By betting it can solve its emissions problem with carbon capture and storage, Canada’s oil and gas industry risks saddling itself with expensive stranded assets, a new report argues.
The report, released last Thursday by the International Institute for Sustainable Development (IISD), concludes carbon capture and storage technology costs too much and takes too long to build to have any hope of helping industry meet Canada’s 2030 emissions reductions target, The Canadian Press reports.
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Calling the technology “expensive, energy intensive (and) unproven at scale,” the report urges the federal government not to put any more public money into the oil and gas industry for carbon capture deployment.
“The application of CCS does not align with the time scale or ambition necessary for limiting global warming to 1.5°C,” the report states. And “the opportunity cost of investing in CCS and the risk of stranded assets for Canada’s oil and gas sector will intensify as global climate ambition ratchets up and demand for oil and gas declines.”
Carbon capture and storage technology has existed for decades, but it’s expensive and has been slow to scale up, CP writes. There are currently just seven CCS projects in operation in Canada, five of them in the oil and gas sector, and only 30 commercial-scale CCS projects in operation globally. The projects serving fossil companies capture 2.7 million tonnes of carbon dioxide equivalent (CO2e) per year, just 1.3% of the industry’s pre-pandemic emissions, and 70% of that carbon is used to push more oil out of the ground through enhanced oil recovery (EOR).
Of the 13 “flagship” projects that account for 55% of the world’s carbon capacity, a study last year by the Institute for Energy Economics and Financial Analysis found that seven underperformed, two failed outright, and one was mothballed.
“CCS technology has been going for 50 years and many projects have failed and continued to fail, with only a handful working,” said IEEFA co-author and veteran investment analyst Bruce Robertson said at the time. “Many international bodies and national governments are relying on carbon capture in the fossil fuel sector to get to net-zero, and it simply won’t work.”
The IISD report shows that global carbon capture capacity totalled only 39 million tonnes in 2020, compared to the 300 megatonnes the International Energy Agency projected for that year in 2009, and the 35.3 billion tonnes that humanity actually emitted. For 2030, the IEA is calling for more than 1.5 billion tonnes of carbon capture.
Still, the oil and gas industry has high hopes for the technology, CP writes, with a number of new projects in the planning stage in Canada. Most notably, the Pathways Alliance—a consortium of the country’s six largest oil sands companies—has proposed a major carbon capture and storage transportation line that would capture CO2 from oil sands facilities and transport it to a storage facility near Cold Lake, Alberta.
The project is expected to cost C$16.5 billion (if it stays on budget) and is the centrepiece of the industry’s $24.1-billion pledge to reduce greenhouse gas emissions from oilsands production by 22 million tonnes by 2030. But a final investment decision has not been made, fossil executives have been warning for many months that they won’t take action without a generous increase in government subsidies, and the Alliance has been sharpening that message in the lead-up to next month’s federal budget.
IISD Energy Transition Specialist and report co-author Angela Carter said fossils are looking to taxpayers to back up their risky bet on CCS.
“The oil sector in Canada has been identifying CCS as the major component of its plan to bring down emissions,” she told CP. “In fact, some industry representatives, they frame CCS as the only option to make the kind of large inroads that are needed to reduce emissions in the oil and gas sector. It’s very much like the industry is putting all of its eggs in the basket of CCS.”
In a recent op-ed, James Millar, president and CEO of the International CCS Knowledge Centre in Regina, cast carbon capture as a way for Canada to “have its environmental cake, and eat it too.”
Millar said the wide-scale deployment of carbon capture technology will allow for a transition to net-zero “while maintaining the viability of industries that have long sustained communities and workforces across the country.”
“To build this capacity, industry is looking for strong signals that investments in CCS and other emissions reduction technologies align with Canada’s low-carbon future,” Millar said.
“Wider investment in CCS requires clear policy providing long-term certainty on carbon pricing, along with other mechanisms that will ensure Canada remains an attractive location (especially when compared to the United States) to undertake multi-billion-dollar projects.”
But “doubling down on tax credits that are in fact subsidies to the oil and gas industry is exactly the wrong message to be taking back to Canada from the IRA,” Climate Action Network-Canada Acting Executive Director Caroline Brouillette told The Energy Mix last week.
The U.S. Inflation Reduction Act (IRA) includes CCS tax credits, but it mainly “seeks to help people move to energy choices that are compatible with a safe climate, like making the move to heat pumps and investments in renewables and efficiency,” she added. “Extending the lifespan of an industry that is the root cause of the crisis is not what we should be doing, especially when life is more expensive because of the volatile prices of these fuels.”
Carter scorched the industry’s continued lobbying for more government funding and regulatory support for carbon capture projects, above and beyond the investment tax credit announced in last year’s federal budget.
She pointed out the seven CCS projects currently operating in Canada capture just 0.5% of national emissions, and that ramping that up to significant levels by 2030 would require massive government subsidies.
“CCS has been over-promised and under-delivered,” she told CP, adding that a more cost-effective use of public funds would be to encourage near-term emissions cuts through regulations, such as the federal methane rules currently under development.
Government should also be focusing on energy efficiency and electrification and planning for a long-term decline in oil and gas production, Carter said.
In a report published last August, BMO Capital Markets argued that government can and must do more to get carbon capture projects up and running in this country.
The report said the IRA south of the border ensures roughly two-thirds of a project’s capital and operating costs are covered by the U.S. government. By comparison, the BMO report said, the investor tax credit announced by the Canadian federal government in 2022 would cover less than 15% of the proposed Pathways Alliance carbon capture project’s total costs by 2050.
“We believe the U.S. policy advancement further underscores the need for substantially more robust policy incentives to bolster Canada’s competitive position in the decarbonization race,” the BMO report stated.
But IISD’s analysis shows Canada’s investment tax credit providing double the subsidy amount that fossils can receive under the 45Q tax credit in the U.S., a spokesperson said.
The main body of this report was first published by The Canadian Press on February 9, 2023.
