Budget: Ottawa Introduces $2.6B Carbon Capture Tax Credit

CALGARY — Ottawa is urging oil and gas companies to act quickly to take advantage of a major new tax credit for carbon capture and storage, an expensive technology that proponents say could play a major role in reducing emissions. greenhouse gas emissions in this country.

In the federal budget announced Thursday, the Liberal government said it will allocate $2.6 billion over five years to a tax credit for companies that invest in projects that employ the technology, which traps greenhouse gas emissions from industrial sources and stores them in deep in the ground to prevent them from being released into the atmosphere.

Beginning in 2022, businesses will be able to claim a tax credit of up to 60% for direct air capture projects and 50% for all other eligible carbon capture projects. A tax credit of 37.5 percent is available for investment in equipment for the transport, storage and use of carbon. (Enhanced oil recovery, which involves injecting carbon underground to extract more oil from older wells, is excluded from the tax credit.)

The government will lower tax credit rates by 50 percent in 2031 in an effort to get companies to build their carbon capture projects now, not later.

Kent Fellows, an assistant professor of economics at the University of Calgary School of Public Policy, said it’s clear Ottawa wants the needle to move.

“It’s potentially a lot of money, and especially very quickly,” Fellows said of the tax credit. “They (the government) are looking to make this happen quickly. They are looking for companies that will get up off the couch and really put these proposals into action.”

Canadian oil and gas companies have reported record profits in recent months due to rising commodity prices. But while many companies have proposed investing in carbon sequestration as a way to meet their emission reduction goals, most projects are still in the development phase.

The industry has said that large-scale buildup of carbon capture and storage in Canada will depend on government help. Power producers had pushed for a carbon capture tax credit to cover up to 75 percent of the capital costs of investing in the expensive technology.

Some of the companies that have proposed carbon capture and storage projects include Enbridge Inc., Atco Ltd. and Capital Power. Additionally, the Oil Sands Pathways to Net Zero initiative, an alliance of Canadian Natural Resources Ltd., Cenovus Energy Inc., ConocoPhillips, Imperial Oil Ltd., MEG Energy Corp. and Suncor Energy Inc, has proposed a significant carbon reduction pipeline. capture and storage transport that would capture CO2 from the tar sands facility and transport it to a storage facility near Cold Lake, Alta.

That project alone could generate around 10 million tons of emissions reductions per year and could be operational by the end of the decade, according to the tar sands group.

“With this announcement, the federal government has recognized the importance of developing new technologies to help Canada combat climate change, as well as the importance of tar sands to our country’s energy security,” said Kendall Dilling, Acting Director of Pathways to Net Zero. Alliance, in a statement Thursday.

“Because of the amount of long-term capital investment required to build carbon capture and storage infrastructure, and the speed at which we must move to meet the 2030 goals, the countries that are doing it successfully are using a collaborative model in which governments are united -investing alongside industry,” added Dilling.

Advocates say Canada cannot meet its climate goals without vastly expanding the use of carbon capture and storage technology. The government’s recently published Emissions Reduction Plan forecasts that total emissions from the oil and gas sector, including production, refining and transportation through pipelines, will fall to 110 million tons by 2030, compared to 191 million tons in 2019.

“The International Energy Agency has determined that for the world to reach net zero, carbon capture and storage technologies are one of the tools in the toolbox,” said Mark Zacharias, special advisor to the think tank Clean Energy. Canada, based in British Columbia. .

“This (carbon sequestration) could be transformative,” said Martha Hall Findlay, Suncor’s chief climate officer. “Canada has struggled to meet its emissions reduction targets…and this could take us from struggling to meet our targets to being a world leader in emissions reductions.”

However, some environmentalists argue that offering a tax credit to oil and gas producers is akin to subsidizing fossil fuel production.

“Carbon capture is not a climate solution, it’s a greenwashing strategy,” said Julia Levin of Environmental Defense. “Instead of creating another fossil fuel subsidy, the government should have invested in proven climate solutions, including renewable energy, efficient affordable housing, and transport electrification.”

In late March, the Alberta government selected six proposals from companies interested in developing what would be Canada’s first carbon sequestration and storage centers, in the Edmonton region. Selected proposals were submitted by Enbridge Inc., Shell Canada, Wolf Midstream, Bison Low Carbon Ventures, Enhance Energy and a joint venture project of TC Energy and Pembina Pipeline Corp.

Also in Thursday’s budget, the federal government announced a new 30 percent tax credit for exploration projects related to critical minerals such as lithium and cobalt, which are used in the production of electric cars and batteries.

This report from The Canadian Press was first published on April 7, 2022.

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