CCS Policy Analysis

Governments around the world are developing a wide range of policy tools and incentives to promote private sector investment in CCS infrastructure. Many complimentary options are being employed to reduce challenges and provide viable business models for undertaking CCS projects, including tax credits and direct government grants, providing long-term certainty for the cost of CO2 emissions, and measures to level the playing field with alternative low-carbon technologies.

The Knowledge Centre provides frequent independent analysis, commentary and input to decision-makers on CCS-related policies and regulations across Canada, the United States, the United Kingdom and other jurisdictions.
 

  Canada 

Investment Tax Credit for CCUS

The Government of Canada’s centrepiece for incentivizing CCUS projects is an investment tax credit (CCUS-ITC) covering 50 per cent of the capital cost of CO2 capture projects between 2022 and 2030.

The CCUS-ITC is higher (60 per cent) for projects that capture CO2 directly from the atmosphere (direct air capture) and it also covers 37.5 per cent of the cost for facilities required to transport, utilization and permanent storage of CO2.

The Knowledge Centre published detailed reviews and provided input on the government’s draft legislation for the CCUS-ITC that was released and subsequently updated in the fall of 2023. 

The Knowledge Centre published a detailed review of the draft legislation for the CCUS-ITC that was released August 4, 2023, providing an overview that highlights key considerations and guidance for industry on how to navigate the proposed regulations. We also provided input on the draft legislation during the public comment period that ended on Sept. 8, 2023. Our analysis of the draft CCUS-ITC legislation found that there would be strong provisions to support jobs for skilled tradespeople, apprentices and construction workers, as well as requirements for public knowledge sharing by companies that receive the tax credits.

The CCUS-ITC legislation was included in Bill C-59 that was passed in the House of Commons on June 19, 2024, and guidance on implementation the CCUS-ITC is available on the Government of Canada's website.

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Carbon Contracts for Difference

The federal government announced its intention to introduce ‘carbon contracts for difference’ that protect investors from potential changes to federal carbon prices in its 2022 Fall Economic Statement. Since then, the government has committed $7 billion for contracts for difference and CO2 offtake agreements through the Canada Growth Fund, a subsidiary of the Canada Development Investment Corporation.

In December 2023, the first such agreement was signed with Entropy Inc. – a $200 million investment that includes a fixed-price carbon credit purchase agreement for up to one million tonnes of CO2 per year from Entropy’s CCS facility at a natural gas processing facility in northern Alberta. In June 2024, a similar agreement, and a partnership with the Canada Growth Fund, was announced by Varme Energy and Gibson Energy for Canada's first waste-to-energy facility with carbon capture technology that is being developed in Innisfail, Alberta. 

These agreements are important steps in providing the framework for other contracts that will provide long-term certainty on carbon pricing for project developers in Canada.

 

Clean Electricity Regulations

CCS/CCUS will play a key role in reaching the Government of Canada’s plan for achieving a net-zero electricity grid by 2035, as proposed in draft Clean Electricity Regulations released in August 2023.

The Knowledge Centre issued a comprehensive review of the draft regulations and provided direct input to the government during an initial 75-day public comment period. This was followed by the release of a public update on the draft regulations in February 2024.

In our comments on the latest draft, we reinforced the important role that CCS/CCUS will play in cutting emissions from approximately 15 per cent of Canada’s electricity supply from fossil fuel-generated power, as well as for electricity generated from biofuels such as agriculture waste and forestry products. We were pleased to see the updated regulations acknowledge many of the concerns and challenges identified by the Knowledge Centre, including the importance of being flexible, reliable, practical and affordable in the transition to a net-zero electricity grid.

One of the key changes being considered by the federal government is the recognition that the proposed performance standard requiring an emissions intensity of 30 tonnes of CO2 per gigawatt-hour is too stringent to be achieved in the tight timeframes of the Clean Electricity Regulations, and could be replaced with an annual emissions limit for power facilities covered by the regulations.

We have recommended the government provide further detail and additional opportunities for consultation on the draft Clean Electricity Regulations in order to understand the operational risks the regulations present to CCS projects across industrial sectors.

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Alberta CCUS Policy

The Government of Alberta announced the Alberta Carbon Capture Incentive Program (ACCIP) in late-2023, which will provide a grant of up to 12 per cent of capital costs for completed CCUS projects in the province. The government stated that ACCIP will be launched once the Government of Canada legislates its investment tax credit for CCUS and provides a program for operating supports such as carbon contracts for difference.

The Knowledge Centre was honoured to be included in the Government of Alberta’s inaugural Emissions Reduction and Energy Development Plan released in 2023, through $3 million in foundational support for the creation of a first-of-a-kind CCS knowledge sharing initiative. The project is intended to curate and disseminate information and data gleaned from Canadian CCS projects in a dynamic way, leading to the adoption of CCS leading practices and improving the success of new projects worldwide.

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Ontario CCUS Policy

Ontario is developing a suite of provisions to provide regulatory oversight for the permanent underground storage of CO2 in the province - a critical requirement for heavy industry in the province to to move forward with CCS projects.

In late 2023, the Government of Ontario released draft regulations to allow ‘special projects’ including carbon storage. The Knowledge Centre provided feedback to the Environmental Registry of Ontario that included several recommendations for the government to consider, including the need for greater clarity on the ownership of underground CO2 storage space, processes to manage the risks and long-term liability of stored CO2, and ensuring there are opportunities for companies to generate carbon credits or other revenue streams from the emissions reductions made possible by CCS.

We have also been involved in direct discussions with Ontario’s Ministry of Natural Resources and Forestry about the development of a CCUS roadmap for Ontario, and have advocated for Ontario to look to the regulatory systems already in place in Alberta, Saskatchewan and British Columbia as an effective approach for playing catch-up on CCS policy.

References

  United States

In the United States, the Inflation Reduction Act (IRA) passed in 2022 included a substantial change to the tax credits for the carbon capture industry and is intended to facilitate the US to achieve a 40 per cent greenhouse gas (GHG) emission reduction below 2005 level by 2030 leading to the avoidance of 6.3 billion tons of cumulative GHG emissions.

With changes to the federal Section 45Q tax credit, the IRA effectively provides 10 years of guaranteed incentives for carbon capture technology, including a 15 per cent minimum tax on corporations that earn more than $1 billion in annual profits, instead of a carbon tax as in Canada, which is projected to raise at least $258 billion over the next 10 years.

The Knowledge Centre has expressed its strong support for these landmark incentives adopted by the U.S. government to promote large-scale CCS projects in the U.S.
 

  United Kingdom

The United Kingdom has been at the forefront of global action to tackle climate change and has led the way by decarbonising its economy faster than any other G7 country. In 2019, the U.K. became the world’s first major economy to adopt a legally binding target to reduce its greenhouse gas emissions to net zero by 2050, and the U.K. is the first G7 country to cut GHGs in half since 1990. 

As part of its Net Zero Strategy, the U.K. government is expecting to develop 20-30 million tonnes per year of CCS capacity by 2030 at four industrial CCUS clusters.

The Knowledge Centre is working with several U.K. companies pursuing large-scale CCS projects, including the Humber Zero project that aims to decarbonise Britain’s largest industrial hub in northeast England. We have provided public comment on the support for CCS that has continued through significant leadership changes in the U.K. over the past two years, and we continue to explore further opportunities for collaboration between Canada and the U.K. through events such as the annual Canada-UK Energy Summit.