 45 per cent (from 2005 levels) and its 2050 net-zero target. As the world’s fifth-largest per-capita greenhouse gas (GHG) emitter, and the only Group of Seven country whose emissions have essentially risen every year since the 2016 Paris Agreement, big decisions such as the CCUS tax credit and Ottawa’s $170-a-tonne carbon tax reflect a very necessary sense of urgency about climate action.

While it may be controversial to say, it is simply not possible to meet these goals in these short periods without hydrocarbon fuels. By capturing emissions, CCUS makes it possible to use hydrocarbon energy, along with renewable energy and lower-emission products, to meet the 2030 and 2050 targets. For the foreseeable time, it is reasonable, realistic and practical that the primary objective cannot be to do away with hydrocarbon fuels; the objective needs to be doing away with GHG emissions.

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Electricity produced by natural gas, for example, when combined with CCUS, can meet the massive demand for reliable and clean electricity critical to the electrification of our economy, including for the rising number of electric vehicles. Blue hydrogen can become a made-in-Canada energy product that lowers the carbon intensity of our transportation system.

Canada will have a very powerful one-two punch with the investment tax credit and the $170-a-tonne carbon tax. They are complementary incentives for reducing GHG emissions – a carrot and a stick. In fact, together, they place us among the leaders in the world in climate action, an aspiration that polls tell us is supported by a majority of Canadians.

South of the border, the United States does not face the cost of a carbon tax, but its 45Q tax credit provides a substantial financial incentive to build and maintain CCUS projects, and has resulted in 30 major projects since 2018.

Two bipartisan legislative proposals in the U.S. Senate – the SCALE Act and the Carbon Capture, Utilization, and Storage Tax Credit Amendments Act – promise to increase the value and efficiency of the 45Q tax credit. It is therefore imperative that Canada’s investment tax credit be given sufficient value and importance to ensure we are competitive in unlocking much needed CCUS investment capital, and that our economy remains internationally competitive.

The investment tax credit model proposed in the most recent federal budget has several benefits. This version of tax credit will be paid on up-front capital investment, creating an immediate stimulus for CCUS projects. If it is structured as refundable, the tax credit will be available to all corporations – taxable or otherwise. This will broaden its application and can catalyze the creation of a new sector of specialized startup service companies designed specifically around CCUS expertise.

The tax credit will also attract major institutional investors looking for large capital projects with predictable cash flows. Furthermore, the funding will not only apply to oil and gas, but to many other industrial processes, including the production of electricity, fertilizer, cement, steel and chemicals, in every province and territory in the country.

The significant economic potential of CCUS investment is worth pointing out. According to a recent Bank of America analysis, cumulative investment in CCUS globally could hit US$1-trillion by 2050, up exponentially from an estimated US$1.75-billion today. Consumers and investors are demanding zero-emissions products and investments, and CCUS will contribute to both.

There is also a strong basis in all of this for productive, momentum-building collaboration with the U.S. With our CCUS initiative, Canada, alongside the U.S., can be a catalyst in creating economies of scale in fighting emissions and stimulating zero emission technologies, while meeting increasing demand for reliable clean energy, creating high-paying jobs and maintaining economic competitiveness.

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