The federal government is considering how it could modify its carbon capture deals to keep Canada’s energy industry competitive as the United States moves forward with a more aggressive plan to green its economy.
The United States is investing US$369 billion in energy security and climate change programs over the next decade through the Inflation Reduction Act (IRA).
This legislation also dramatically increases the tax credits available for facilities that capture and store carbon emissions. Carbon capture, use and storage (CCUS) has been pushed by governments and industry as many countries strive to decarbonize energy production.
“We want to ensure that Canadian businesses remain competitive and that international investors who come to our jurisdiction can take full advantage of tax credits,” Randy Boissonnault, associate minister of finance and minister of tourism, told CBC News.
Close the gap
“Our government is very seized of this issue of the Inflation Reduction Act and how to make sure we don’t have a big gap between our two countries.”
The Department of Finance is reviewing U.S. legislation and consulting with industry to determine next steps, Boissonnault said.
Last week, Deputy Prime Minister Chrystia Freeland hinted that there would be a response to the IRA in the upcoming fall economic statement and more in the next budget.
“We definitely want a solution that is done with industry, that makes sense for industry, because the well-paying jobs of the future can be created here in Canada and we want them to be here in Canada. So we will continue to work on it, ”said Boissonnault.
Federal funding
Canada’s budget this spring promised immediate and long-term financial support for CCUS, with a tax credit expected to cost $1.5 billion a year starting in 2026.
The federal government is committed to covering 60% of equipment used in direct air capture projects and 50% for other types of CCUS projects. The tax credit also covers 37.5% of other eligible equipment used for the transport and storage of carbon dioxide.
With that came a reminder for industry not to drag their feet on cutting emissions – incentives will be halved between 2031 and 2040.
At the time, Canada’s plan was comparable to the Q45 carbon capture incentive in the United States.
The New IRA changed that.
“Canada is really about halfway to where [U.S. program] is subject to the Reducing Inflation Act,” said Mark Cameron, vice president of external relations for the Pathways Alliance, a group representing 95% of oil sands producers.
Cameron added that they have asked the federal government to consider adding to existing CCUS programs, including allowing the investment tax credit to cover operating costs or introducing a tax credit to the production. And they’ll be looking for a nod to those demands in the fall economic update.
“If the government were to make changes to the investment tax credit or supplement it with additional measures, that would bring us a lot closer to making final investment decisions on these projects,” he said.
“If we don’t get that kind of certainty by the middle of next year, then those timelines for 2030 will slip.”
Clean energy initiatives needed from provinces
The federal government’s emissions reduction plan would require the oil and gas sector to cut emissions 42% below 2019 levels by the end of the decade. It’s a feat that the industry says is unrealistic. Pathways is committed to bringing participating companies to net zero emissions by 2050.
But Ottawa also wants the provinces to step up their own clean energy incentives.
“What we need is [Alberta] come to the table and be very clear about what they are going to put on the table for their carbon use and storage credit,” said Boissonnault.
CBC News has contacted the Alberta government for comment.
The oil sector is having its most lucrative year ever, as high oil and natural gas prices have generated huge corporate profits – predicting a year of $147 billion after tax, according to ARC Energy Research Institute.
Boissonnault added that the government is also focusing on hydrogen and critical mineral strategies, as well as battery production and semiconductors.
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