Feds Promise Consultation as Carbon Capture Tax Credit Draws Fire

Big industrial emitters are emerging as major winners from the climate-related elements of this week’s federal budget, even though the Alberta and Saskatchewan governments are already fretting that the billions in new funding won’t flow quite the way they’d hoped.

“The biggest new climate-related expenditure promised in Monday’s budget is an additional C$5 billion over seven years, atop $3 billion previously announced, for the Net Zero Accelerator—a fund geared mostly toward helping heavy-emitting sectors transform themselves through clean technology investment,” writes Globe and Mail climate columnist Adam Radwanski. “The most contentious new promise is an investment tax credit for carbon capture, utilization and storage (CCUS), which stands to be a boon for sectors whose emissions are otherwise difficult to reduce.”

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The budget lays out $319 million over seven years for CCUS research, development and demonstration projects, while committing to an investment tax credit for CCUS and hydrogen production intended to reduce emissions by at least 15 megatonnes per year. Depending on its design and uptake, the credit could be worth billions of dollars.

“The government will move quickly with a 90-day consultation period with stakeholders on the design of the investment tax credit, after which it will announce more details—including the rate of the incentive,” the budget states. “It is not intended that the investment tax credit be available for Enhanced Oil Recovery (EOR) projects,” the document specifies, but rather for direct air capture technology. Subsectors to be covered by the stakeholder consultation include tar sands/oil sands, refining, cement, fertilizer, power generation, and direct air capture, as well as key provincial governments.

Radwanski also lists a five-year, $1-billion fund to “help draw in private sector investment” for big cleantech projects, as well as a corporate tax cut for zero-emission technology producers.

“It adds up to a clear decision about where Ottawa believes it can get the best bang for its buck, given the pool of money available for climate initiatives was smaller than many green stimulus advocates had hoped,” he writes. “That’s a consequence of most of the budget’s $100 billon in recovery spending going to a national child care program and other social and economic investments that aren’t primarily environmental.”

In the lead-up to the budget, the Jason Kenney government in Alberta had demanded $30 billion in federal CCUS subsidies over 10 years. In the end, “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 Globe writes.

While details of the tax credit await the federal consultation, “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,” the paper adds. Saskatchewan Premier Scott Moe said the exclusion “really begs the understanding of how we actually use” carbon capture and sequestration. Alberta Energy Minister and former pipeline executive Sonya Savage called the decision “disappointing”.

Ottawa’s apparent aversion to including Enhanced Oil Recovery in 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,” the Globe adds. “The province’s industrial emissions—including oil and gas production, and power generation—account for more than one-quarter of Canada’s total emissions,” and the same document that called for the $30-billion subsidy also said CCUS could cut Alberta’s industrial emissions by 30 megatonnes over the next decade.

The CCUS announcement provoked nervous pushback from several climate analysts.

“Without robust conditions, this money may go to support technologies, including carbon capture and fossil fuel-derived hydrogen, that will delay a transition away from fossil fuels and lock us into decades of increased carbon pollution,” said Julia Levin, climate and energy program manager at Environmental Defence Canada. “These unproven and expensive technologies also obfuscate the reality that the energy transition is happening, and if we fail to prepare, it will be workers and communities to pay the price.”

“The budget mentions hydrogen 40 times, sometimes specifically green hydrogen, but also seemingly leaves the door open to incentivizing grey hydrogen,” cautioned Independent Senator Rosa Galvez. “These details matter considering almost all hydrogen currently produced in Canada is from fossil fuels. Other countries, such as Germany and the recent joint statement by the U.S. and China, are increasingly clear that only hydrogen produced from renewables is deserving of support. Having green strings will be essential to ensure we are not simply propping up the fossil fuel industry at the expense of the climate under the mantle of greenwashing.”

“Public investments in carbon capture, utilization and storage must be weighed against other opportunities to drive emissions reductions in Canada on a tonne per dollar invested basis,” said the Pembina Institute’s Alberta director, Chris Severson-Baker. “Preference for public funding should be given to opportunities more likely to result in full decarbonization of Canada’s economy by 2050 in a manner that is consistent with limiting warming to 1.5°C, while generating significant economic opportunity and jobs per dollar invested for workers and communities.”

He added that “any public funding to decarbonize the industrial sector must come with strings attached, including corporate-level commitments to net-zero supported by robust net-zero plans that prioritize direct emissions reductions ahead of offsets.”