Canada’s Carbon Capture Industrial Strategy

This commentary is part of Energy Rewired, a project from the CSIS Energy Security and Climate Change Program studying the industrial strategies of major economies for the energy transition. The project examines countries’ big bets on emerging energy technologies and how these will rewire the world’s energy map.

Key Points

• Carbon capture, utilization, and storage (CCUS) is a small part of a broader, $8 billion effort from the Canadian government to deploy decarbonization technologies in the power sector and heavy industry.


• The path to CCUS might lie with broader initiatives such as carbon pricing and a forthcoming clean fuel standard.


• Canada hopes to capture and store 15 million tons of carbon dioxide (CO₂) per year by 2030. This is expected to contribute to the country’s goal of reducing greenhouse gas emissions by 40–45 percent from 2005 levels.


• Much of the CCUS-specific action and strategy lies with the provinces of Alberta and Saskatchewan, two of the biggest oil- and gas-producing regions in the country.

Analysis

Vision

Canada is developing its strategy for CCUS, but early indications show that the country plans to provide some deployment support for CCUS investments. An early draft of the country’s forthcoming CCUS strategy seeks to store 15 million tons of carbon dioxide per year by 2030. CCUS is also likely to play a role in the country’s hydrogen production, which the Trudeau administration wants to meet 30 percent of end-use energy by 2050. In the absence of an existing federal plan, hydrocarbon-producing provinces Alberta and Saskatchewan are moving forward with their own CCUS priorities. Alberta’s strategy relies on providing funds to developers and is preparing to encourage development of CCUS hubs. In Saskatchewan, the government has indicated forthcoming economic support for projects and regulatory changes to reduce costs for the industry.

Canada acknowledges the contribution that CCUS can make to reducing emissions and meeting climate goals. The country has pledged a 40–45 percent reduction in emissions from 2005 levels by 2030 and set a legally binding net-zero emissions target by 2050. However, it is notable that CCUS gets only a few lines of attention in the country’s latest climate plan.

Strategy

As of this writing, there are few policies and actions specific to CCUS at the federal level. The government of Canada is developing an investment tax credit for CCUS projects and expects to begin administering the program in 2022. Notably, the tax credit explicitly excludes CCUS projects used for enhanced oil recovery—a process to which most currently existing Canadian CCUS projects contribute.

More broadly, Canada’s carbon tax and an upcoming clean fuel standard are expected to play a role in incentivizing CCUS. Every province in Canada either has its own carbon pricing system or is covered by a federal backstop. The federal backstop consists of a fuel charge on the production and distribution of gasoline and natural gas and a cap-and-trade system for industrial emissions in which polluting industries are allocated credits up to the allowed limit and can trade excess allowances. In 2021, the federally mandated minimum price is C$40 (US$31) per ton of CO₂-equivalent, but that will increase steadily to C$170 (US$133) per ton in 2030. The Clean Fuel Standard, set to be implemented in early 2023, will create a cap-and-trade system to encourage decreasing the lifecycle carbon intensity of fuels sold in Canada. The required rate of carbon intensity reduction has changed in variousiterations of the proposed regulations, but the most recent requires refiners to reduce 2.4 grams of CO₂-equivalent per megajoule (gCO₂e/MJ) of energy in the first year, which will increase to 12 gCO₂e/MJ by 2030. One way for companies to generate credits under this program will be to capture and store the CO₂ emitted from their operations.

Canada’s 2021 budget allocates C$319 million (US$248 million) to the natural resources department over five years for research and development (R&D) in CCUS. However, the government is also making investments in larger groups of technologies for decarbonization that can include CCUS. The Net Zero Accelerator Initiative is a C$8 billion (US$6.2 billion) fund announced in 2020 that will invest in projects to help decarbonize large emitters and enable industrial transformations. In addition, alongside the government of British Columbia and the Canadian division of Royal Dutch Shell, the federal government granted C$35 million (US$27 million) in 2021 to help fund the Centre for Innovation and Clean Energy. The center will undertake R&D projects in technologies including CCUS.

In 2013, Alberta passed the Carbon Capture and Storage Funding Act, allowing the province to invest up to C$2 billion (US$1.6 billion) in CCUS projects. The government of Saskatchewan pledged in September 2021 to make some key policy changes for CCUS: extend a 20 percent investment tax credit for pipeline infrastructure to CO₂ pipelines; review royalties for enhanced oil recovery projects; update regulations for CO₂ use and storage; explore opportunities for CCUS hubs in the province; and identify a new way to credit CCUS projects for emissions reductions.

Geography

Almost all CCUS testing and development in Canada has been in the provinces of Alberta and Saskatchewan. Alberta and Saskatchewan are the first and second largest oil-producing provinces in Canada and are both major producers of natural gas. Shell Canada’s Quest Carbon Capture and Storage project, which captures and stores about a third of emissions from a nearby bitumen upgrader plant the company also operates, is located in Alberta and is the first project in Canada to store CO₂ in geologic formations rather than use it for enhanced oil recovery.

Nikos Tsafos is the James R. Schlesinger Chair for Energy and Geopolitics with the Energy Security and Climate Change Program at the Center for Strategic and International Studies in Washington, D.C. Stephen Naimoli was an associate fellow in the CSIS Energy Security and Climate Change Program.

This commentary is made possible by support from the Hewlett Foundation.

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