Varcoe: Will Canada nab needed investment for carbon capture projects?

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Will Canada win the race to attract decarbonization investment?

Energy infrastructure giant Enbridge says the United States is offering a more compelling investment environment for carbon capture projects than Canada, as the company weighs developments on both sides of the border.

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The Calgary-based company isn’t giving up on its plans for a proposed carbon storage hub in Alberta, despite one of the two anchor partners abandoning its carbon capture and storage (CCS) project last week.

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But it shows the hurdles ahead as Canada strives to develop an array of decarbonization projects, and transform proposals sketched out on paper into steel in the ground.

“It’s a good example of even in some of these new technologies, where there appears to be lots of government support, they are going to be highly competitive,” Enbridge CEO Greg Ebel said Friday on an earnings call.

“The (net present value) of tax benefits in Canada versus the U.S. for CCS, it’s just more attractive down south.”

Ebel made the comments after Capital Power decided last week to halt its efforts to develop a project to capture emissions at its Genesee Generating Station and have them buried underground at the open-access Wabamun storage hub operated by Enbridge.

The project’s demise has led to finger-pointing between the Smith and Trudeau governments. Dozens of carbon capture and storage projects have been pitched to be built in Alberta, although most proponents have yet to make a final investment decision (FID).

Energy consultancy Wood Mackenzie is tracking 81 proposed carbon capture projects in the country, with 61 based in the province, including capture, transportation and storage facilities, along with various pilot projects.

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“You’ve got a lot of projects that are looking to make an FID in the next year or two, so it’s definitely a bit of a pivotal moment for CCS in the province,” Wood Mackenzie analyst Jack Mageau said Friday.

Both Alberta and the federal government have adopted net-zero emission targets by 2050, although Ottawa is pushing for a net-zero power grid by 2035.

Capital Power said the $2.4-billion development wasn’t currently economic.

The Edmonton-based company was in talks with a federal agency about potentially receiving carbon contracts for difference (CCFDs) to lock in the future price of carbon and provide more long-term certainty for its investment, but no agreement was reached.

In an interview with the Herald, federal Natural Resources Minister Jonathan Wilkinson said Capital Power made a business decision about how to best spend its capital.

Ottawa is moving forward with providing investment tax credits to cover up to half of the capital costs for carbon capture equipment, more than a 12 per cent grant that Alberta is offering such projects, he stressed.

“When people say that the CCUS incentives need to be more generous, it is the government of Canada that has actually stepped up to the plate,” Wilkinson added.

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The federal government’s lack of commitment to securing such incentives — the tax credits still aren’t available, despite being proposed in 2021 — is to blame for creating uncertainty, said Alberta Environment Minister Rebecca Schulz.

Capital Power’s project was initially announced in 2021, with Enbridge to serve as the transportation and storage service provider. Capital Power’s project would capture CO₂ from its Genesee Generating Station near Warburg to be stored at the hub.

While Capital Power’s project is no longer in the picture, another anchor remains in place for the Wabamun hub — Heidelberg Materials, which is considering a carbon capture and storage project at its cement plant in northwest Edmonton.

“We are going to keep pursuing these,” Ebel said of the Wabamun hub.

Enbridge also has two other carbon capture projects under development in the United States.

It is working with Oxy Low Carbon Ventures — a subsidiary of Occidental — on a CO₂ pipeline and sequestration hub near Corpus Christi, Texas.

Enbridge also has a carbon capture component to its proposed blue hydrogen project with partner Yara Clean Ammonia. If approved, it would be developed at Enbridge’s Ingleside Energy Centre in Texas, with project investment pegged at up to US$2.9 billion.

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In April, Heidelberg Materials North America announced it had issued a front-end engineering design contract as it progresses work on its CCUS project in Edmonton.

Its project is billed as the world’s first full-scale application of CCUS in the cement industry. A final investment decision is expected later this year.

Ebel has previously noted the competition for attracting investment for decarbonization developments is fierce, particularly with the U.S. Inflation Reduction Act in place.

Passed in 2022, the act boosted an existing U.S. tax credit for carbon capture initiatives to $85 for each tonne of stored CO₂, up from $50.

Mageau said without Capital Power’s project proceeding, the economics for the Wabamun hub will take a hit, but it still has a large anchor partner and Enbridge will be looking for more CO2 volumes.

On the broader question of competition for carbon capture and storage, the U.S. is purely offering incentives to kick-start such initiatives, while Canada has a mixture of carrots and sticks for proponents — such as a national carbon price.

Canada could provide more certainty for investors by legislating and clarifying its investment tax credit and offering more carbon contracts for difference.

“The overall stack of incentives to do CCS in Canada outweighs the incentives to do CCS in the U.S. They’re just significantly more uncertain,” Mageau added.

“There’s big policy downside in Canada that doesn’t exist at the same extent in the U.S.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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