Canadian CCUS policy requires further detail to support advancing projects

Regina, Sask. – The Government of Canada’s 2023 budget contains additional measures to support the development of large-scale carbon capture, utilization and storage (CCS/CCUS) projects, but Canada’s policy framework still requires key details to spur private-sector investment, according to a new overview of CCUS policy by the International CCS Knowledge Centre.

The Knowledge Centre has delivered a primer on the federal budget released March 28, 2023 that provides a detailed break-down of the government’s proposed investment tax credit that is expected to be in place by October this year, following further public consultation. The tax credit for CCUS projects is the government’s centrepiece for incentivizing heavy industries to build CCS infrastructure and will cover 50 per cent of the capital cost of CO₂ capture projects between 2022 and 2030. The tax credit 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, utilize and permanently store CO₂.

The Knowledge Centre’s aggregation of government policies and updates related to the investment tax credit since it was first proposed in April 2021 found that the government is developing further guidance on what costs will be eligible, labour requirements, the obligation of companies to share knowledge about their CCS projects and report on climate risks, and other technical issues that will impact the value of the tax credit for project developers. There also remains significant uncertainty regarding how the investment tax credit may affect or complement provincial policies and incentive programs that exist or are in development.

“We are pleased the Government of Canada will provide significant support for CCUS development, and we look forward to the government setting out a clear timeline for when the investment tax credit and other policy tools will be put in place with legislation, which will enable Canadian industries to commit to building these multi-billion-dollar projects,” said James Millar, president and chief executive officer of the International CCS Knowledge Centre.

“The fact is that CCS/CCUS projects must get started immediately if Canada is to achieve its ambitious goals for cutting greenhouse gas emissions at least 40 per cent from 2005 levels by 2030 and reaching net-zero emissions by 2050. We also stand to lose investment dollars, and the important jobs and technical expertise that CCS projects entail to the United States and other jurisdictions where the economics of building projects are clear,” Millar said.

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. Last week, Natural Resources Canada also 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.      

“The government’s draft knowledge sharing requirement calls for companies to provide a report following the completion of project construction, and annual reports regarding the operation of CCUS facilities. This is a good first step, but knowledge sharing should not be a ‘one and done’ exercise,” said Beth (Hardy) Valiaho, the International CCS Knowledge Centre’s vice-president of policy, regulatory and stakeholder relations. “With large public dollars supporting these projects, we need to ensure there is ongoing curation of lessons learned and collaboration between projects if we are to realize the full value of CCS technology across heavy-emitting industries.”

The publication CCUS Investment Tax Credit – Primer (Spring 2023) is now available on the Knowledge Centre’s website: www.ccsknowledge.com