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The Keephills 3 coal-fired electricity-generating facility located about 70 kilometres west of Edmonton. Last April, this CCS project bit the dust when TransAlta Corp. cancelled the Pioneer project that was to have captured the carbon from Keephills 3.

For the second time in less than a year a key carbon capture and storage project in Alberta has been hit with a major setback, denting the province's efforts to combat carbon emissions.

The Alberta government cancelled its $285-million funding of the CCS project associated with the proposed Swan Hills Synfuels LP synthetic gas plant north of Edmonton. The plant, which is to turn underground coal into synthetic natural gas, was supposed to include a government-supported carbon capture component that would have stripped out the carbon dioxide, stored it, then sold it for use in enhanced oil recovery.

Swan Hills Synfuels president Douglas Shaigec said the entire project has been deferred because of low natural gas prices, which have hurt the economics of producing synthetic gas. As a result of the delay, the project no longer qualifies for the government's CCS support program, he said.

Mr. Shaigec said the gasification project will eventually go ahead – a demonstration plant is already operating – although the timing depends on the movement of natural gas prices. Carbon capture will be included in the project, but it will be funded by the company without government support, he said.

Last April, another flagship Alberta CCS plan bit the dust when TransAlta Corp. cancelled the Pioneer project that was to have captured the carbon from the Keephills 3 coal-fired power plant. Despite government funding, TransAlta and its partners decided they could not justify the expense.

That leaves two substantial government-backed CCS projects under way in the province. One is Royal Dutch Shell PLC's Quest project that will capture and store CO2 from an oil sands upgrader near Fort Saskatchewan. The other is the Alberta Carbon Trunk Line, a 240-kilometre pipeline that is to carry CO2 from a fertilizer plant and oil sands refinery to central Alberta, where it will be used to squeeze more oil out of existing oil wells. It is a joint venture of Enhance Energy Inc., North West Upgrading Inc. and Agrium Inc.

Alberta Premier Alison Redford told reporters in Edmonton Monday that the goal of the province's CCS support program was to find projects that appeared to be economically viable, but the decisions on whether to go ahead had to be made by the project proponents. The cancellation of the Swan Hills CCS agreement "is unfortunate, but one of the reasons we wanted to have the program is for lessons learned. We still have $1.3-billion that's invested in other projects," she said. "We're not going to continue to push things if the private sector's telling us they don't make sense."

Rob Anderson, finance critic for the opposition Wildrose party, said the provincial government should not be spending money supporting corporations in these kinds of projects. "It is blatant corporate welfare," he said. Instead, the province should set reasonable carbon emission standards that companies must meet, then enforce them carefully.

Eric Beynon, director of strategy and policy at Integrated CO2 Network, a group of Canadian corporations interested in CCS development, said the Swan Hills announcement is a disappointment, but there is "still a lot of momentum in the other projects."

Aside from the two in Alberta, there is a large CCS project under way at SaskPower's Boundary Dam coal-fired plant near Estevan, Sask. That project, supported by the federal government, will capture CO2 from the flue gas emitted from the plant. "Canada is a world leader in progressing this technology and we still have three world-scale projects under development," Mr. Beynon said. " I caution people not to draw any big conclusions from [the Swan Hills] project."

While the problems at Swan Hills were mainly related to natural gas prices, many CCS projects will not be viable unless governments put in place much more stringent climate policies, said Matt Horne, director of climate change at the Pembina Institute, a Calgary-based environmental think tank.

Those policies could include putting a price on carbon, establishing a cap and trade system, or setting performance standards, he said. "Any of those amount to a much more stringent system than we currently have in place in Canada."

With files from reporter Josh Wingrove in Edmonton

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