From the Editor: Canada’s transition plans advance at glacial pace [Gas in Transition]

Nearly three years ago, in his 2021 budget, Canadian Prime Minister Justin Trudeau announced that Canada would implement an investment tax credit (ITC) to support carbon capture, utilisation and storage (CCUS) investments.

At the time, that was all that was announced. A year later, in his 2022 budget, Trudeau said the ITC would be set at 50% for capture equipment and 37.5% for investments in equipment to transport and sequester the captured CO2. The ITC was intended as Canada’s answer to US President Joe Biden’s Inflation Reduction Act, which ramped up tax credits already available for carbon capture (45Q credits), but again, no additional details were provided.

Along the way, grumblings began to surface from industry that a tax credit for CCUS was all well and good, but would need measures to ensure Canada’s carbon price – set to reach C$170/tonne by 2030 – would remain in place to ensure certainty that investments in carbon capture wouldn’t become white elephants. Carbon contracts for differences (CCfDs), they said, were needed as insurance.

Finally on November 21, federal Finance Minister Chrystia Freeland (she’s also deputy prime minister), as part of her fall economic statement, said legislation to implement the ITC would be coming before year’s end. At the same time, she said C$7bn of the new C$15bn Canada Growth Fund would be set aside for CCfDs.

But again, no details. And while most in industry were encouraged by news that contracts for differences would be available, no one yet knows how many projects – Wood Mackenzie says there are 61 CCUS projects under development in Canada – will actually fit under that C$7bn umbrella.

Hurry up and wait

“We need more robust entry into carbon contracts with industry to spur real investment,” Alberta Energy Minister Brian Jean said. He was similarly chuffed about the need for industry to hurry up and wait for the CCUS ITC. “Alberta and our industry partners have lost three construction years because of federal delays in implementing their commitments,” he said.

Freeland’s Alberta counterpart, provincial Finance Minister Nate Horner, was also left wanting by Ottawa’s economic statement and the CCUS ITC and CCfDs, and said the statement “fall short of recognising and addressing the most fundamental challenges” Canada faces.

“Canada’s economy has great potential, but the federal government has yet to bring forward a comprehensive plan to spur meaningful investment and address our competitiveness challenges,” he said. “The federal government has promised, yet again, to legislate the investment tax credit for carbon capture utilization and storage – we hope they will table that legislation this fall as they have promised. And in order to spur real investment in decarbonisation, the federal government must make their carbon contracts for difference accessible to major emitters in all sectors.”

Generally, though, industry was encouraged by Ottawa’s latest moves, slow they may have been in coming.

“The CCUS ITC as well as additional resources for carbon contracts for differences are critical pieces needed for carbon capture projects to proceed and if it is competitive with other jurisdictions, it has the potential to unlock significant private sector investment,” said Lisa Baiton, CEO of the Canadian Association of Petroleum Producers, which represents about 80% of Canada’s oil and gas production.

Aniruddha Sharma, CEO of CCUS technology developer Carbon Clean, said the coming legislation to implement the CCUS ITC will “turbocharge” Canada’s efforts to reach net zero by 2050 and signals an “increased urgency” from Canadian lawmakers to decarbonise hard-to-abate sectors.

Keeping up with the US

“Importantly, Canada is keeping pace with the US on incentives to spur investment in new, low-carbon technologies,” he said. “With this announcement, Canada is showing its commitment to leading on CCUS by embracing policies to spur upfront private investment before government funding starts to flow.”

And Kendall Dilling, CEO of Pathways Alliance, which is proposing a C$16.5bn plan to capture and sequester CO2 emissions from Canada’s oil sands, said his group was encouraged that Ottawa had allocated funds for CCfDs and was looking forward “to working with the government and the Canada Growth Fund to see how they may be implemented for carbon capture and storage projects.”

But The International CCS Knowledge Centre – based in Canada – warned “the clock is ticking” on getting large-scale CCS projects in Canada underway in time to meet Canada’s emissions reduction targets “so providing clarity industry needs to make investment decisions is critically important.”

And it welcomed the C$7bn allocated for CCfDs, saying the contracts will be important for providing long-term certainty on the price of carbon emissions, which has a direct impact on the business models for major emissions reduction projects.

Clean Prosperity, a Canadian climate policy organisation that advocates for “smart” climate policy, said the CCfDs announcement is an important step towards unlocking low-carbon investment for industrial decarbonisation and spurring the potential elimination of some 33mn tonnes of emissions from industry by 2030.

“As long as the federal government maintains the carbon-pricing trajectory for industry and ensures the proper functioning of carbon markets, any funds allocated to contracts for difference…can stay in the bank, and eventually be invested elsewhere,” Executive Director Michael Bernstein said.

He also welcomed the new timeline for the introduction of the CCUS ITC, which he said will help Canada compete with the measures available in the US under the IRA.

“But tax credits can’t close the investment-incentive gap on their own. We also need carbon contracts for difference to make Canada a competitive destination for low-carbon investment.”