Budget 2022: Ottawa unveils $2.6B carbon capture tax credit for energy sector

CALGARY — Ottawa is urging oil and gas companies to move quickly to take advantage of a major new tax credit for carbon capture and storage technology.  In the federal budget announced Thursday, the Liberal government said it will allocate $2.6 billion…

CALGARY — Ottawa is urging oil and gas companies to move quickly to take advantage of a major new tax credit for carbon capture and storage technology.

In the federal budget announced Thursday, the Liberal government said it will allocate $2.6 billion over five years to a tax credit for companies investing in projects that employ the technology, which traps greenhouse gas emissions from industrial sources and stores them deep in the ground to prevent them from being released into the atmosphere.

Starting in 2022, companies will be able to claim a tax credit of up to 60 per cent for direct air capture projects and 50 per cent for all other eligible carbon capture projects. The government will decrease the tax credit rates by 50 per cent in 2031 in an effort to get companies to build their carbon capture projects now, not later.

“It is the right time to do this, and they have the profits to do this,” said a senior government official discussing the budget.

Canadian oil and gas companies have reported record profits in recent months due to soaring commodity prices. But while many companies have proposed investing in carbon capture as a way to reach their emissions reduction goals, most projects are still in the development phase.

The industry has said the large-scale buildout of carbon capture and storage in Canada will be contingent on government help. Energy producers had lobbied for a carbon capture tax credit to cover up to 75 per cent of the capital costs of investing in the expensive technology.

Some of the companies that have proposed carbon capture and storage projects include Enbridge Inc., Atco Ltd., and Capital Power. In addition, the Oil Sands Pathways to Net Zero initiative — an alliance of  Canadian Natural Resources Ltd., Cenovus Energy Inc., ConocoPhillips, Imperial Oil Ltd., MEG Energy Corp., and Suncor Energy Inc — has proposed a major carbon capture and storage transportation line that would capture CO2 from oilsands facilities and transport it to a storage facility near Cold Lake, Alta.

That project alone could deliver about 10 million tonnes of emissions reductions per year and could be up and running by the end of the decade, according to the oilsands group.

The government of Alberta has also selected six proposals from companies interested in developing what would be Canada’s first carbon storage and sequestration hubs, in the Edmonton region. The proposals selected were put forward by Enbridge Inc., Shell Canada, Wolf Midstream, Bison Low Carbon Ventures, Enhance Energy and a joint-venture project from TC Energy and Pembina Pipeline Corp.

Proponents say Canada can’t meet its climate goals without vastly expanding the use of carbon capture and storage technology. According to clean energy think tank The Pembina Institute, capturing and storing CO2 from oilsands facilities, refineries and gas plants could reduce Canada’s emissions by 15 million tonnes a year by 2030.

However, some environmentalists have argued that offering a tax credit to oil and gas producers is akin to subsidizing fossil fuel production.

In Thursday’s budget, the federal government also announced a new 30 per cent tax credit for exploration projects related to critical minerals such as lithium and cobalt, which are used in the production of electric cars and batteries.

This report by The Canadian Press was first published April 7, 2022.

Amanda Stephenson, The Canadian Press

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