as published in the Sep/Oct issue of Carbon Capture Journal
There is an increase in interest across energy and industrial sectors globally for the expansion of large-scale carbon capture and storage (CCS) activities, and that is no different in Canada. With post-COVID economic stimulus being directed towards clean development considerations and climate action, CCS is an active part of the conversation for net-zero ambitions.
Achieving emissions reduction goals is the result of using the right policies with significant investments in clean energy and greening of industrial processes – this includes support for large-scale CCS technologies. It is important that there is a value stream and a business case to support successful deployment of CCS that are tied to sustainable and environmental policies.
While advances in the technology toward second generation CCS show the potential for a sharp decline in operating costsi, there still remains – for many regions and industries – a need for a kickstart incentive to ensure that opportunities to use CCS to reduce large amounts of emissions are maximized.
Beyond One-Time Grants
One-time grants for first of a kind projects have already been realized in Canada for both the Shell Quest and Boundary Dam CCS projects. Federal dollars have supported shared infrastructure for the Alberta Carbon Trunk Line and could hopefully be available for new sectors entering into first of a kind projects like cement or other manufacturing.
However once direct government injections of support are no longer available, it raises a key question: what happens to the next projects? While it is imperative for sectors to transition from government grants to industry uptake, government support remains crucial.
Production tax credits have a history in proving to be effective environmental levers, such as the past success in the US for projects with wind. This is now happening for CCS in the US – where the 45Q incentive has spurred interest from almost 30 projects – so it is gathering attention from other governments to examine if such grant-like incentives for innovation in CCS have potential as a sound option in their jurisdictions.
There needs to be an examination of other mechanisms to help sectors leverage government support. An exact replica of 45Q may not be the best path for all countries, though incentive pathways likely still exist. In Canada, for instance, other pathways in the tax system could likely open doors for kickstart support. And now is the time.
Climate and Competition Agree: Time is Now
Investing in advancing large-scale CCS projects now improves two things: 1) a quicker acceleration of a proven, reliable and deployable technology to meet climate goals; and, 2) a retention in competitiveness – by way of example, projects like Canada-created Carbon Engineering’s Direct Air Capture are now seen pursuing a 45Q tax credit opportunity in Texasii.
If Canada wants to ensure it remains a leader in CCS deployment domestically, it may need to consider what it can provide to ensure that those early years of operations have enough clout and interest from financiers to get over the capital-intensive hurdle of the first few years. The carbon price can assist in the long run, but there is undoubtedly a gap between start and five years down the road that presents a challenge to get the math working for investors.
The International CCS Knowledge Centre and RSM Canada will be releasing a White Paper on incentive options for Canada in the coming months. With kick start support, Canada could readily see a handful of proponents who could successfully finance carbon capture projects over the next 10 years in response to a tax credit; aligning hand-in-hand with the continued development of the Pan-Canadian Framework on Clean Growth and Climate Change.