Canada’s oil industry says government incentives to build carbon capture projects are “much more generous” in the United States, a gap the biggest companies hope Ottawa will close in its promised response to the U.S. Inflation Reduction (IRA) adopted in August.
Finance Minister Chrystia Freeland has said Canada needs to ‘react’ to some ‘elements’ of the IRA, which requires heavy climate spending, suggesting the first actions on this front will be revealed in the statement fall economy scheduled for November 3. Natural Resources Minister Jonathan Wilkinson said last Tuesday that the $369 billion in public money allocated by U.S. lawmakers to energy security and climate change has “created a level playing field” between two nations.
At the same time, Ottawa is asking the oil industry to channel rising profits into action on climate change, rather than payouts to shareholders. In a video posted to Twitter, Environment Minister Steven Guilbeault predicted record profits for the sector as he releases his financial results for the third quarter through this week.
His message came a day before Imperial Oil (IMO.TO)(IMO) announced its largest dividend increase in the company’s history.
Mark Cameron is Vice President of External Relations for Pathways Alliance, a net zero-focused partnership between six of Canada’s largest oil sands producers: Suncor Energy (SU.TO)(SU), Cenovus Energy (CVE.TO) (CVE), Canadian Natural Resources (CNQ.TO)(CNQ), Imperial, MEG Energy (MEG.TO) and ConocoPhillips Canada (COP). The group claims to collectively represent about 95% of Canada’s oil sands production.
“We are encouraged to hear Ottawa recognize the need to ensure Canada is on a level playing field with the United States and other countries in encouraging major emissions reduction investments,” Cameron said. . Yahoo Finance Canada in a report.
Earlier this month, the Pathways Alliance announced the centerpiece of its net-zero commitment by 2050, a $24.1 billion conditional investment in a carbon capture and storage facility and pipeline in the northern Alberta, as well as other emission reduction projects. The first phase calls for an investment of $16.5 billion by 2030.
Americans have taken the lead in Canada’s energy transition in one fell swoop.Kevin Krausert, CEO and co-founder of Avatar Innovations
However, the Pathways Alliance has not made a final investment decision on the project. During its announcement, Chairman Kendall Dilling said the group was seeking more financial backing before pulling the trigger.
He said The Canadian Press The federal investment tax credit for carbon capture and storage projects, launched earlier this year, targets only a fraction of the lifetime costs of facilities.
“Over the life of the project, probably two-thirds of your costs are operating costs,” he said in an interview. “The [tax credit] helps tremendously on the construction side, on the capital side, but we’re still working with governments on ways to build some support on the operating cost side. »
At the same time, Cameron says financial backing from foreign investors will be increasingly difficult to come by, with Norway and the Netherlands emerging alongside the United States as popular destinations for carbon capture investors.
Kevin Krausert is a Calgary-based former oil services executive who now runs a clean energy venture capital firm and startup accelerator called Avatar Innovations. He criticizes the lack of carrots and many sticks in Canada when it comes to climate policy for industry. As a starting point, he wants the federal carbon capture tax credit to be expanded to cover operating and other costs.
“When the IRA was announced, dozens of multi-million, multi-billion dollar projects were approved overnight. We have to recognize that in Canada, the absolute prevalence of sticks and punitive measures that we have are actually holding back investment,” he said. in a telephone interview.
“A positive incentive structure like the one they have in the United States is the big dream, and that’s why Americans have taken the lead in Canada’s energy transition all at once.”
Cameron points to the IRA’s improvement to Section 45Q of the Internal Revenue Code, which encourages the use of carbon capture and storage. The legislation increases the value of credits at all levels, while expanding access to more investors and developers.
“We have an investment tax credit that is not as favorable as the United States, and then we have a whole series of other punitive measures that essentially make the choice to invest in Canada undereconomic compared to the United States,” Krausert said. said, referring to measures such as carbon pricing and the clean fuel standard. “Where would you get your investment dollars?”
Canada’s climate strategy will be on full display at the 2022 United Nations Climate Change Conference in Sharm el-Sheikh, Egypt. The event, commonly referred to as COP27, is scheduled to begin Nov. 6, three days after the release of Ottawa’s fall economic statement.
Rachel Doran is Director of Policy and Strategy at Clean Energy Canada. She hopes Ottawa’s response to the U.S. IRA will build on the advantages of Canadian terrain, such as a greener electricity grid than the U.S. and an abundance of fresh water. Both, she says, are important for the production of green hydrogen.
“It’s important to consider a combination of sure bets and wild cards,” Doran said, placing carbon capture in the latter category. “I would be wary of Canada trying to auto-respond to US numbers in this particular space without considering whether that’s the most strategic way to spend.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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