Incentivizing Large-Scale CCS

Globally: Incentives Required for Development of Large-Scale CCS

The International Energy Agency and the UN’s Intergovernmental Panel on Climate Change (IPCC) have concluded that a massive investment in large-scale CCS is required to achieve the emissions reductions needed to meet the Paris Agreement goal of limiting global warming to 2ºC. Indeed, the IPCC has estimated the cost of achieving this goal would more than double without using CCS.

For countries to achieve ambitious emissions reduction goals, there needs to be accelerated progress in the commercial-scale deployment of carbon capture, utilization, and storage (CCUS/CCS) across a wide variety of applications. This requires an unprecedented level of investment in innovation, infrastructure and industrial processes in the coming years to ensure that large emission reductions are achieved through CCS/CCUS and other emissions reduction pathways.

To promote private sector investment, governments need to develop ambitious policy incentives that enable viable business models for CCS projects. These may include a range of complimentary options such as certainty in CO2 value, a level playing field with alternative low-carbon technologies, and front-end development support to drive down costs and make capital investment competitive.

Already governments around the world are employing a range of policy tools and incentives, including tax credits and direct government grants to address roadblocks and challenges to promote CCS projects.

Collaboration is Crucial

Another crucial step for implementation of CCS is collaboration between industry, governments, academia, community, and Indigenous partners. To drive this collaboration, the Knowledge Centre is excited to work with the Government of Alberta, Canada to create a national CCS knowledge sharing hub – an open-source repository of knowledge and information about the development of CCS/CCUS projects.

The mandate of the CCS knowledge sharing hub will be to collect and curate best practices and lessons learned from Canadian CCS projects past, present and future – drawing on knowledge from as many projects as possible from initial planning and feasibility studies, through to construction, ongoing operations and optimization – to enhance the success of CCS projects and promote continuous learning and improvement in CCS technology.

Establishing the hub through a $3 million foundational investment was a key action item included in Alberta’s Emissions Reduction and Energy Development Plan that was released April 19, 2023 and stated the province’s goal of reaching net-zero greenhouse gas emissions by 2050.

International CCS Policy Developments

Some of the co-financing models currently in place to spur CCS investment, and work the Knowledge Centre is undertaking to promote robust policy development in several jurisdictions, include:

  Canada 

Recognizing the importance of deploying CCS within this decade, the Government of Canada’s March 28, 2023 federal budget contained additional measures to support the development of large-scale projects. The Knowledge Centre delivered a comprehensive primer that aggregates information over the last three budget cycles and provides a detailed break-down of the government’s proposed CCUS investment tax credit (CCUS-ITC). The CCUS-ITC is expected to be in place by October this year following public consultation on draft legislation that was released on August 4, 2023.  The Knowledge Centre published a detailed review of the draft legislation, 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.

The CCUS -ITC is the government’s centrepiece for incentivizing heavy industries to build CCS projects by covering 50 per cent of the capital cost of CO2 capture projects between 2022 and 2030.

The 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 Government of Canada also offers carbon credits of up to CAD$170 per tonne of CO2 sequestered.

The primer also highlights critical gaps that still exist in Canadian CCUS policy, including the lack of long-term certainty on the cost of carbon emissions, and the need for a more robust protocol for sharing the valuable knowledge and lessons generated by major CCS projects in order to lower costs and improve the performance of CCS projects across the country and around the world.

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, and plans to launch consultations on broad-based carbon contracts for difference in the coming months.

Natural Resources Canada began soliciting input on its proposal for CCUS projects with investment tax credit-eligible expenses of $250 million or greater to be required to contribute to public knowledge sharing. To assist organizations in providing feedback, the Knowledge Centre produced a consultation document with key messages and background information about the draft knowledge sharing requirements for the CCUS-ITC.

  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 UK 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 UK 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 UK is the first G7 country to cut GHGs in half since 1990. 

As part of its Net Zero Strategy, the UK 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 UK 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 UK over the past year, and we continue to explore further opportunities for collaboration between Canada and the UK through events such as the annual Canada-UK Energy Summit.


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