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Alberta Premier Jason Kenney updates media on measures taken to help with COVID-19, in Edmonton on March 20, 2020.JASON FRANSON/The Canadian Press

Alberta got its wish for the inclusion of support for large-scale, industrial carbon capture in the federal budget, but Ottawa’s requirements on the file could create a major hurdle for such projects on the prairies.

The federal budget documents released Monday include plans for an investment tax credit for carbon capture utilization and storage (CCUS) projects. The technology – which forces carbon-dioxide emissions deep into the ground, keeping them out of the atmosphere – could play a major role in lowering outputs at refineries, cement and fertilizer production plants and power stations across the country. Significantly, it could also help to reduce emissions at Alberta oil sands operations.

The International Energy Agency and the International Panel on Climate Change, among others, say CCUS projects are a necessary part of the global strategy to reduce greenhouse gases. Alberta’s oil and gas industry has been shedding jobs for five years, and Jason Kenney’s United Conservative government has in recent months become more focused on attracting investment by paying more attention to environmental, social and governance (ESG) measures.

At the same time, some environmentalists have expressed opposition to government investment in the expensive CCUS technology because it could prolong the longevity of oil and gas companies.

Details of the investment tax credit have yet to be fleshed out. Ottawa says it will move quickly to a 90-day consultation period on the design of the credit, after which it will announce more details, including the rate of the incentive.

However, Alberta and Saskatchewan seemed to be caught off-guard that the budget document specifically states the investment tax credit is not intended for enhanced oil recovery (EOR) projects. EOR is a process that involves injecting carbon dioxide underground to draw oil or natural gas out of older petroleum reservoirs.

Federal thinking on the move is that “straight sequestration” will bring Canada more rapidly to its net-zero emissions goal. But Saskatchewan Premier Scott Moe expressed concern late Monday that it “really begs the understanding of how we actually use” carbon capture and sequestration, and he’s hoping for further clarification on the matter.

Alberta Energy Minister Sonya Savage said while an investment tax credit is a positive first step toward encouraging the development of CCUS, “we will continue to look to the federal government to support the deployment of this emerging technology.”

She added, “the federal government’s decision to exclude enhanced oil recovery from CCUS programming is also disappointing.”

It might appear counterintuitive to use greenhouse gases to get more fossil fuels out of the ground as a means of reducing greenhouse-gas emissions. But the outcome of EOR is still that carbon is permanently trapped underground.

The fact Ottawa appears averse to these projects for the tax credit could be a stumbling block to new projects in Alberta, where the prospect of EOR make carbon capture schemes more financially attractive to the private sector.

In fact, one of the projects the federal government cites as a success story in budget documents, Alberta’s Carbon Trunk Line – which Ottawa helped fund – is used for getting more oil and natural gas out of mature reservoirs.

A tax credit for CCUS could better align Canada with the United States. South of the border, the 45Q tax credit gives companies a deduction for carbon that has been captured and sequestered. But the U.S. 45Q tax credit includes enhanced oil recovery projects.

A document obtained by the Globe and Mail in March showed the Alberta government made the case for federal investment by pointing to the industrial sector’s contribution to the national economy. It pointed to other countries pursuing CCUS projects, and said the country could become a global leader in the technology.

The province’s industrial emissions – including oil and gas production, and power generation – account for more than one-quarter of Canada’s total emissions. The province said the expansion of CCUS technology projects could lead to a 30 megatonne reduction, over the next decade, in its industrial sectors.

The federal budget documents released Monday pointed out the CCUS tax credit will also help to support new hydrogen production.

Cenovus Energy Inc. chief executive officer Alex Pourbaix called the possibility of a CCUS tax credit “an important step forward” in the “important work of decarbonizing Canadian oil production.”

However, the Business Council of Alberta said the budget spends in nearly every area of the Canadian economy and society, but comes up “woefully short on the approach necessary to enable Canada’s industrial and resource sectors to reach their emissions reduction potential.”

With a file from James Keller, Calgary

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