With this year’s federal budget just over a month away, Canada’s oilsands industry is once again demanding more generous federal subsidies—or what it prefers to call “clarity” on Ottawa’s intentions—before investing its own lavish shareholder returns in the technology it says it needs to decarbonize its operations.
The Pathways Alliance, whose six members account for about 95% of the country’s oilsands extraction, says the companies won’t move ahead with the C$16.5-billion carbon capture and storage (CCS) hub they’ve been pledging to build in northern Alberta unless Canadians add to the $7.1 billion tax credit that Finance Minister Chrystia Freeland extended to them in her 2022 budget, the Calgary Herald reports.
“These massive projects take a lot of thought and they take a lot of time. That’s why I do get a bit frustrated when I hear some politicians and others publicly state that we should already have shovels in the ground for the Pathways CCS project,” Rhona DelFrari, chief sustainability officer at Cenovus Energy, told the company’s investor day in Toronto.
“With what we know today,” she added, “the government funding partnerships in Canada are not enough for large-scale CCS to proceed in the oilsands.”
DelFrari said the industry’s concerns about “policy certainty” are “also being affected by a series of federal initiatives, such as the incoming emissions cap on the Canadian oil and gas sector,” the Herald says.
The latest draft of the cap already sets lower expectations than the 42% the government previously estimated the industry would have to cut over 2019 emissions levels if Canada were to meet its climate targets in 2030. By then, Pathways had already declared the very idea of a federal emissions cap “very aggressive” and “almost unrealistic”.
Now, DelFrari says a “lack of clarity” on the regulations governing the CCS tax credit could prevent companies from tapping into its full value.
“First of all, we can’t start construction of the CO2 pipeline or sequestration hub without regulatory approval, and that process, as I mentioned, is still under way,” DelFrari said. But “without competitive fiscal incentives, our country risks being left out as large-scale emissions reduction investments are developed and deployed elsewhere where they get the best returns.”
Last month, Energy and Natural Resources Minister Jonathan Wilkinson called on Pathways “to start to show actual progress on the ground” rather than just running a PR campaign to tout its decarbonization commitments, the Herald writes. “He is getting more frustrated as they continue to drag their heels, despite the federal government delivering on everything that is promised,” said spokesperson Carolyn Svonkin. “In order for talks to remain more productive, they need to do more of their homework.”
At least one industry observer expressed skepticism with Cenovus’ demands.
“Cenovus’ remarks clearly indicate that it views carbon reduction as a public cost and an issue of compliance instead of one of emitter responsibility,” wrote David Van Alstyne, president of CleanTechonomics Energy Ltd., an advanced renewables and waste-to-energy company based in Waterloo, Ontario.
“By blaming the federal government for lack of support, Cenovus continues to work toward controlling the message that they (and the industry in general) are not responsible for emission reductions,” he said on LinkedIn. In the absence of funds, he speculated, the company would do “probably nothing” to decarbonize.
At the same investor day where DelFrari spoke, Cenovus said it planned to increase its oilsands extraction by 19% over the five years, Reuters reported last week. “This represents a new pathway into global markets,” Chief Commercial Officer Drew Zieglgansberger told investors.
During that same event, Cenovus committed to return 100% of its free cash flow to investors, Van Alstyne wrote.
“Why not allocate that free cash flow to decarbonizing your operations and investing in alternative, low/no-emitting energy sources instead of relying on public monies to increase investor returns?” he asked. “Cenovus is a clear example that, in the absence of regulatory structure and an effective carbon pricing system, business as usual will not solve the climate challenges we face as it remains focused on self-interest and shareholder returns.”
Even before the tax credit funds begin to flow, Parliamentary Budget Officer Yves Giroux is warning the program may run more than $1 billion over budget, CBC reported last month. While the subsidy was supposed to cost $4.6 billion between 2022 and 2028, the tax credits are not capped, so they could cost as much as $5.7 billion.
“These tax credits are being designed without a ceiling,” Julia Levin, national climate associate director at Environmental Defence Canada, told the national broadcaster. “That means the final cost for Canadian taxpayers could end up being much, much more significant.”
But even though the industry itself admits that CCS won’t be able to deliver significant results before 2035—much less the United Nations’ 2030 deadline for the world to cut climate pollution by 45%—a spokesperson for Freeland defended the technology as an “historic investment” in Canada’s “clean economy”, CBC says.
“Carbon capture, utilization, and storage is essential to reducing Canada’s emissions,” said senior communications adviser and press secretary Katherine Cuplinskas. “We know that Canada cannot afford to miss out on this economic opportunity, and we want to incentivize businesses to reduce their emissions as soon as possible.”
