Alberta says hole in Ottawa's carbon capture plan will hurt reduction efforts

Feds need to expand tax-credit qualifier to run emissions program, Kenney says

The Alberta government and the country's largest oil and gas lobbying group say a gap in Ottawa's planned carbon capture tax credit will be counterproductive in reducing emissions.

The federal budget, released Monday, includes the promise of major tax credits for carbon capture utilization and storage projects (CCUS) beginning in 2022, including hydrogen production, with the aim of reducing emissions by at least 15 megatonnes every year.

However, enhanced oil recovery (EOR), in which pressurized carbon dioxide is injected into older reservoirs to squeeze out more oil or gas, won't be able to get the tax credit. The process can permanently bury carbon, while still extracting gas — a win-win for the industry, but a worry for some environmentalists who fear it could delay the transition away from fossil fuels.

Details, including rates, will be announced after a 90-day consultation with stakeholders.

Premier Jason Kenney said Tuesday the federal government needs to expand qualification for the tax credit if the federal government is serious about its emission reduction goals.

“We think it's contradictory, because the budget document also refers explicitly to the Carbon Trunk Line which leads to enhanced oil recovery at net-zero,” he said, adding the federal government has to help make CCUS a mainstay of Canada's climate policy.

Finance Minister Travis Toews and Energy Minister Sonya Savage have echoed the premier's concerns, with Toews saying Tuesday “the devil will be in the details.”

Although Alberta had pushed for $30 billion over 10 years for CCUS, the budget saw only $319 million pledged for research and development over seven years.

Kenney noted that Canada needs to compete with a similar tax credit south of the border. American EOR projects are eligible for 45Q tax credits.

“This has to at least meet, or preferably beat the United States when it comes to attracting capital into this critical technology,” Kenney said.

Tim Mcmillan, president and CEO of the Canadian Association of Petroleum Producers (CAPP), said in a statement Tuesday the budget's emphasis on clean technology innovation and lower emissions is in line with industry goals, but excluding EOR from the planned tax credit is counterproductive.

“The tax credit can be instrumental for the enablement of carbon capture, but without ongoing revenue from the carbon dioxide it creates a much bigger financial hurdle,” said Mcmillan.

The federal finance ministry did not provide a comment in response to Postmedia's questions about why enhanced oil recovery was excluded as of press time.

David Layzell, director of the Canadian Energy Systems Analysis Research (CESAR) Initiative at the University of Calgary, said CCUS is a huge opportunity for Alberta's energy industry, but he wasn't surprised to see EOR excluded because of differing political views.

Layzell said more detailed numbers about how much carbon is captured throughout the entire production and life cycle of energy products could help the industry make a stronger case for CCUS and EOR as essential stepping stones towards net-zero.

“Alberta companies, I think, need to be a lot more transparent,” said Layzell, adding producing zero-carbon energy carriers like hydrogen will be key if Alberta is going to be a leader on CCUS.

“The whole world is moving in this direction,” he said.

Layzell said there's no ban on enhanced oil recovery, and the federal price on carbon, now at $40 per tonne, could go a long way on its own to encouraging EOR.

“One doesn't necessarily need the direct tax rebates ... to incentivize enhanced oil and gas recovery,” said Layzell.

NDP Leader Rachel Notley agreed Tuesday that Alberta needs more details on support for the oil and gas sector, but said it also needs a more functional relationship with Ottawa.

“We cannot carry on pretending there isn't a need for us to significantly reduce our emissions, and it will cost Albertans more than other parts of the country,” said Notley.

We think it's contradictory, because the budget document refers explicitly to the Carbon Trunk Line.