Carbon capture utilization and storage (“CCUS”) is an important strategy as Canada moves to decarbonize the economy. With Canada taking measures to reach net-zero emissions by 2050, including creating a national backstop that places a price on greenhouse gas (“GHG”) emissions, it is critical to find ways to draw down CO2 that is emitted into the atmosphere.
Numerous industrial processes generate CO2. However, this CO2 can be captured at the source of the emissions, such as at power plants and refineries. Once captured, concentrated CO2 can be transported to places where it can be used as an input, for example, for enhanced oil recovery (“EOR”) or securely and permanently stored underground in deep geological formations.
Western Canada is a Leader in the Deployment of CCUS
In 2014, SaskPower deployed the world’s first carbon capture facility that is fully integrated with a post-combustion coal-fired power plant. BD3 has surpassed four million tons of CO2 captured since operational start-up, and offers a proven industrial-scale application for carbon capture.
Alberta has also deployed carbon capture to reduce the province’s GHG emissions. The Quest Project retrofitted one of Shell’s upgraders for CCS and is the world’s first application of the technology at an oil sands upgrader. Further, the Alberta Carbon Trunk Line Project (ACTL) is an example of shared infrastructure for CCUS with a 240-kilometer pipeline that carries CO2 captured from both the Sturgeon Refinery and the Nutrien Redwater fertilizer plant to enhanced oil recovery projects in central Alberta.
Provincial Governments Explore Shared CCUS Infrastructure
To manage the deployment of CCUS, both the Saskatchewan and Alberta Government are exploring the use of shared infrastructure to create CCUS hubs and CO2 pipelines. In Alberta, where the provincial government owns the pore space, a competitive process called the Carbon Sequestration Tenure Management Framework is being used to develop carbon capture hubs as opposed to one-off projects. The Alberta Government recently requested Expressions of Interest from companies interested in building, owning and operating a carbon sequestration hub in Alberta. Requests for Full Project Proposals will be accepted January 4-February 1, 2022 with the selection of successful proponents targeted for the end of March 2022.
Similarly, in Saskatchewan, in September 2021, the Minister of Energy and Resources announced the provincial government’s key priorities to advance private sector investment in CCUS. One of the initiatives includes exploring opportunities for CCUS infrastructure hubs and distribution models, including for the Regina-Moose Jaw Industrial Corridor to Southeast Saskatchewan and Greater Lloydminster areas.
Capital Expenditures a Challenge for CCUS Projects
One of the greatest challenges for CCUS is that it requires significant capital expenditure. As a result, government support is critical to the deployment of CCUS, including through mechanisms that defray the costs, such as tax incentives. In its 2021 budget, the federal government proposed the introduction of an investment tax credit for capital invested in CCUS projects with the goal of reducing emissions by at least 15 megatons of CO2 annually. The government held an engagement process, seeking input from key stakeholders on the design of the investment tax credit. An important issue for Saskatchewan and Alberta will be whether CCUS projects for EOR will be included in the tax credit when it becomes available in 2022, as the federal government has yet to indicate whether CCUS projects for EOR will be included.
Regulatory Changes Required to Support CCUS
Government support for CCUS is also necessary through the creation of a regulatory environment that provides industry with certainty. While some provinces, such as Alberta, have created a fairly comprehensive CCUS regulatory regime, other provinces and aspects of the federal government’s climate plan are still in development.
Important issues include:
- the ownership of pore space;
- long-term liability for stored CO2;
- a framework for how the reduction of GHG emissions will factor into the applicable Output Based Pricing System (OBPS); and
- an off-set credit program.
As new CCUS projects begin, it is important for industry participants to stay up to date on the regulatory landscape and government incentives available given the importance of these factors on the overall economic success of the projects.