For more than a decade, the oil industry has offered a particular solution to its problem of being the nation’s biggest source of carbon emissions: bury them.
Industry is trying to solve its greenhouse gas problems in many ways, but the most potential tool is carbon capture and storage technology, which collects carbon dioxide and stores it deep underground.
Some of the projects already exist in Saskatchewan and Alberta, with some facilities more efficient than others.
As the world grows in need of action on climate change and pressure on oil fields increases, industry has increasingly called for increased government support to develop, build and scale up capture and carbon storage (CCS).
The federal government came to the table Thursday, promising immediate and long-term financial support for CCS in the budget.
This is not a major expense for the government over the next few years, but it will intensify as construction begins on the plethora facilities offered. Starting in 2026, the tax credit is expected to cost $1.5 billion per year.
Attached to funding, however, comes a stern warning from the federal government that the sector not drag its feet, but rather turn words into actions and deliver on its promises – and fast.
It’s as if Ottawa had just called the industry’s bet.
New CCS support
Ottawa funded various projects to reduce emissions in the oil sector in recent years, but the federal budget included the most ambitious initiative yet with its new investment tax credit.
The federal government undertakes to cover 60% of the equipment used in direct air capture projects and 50% if the emissions come from an industrial installation. The tax credit also covers 37.5% of other eligible equipment used for the transport and storage of carbon dioxide.
“This is about jump-starting critical technology and advancing large-scale development to meet our 2030 goals,” said Kevin Birn, vice president of greenhouse gas emissions coordination at S&P Global.
Some companies collect their emissions and pump the gases into oilfields to increase production, which is called enhanced oil recovery. The government will not give any tax credit for this use, which some in the industry are not happy with.
However, the government is keeping the door open to support the use of captured emissions for use in concrete.
The federal government provided further support for the oil sector in Thursday’s budget by pledging $120.6 million over five years for the development of small modular nuclear reactors, which could provide low-emission electricity to many industries. .
Meanwhile, the Canadian Infrastructure Bank now has a broader mandate to invest in private sector projects such as small modular reactors, clean fuel generation, hydrogen generation and CCS.
The tax credit is structured to incentivize industry to rapidly adopt CCS; after 2030, the support value is halved for the following decade.
This should start a fire under the oilfield. This is also in line with the emissions reduction plan that the federal government announced last week, which appeals to the oil and gas sector dramatically reduce emissions by more than 40% by 2030.
This is also when the carbon tax is expected to reach $170 a tonne, up from $50 currently, which also encourages many industries to reduce emissions and avoid these costs.
The more the price of carbon increases, the more the tax credit will be necessary.
“The price of carbon is not high enough to incentivize CCS projects today, but it would be [by] 2030 or after 2030,” Birn said.
A senior official described the new CCS credit as one of the most important industrial tax incentives in Canada’s tax code.
With this level of financial support, it is expected that the oil sector will not miss this opportunity.
“We expect the industry to do its part. It’s the right time to do it, and they have the benefits to do it now,” the official said.
While the tax credit targets the petroleum sector, the government has listed several other industries that will directly benefit from it, such as utilities, manufacturing, engineering and construction.
The oil and gas industry had been pushing for a more generous tax credit, but with sky-high oil prices producing record recipesit was probably a hard sell.
“Much of the industry was hoping for a higher number, but I think it’s actually a good start,” said Michael Belenkie, president of Entropy Inc., a Calgary-based company that is completing construction of its first carbon capture project.
The government must now ensure that the carbon tax continues to rise, so that CCS facilities are financially viable to operate – and provide more certainty for investors. That’s why Ottawa is developing these types of optional carbon contracts.
“What the government needs to be careful of is that we’re encouraging capital expenditure, and if we’re not careful we could end up with a bunch of really nice shiny equipment that doesn’t work because it’s too expensive,” he said. mentioned.
In recent weeks, the Government of Alberta has approved six proposed carbon capture projects for the Edmonton area to proceed with development, while opening applications for potential CCS facilities elsewhere in the province.
Enbridge, Pembina Pipeline, TC Energy, Shell, ATCO, Suncor and Wolf Midstream are some of the companies involved in the projects that have just been approved.
Many of these companies have established a net zero emissions target for 2050, which often includes CCS as an important tool.
The contested role of the CCS
CCS can be controversial because the projects don’t come cheap, and some environmental experts say the money could be better spent on renewables and other low-carbon projects. There are also concerns that the technology will deter high-emitting industries from producing the emissions in the first place.
This week, UN scientists presented a plan they say could help avoid the worst impacts of rising temperatures and, for the first time, they acknowledged that CCS has a role to play.
The UN’s Intergovernmental Panel on Climate Change report explained how keeping temperatures low must include some form of removing carbon dioxide from the air, whether by capturing carbon or by planting more trees.
The federal budget also includes more money for restoring and conserving wetlands and grasslands to capture and store carbon.
Ottawa has made it clear that it wants to see precipitous declines in oil emissions, and industry has in general accepted the challenge.
Now, with the government investing, the spotlight is turning squarely on industry to see if oil and natural gas producers can deliver on their promises and actually reduce emissions.