The prospect of a new tax credit for carbon capture, utilization and storage (CCUS) technology in this year’s federal budget has battle lines drawn across the Canadian climate community, with sharp disagreements on whether fossil companies should qualify for taxpayer support and a former federal environment minister maintaining it’s time for them to pay their own way.
There is wide agreement with one position the Trudeau government has already staked out—that enhanced oil recovery (EOR), an industry technique that injects captured carbon underground to extract more oil, should not be covered by any tax credit scheme. That’s not insignificant, with the Canadian Association of Petroleum Producers lobbying for a technique that ultimately leads to increased carbon pollution, and was the end use for 81% of “removed” carbon as of about a year ago.
But apart from that, elements of the climate policy community are fracturing—not on the end goal of getting the country’s runaway emissions under control, but on the role of public dollars in subsidizing CCS, and whether a fossil industry that has failed to clean up its own past messes can be trusted to do so now. The discussion seems to have reached the higher political levels, with Environment and Climate Minister Steven Guilbeault reminding the House of Commons that the Intergovernmental Panel on Climate Change has endorsed CCS, but former minister Catherine McKenna raising pointed questions about CCS subsidies for the fossil sector in an interview with The Energy Mix.
“We have to look at every possible technology that will help us reduce greenhouse gases,” Guilbeault told the House January 31. “In fact, when it comes to carbon capture and storage, the IPCC itself produced a report a few years ago looking at this very technology, saying that we might have to do it because we will not be able to reduce our greenhouse gas emissions fast enough to prevent 1.5°C of global warming.”
“What is extremely frustrating is that we know a large part of what works” to reduce emissions, and “that includes actually doing the hard work of reducing emissions and not waiting for some innovation,” McKenna told The Mix. “And it’s an open question how much government should be supporting innovation in a sector that has very large budgets,” like oil and gas.
“When you see companies issue large dividends, fail to invest in technology, and make large profits, then ask the government to step up but say there’s no way they would do it themselves, it actually makes you wonder about their business model.”
The backdrop to that question is that, “by the way, we’re cleaning up their messes,” added McKenna, who served as Canada’s first-ever environment and climate change minister from 2015 to 2019. “Why are we having to [fund reclamation of] abandoned wells? That’s their mess, whether it’s companies that went out of business or not, it’s the industry.” And after all the “pushback and hopes and prayers for the future” McKenna said she encountered as minister, the massive tailings ponds in the Alberta tar sands/oil sands are still “the mess we’ve all inherited as taxpayers”.
A CCUS ‘Pipe Dream’
The fight over the tax credit hit high gear in the second half of January, when a group of more than 400 climate scientists and other academics led by Dr. Christina Hoicka, Canada Research Chair in Urban Planning for Climate Change at the University of Victoria, issued a widely-circulated letter opposing the carbon capture scheme and its C$75-billion price tag.
“Deploying CCUS at any climate-relevant scale, carried out within the short time frame we have to avert climate catastrophe without posing substantial risks to communities on the front lines of the buildout, is a pipe dream,” the signatories declared. “We must instead move forward with proven climate solutions that will contribute the most to emissions reductions: increased electrification, wide-scale use of renewable energy, and intensifying energy efficiency.”
The academics called the proposed tax credit a “substantial new fossil fuel subsidy” that would contradict the Trudeau government’s commitment to a subsidy phaseout by 2023, favouring a technology that has failed to prove its worth. “Despite decades of research,” they wrote, “CCUS is neither economically sound nor proven at scale, with a terrible track record and limited potential to deliver significant, cost-effective emissions reductions.”
A Needed Tool in the Toolbox
The pushback was virtually immediate. In the space of six days, Globe and Mail business reporter Jeffrey Jones took issue with the scientists’ letter, Shell Canada President Susannah Pierce touted the tax credit along with a clean fuel standard as responses to “a great deal of hesitancy for investors”, and two well-known climate policy analysts penned a widely-circulated op ed supporting the tax credit.
“A single tax incentive under consideration in Ottawa has the potential to create jobs, grow businesses and investment, and cut Canada’s carbon emissions,” wrote Michael Bernstein, executive director of Clean Prosperity, and clean energy consultant Ed Whittingham, former executive director of the Pembina Institute, in a post for Canada’s National Observer.
“Technologies to trap industrial carbon emissions and store them deep underground, to suck CO2 directly out of the atmosphere and inject it into building products like cement, are proven and viable. We have been sequestering carbon dioxide below ground safely and effectively since the 1970s,” they wrote. “Our challenge is that almost all carbon capture projects are uneconomic when their only incentive is today’s carbon price. On that point, we and the signatories agree.”
Bernstein and Whittingham cited the IPCC’s support for CCUS, described the technology as “the only viable solution available today” for industries like cement, which accounts for 8% of global greenhouse gas emissions, and pointed to the billions of tonnes of CO2 already in the atmosphere that will have to be removed this century.
“Cancelling the investment tax credit,” they wrote, referring to a measure that has not yet been introduced or enacted, “will make it much more difficult to start building out that industry. Put simply: Canada and the world need carbon capture in the toolkit to address climate change and meet international climate obligations.”
Against the multi-billion-tonne scale of the carbon capture challenge, Bernstein and Whittingham said the scientists “seem to misunderstand the state of play” in an industry that is capturing 36 million tonnes of CO2 worldwide each year. “Further deployment,” they wrote, “has been limited not by fundamental technical problems, but by a lack of policy support and potential revenue sources.”
Carrots and Sticks
Public policy consultant and clean energy veteran Dan Woynillowicz followed about a week later with a National Observer op ed that pointed to a gap in the debate—that all parties were arguing about the incentives, or “carrots”, that should be used to drive carbon capture, “with little discussion about the stick that needs to go with it.”
Recapping the role of “fickle dance partner” the fossil industry has played in some of its recent dealings with the Trudeau government, Woynillowicz said any federal policy should combine incentives with serious restrictions.
“The federal government has options,” he wrote. “It could deliver the CCUS tax credit as planned in the spring federal budget, but withhold eligibility for the oil and gas sector until a policy is complete to cap and cut its pollution, and rigorous criteria are in place to minimize the risk of stranded assets. Or it could hit pause on the tax credit altogether, and consider other policy approaches to achieve the same outcome.”
Which Industries Need CCUS Most?
By early February, after meeting with some of the climate scientists, Whittingham said he could understand their concerns about the fossil sector, but cast Ottawa’s promised cap on oil and gas emissions as the “bigger piece” of a two-part strategy.
“I think when that’s designed, you’re going to see some way for the oil and gas sector to do its share” in delivering about 100 megatonnes of emission cuts this decade, “which is a huge, huge task,” he told The Mix. “I think you’ll see some role for CCUS in that. How much? I don’t know. It’s some role in refineries, some role in [heavy oil] upgraders.”
Whittingham said the meeting revealed more common ground with the climate scientists when discussion turned to energy-intensive industries. “If you talk to people who are working on decarbonizing the cement industry, there are theoretical chemistries, you can electrify kilns, but really, the biggest tool you have right now is capturing that CO2 and sequestering it. It’s one of the byproducts of cement. You use fossil fuels to heat it, but when you crack that melting carbonate, you release CO2” that needs to be captured. He said similar arguments hold for industries like steel, ammonia, and fertilizer.
But Jason MacLean, an assistant law professor at the University of New Brunswick, said a properly-design tax credit could open the door to electrify processes in industries like cement or deploy renewably-produced green hydrogen in sectors like steel, rather than waiting for CCUS technologies that have been slow to develop and mature. In their letter and in the subsequent meeting, he said, the academics were “trying to get real about why CCUS has such a low capture rate, and why it’s so expensive and uses so much energy.”
That analysis points to questions “about what’s truly difficult to decarbonize versus what’s expensive to decarbonize given a prevailing market system,” he added. “Those are two different things.”
Whittingham said he wouldn’t contest a view of CCUS shaped by mistrust of the fossil industry. But “from my experience, an executive in the oil and gas sector is not that different from an executive in the steel sector. Would I trust one more than the other? No.” Companies in both industries are doing a mix of good things and bad, he said, and “a lot of people say they’ve got some real concerns about the cement and steel sectors, too.”
Whittingham agreed that it makes sense to differentiate oil and gas from all other sectors based on the size of its footprint—and noted that the federal emissions cap would do that.
Bernstein, whose organization advocates mainly on carbon pricing and aims to engage conservative voices on climate policy, acknowledged the serious problems the climate scientists had raised with CCS technology. “But I don’t think the conclusion from that is that we should unequivocally shun any support for a technology that is an important part of almost any net-zero pathway I’ve seen.” (Although other scenarios do exist.)
Bernstein echoed Whittingham’s point that that becomes most obvious with heavy industries outside the fossil sector, like cement, adding that it’s a mistake to lump carbon dioxide removal technologies like direct air capture in with CCUS. He said he was glad the scholars’ letter laid out principles to be followed if a tax credit is introduced. But the main emphasis was on “shunning the technology as a whole and preventing ourselves from having that more nuanced discussion about where and when this tech might be appropriate.”
Depending on how those rules are set, Bernstein added, “it will be hard for the oil and gas companies to compete with the case of cement on criteria that are specifically related to emissions, especially if you think of cumulative emissions over the long term”—including the 80% of emissions from Canadian fossil extraction that take place after the product is exported to its final destination and burned.
A History of Bad Choices
Hoicka told The Mix her concern about a CCUS tax credit is driven in part by her research on Canada’s past technology choices, with “far larger amounts” of research and development funding going to fossil and nuclear energy than to renewable energy and energy efficiency.
In spite of that history of neglect, “we know that renewables are now the cheapest and fastest-to-diffuse technology, and it’s scalable,” she said. “It wasn’t a decade ago, necessarily, but now it really is, and we can see the evidence in a lot of different jurisdictions.”
But she said the IEA has identified 83 decarbonization technologies “that are completely market ready, but they’re not scaling because they’re not getting the range of policy instruments you need to get them to scale.”
That lack of policy support traces back to a “consistent and measurable bias” that will be repeated if Canada pours “political resources into a technology that may or may not perform, and may not help us meet the 2030 target. And what are we doing for the technologies that are right now, and thinking about some of the resource constraints we might hit with those past the 2030 target?”
Hoicka said the scholars were particularly opposed to subsidizing carbon capture attached to tar sands/oil sands projects. “The big concern is around whether we’re providing a tax credit to develop a technology for a sector that the government is also working on phasing out.”
That kind of mistake can be driven by a “path dependency in thought as well as in systems,” she warned. “Applying a credit to continue fossil fuel production is a path dependence in policy as well as in that system.”
Tax credit opponents also raised concerns about whether long-term storage of captured carbon is as safe as its proponents claim, and whether there’s any way to answer that question before committing to a technology that could eventually turn from promise to disaster.
MacLean raised flags about “the misleading arguments made by the tax credit’s supporters” in a February 9 post for The Conversation. He told The Mix it’s a mistake to lump the full range of CO2 removal technologies in with CCUS, or to imply that all the IPCC’s scenarios demand industrial carbon capture. (Although the lead technology in the alternate scenario he pointed to, afforestation, has raised flags of its own.)
If CCUS technology does proceed, it will be at a time when “major oil and gas companies are making huge profits again,” MacLean added. “If they want to invest in CCUS they should pay for it themselves. If there are sectors that are truly difficult to decarbonize that we nevertheless have to rely on, that’s where we should be investing, either in decarbonizing them directly or in finding ways to reduce their energy demand. That would be a precautionary, science-based way to proceed, not this indirect way that essentially allows greater fossil fuel production.”
He added that it’s “unfortunate that certain environmental NGOs are lending their name and their imprimatur to those efforts” when decarbonizing the fossil industry’s direct operations will do nothing for the large majority of emissions that occur downstream.
In yet another op ed, researchers Alexandra Tavasoli and Mireille Ghoussoub say the science does point to the need for CDR technologies like ocean alkalinity enhancement, soil sequestration, and direct air capture if they can demonstrate results. “The extent of our reliance on CDR solutions will depend on the rate at which we are willing to transition away from the burning of any fuel, fossil-derived or not, while minimizing their use to sectors that are near-impossible to avoid in the medium-term,” they write.
But “instead of the tax subsidy we advocate for stricter CO2 emission regulation, including Scope 3 emissions.” They add that “stricter emission caps and meaningful carbon taxes, in conjunction with price controls on fuel in the short term, are key policy pathways through which large industrial emitters can be compelled to adopt CCUS technology on their own.”