On May 12, 2021, the Government of Alberta’s Department of Energy issued a new Information Letter on carbon sequestration tenure management whereby carbon sequestration rights will be issued to qualified operators to develop strategically located carbon storage hubs in Alberta.
The Information Letter follows the Government of Alberta’s recent request to Ottawa for CA$30-billion in cash or tax incentives to develop new carbon-capture, utilization, and storage (CCUS) projects and infrastructure and the formation of the Alberta-Canada CCUS working group. The following bulletin details a few recent developments stemming from the flurry of interest in CCUS projects, and discusses what the future may hold.
Carbon Capture Utilization and Storage
CCUS technology involves the capture of high volumes of carbon emissions, then burying these emissions deep underground for long-term storage. Capture processes are designed to remove and concentrate carbon emissions in preparation for utilization or storage. Utilization technologies convert carbon emissions into products (e.g., fuels, plastics) or to stable products in order to allow for long-term storage. Storage processes are intended to store carbon emissions safely and prevent their admission into the atmosphere. The captured carbon can also be used to produce valuable products such as carbon fibre, and other low or emission-free fuels.
A number of Western Canadian CCUS projects are currently underway, made possible by of a history of technical expertise, geological suitability for carbon storage and legal, regulatory, and policy frameworks. CCUS represents a critical tool for reducing industrial carbon emissions that are produced by many diverse industries.
Carbon Sequestration Tenure Management announcement
As the Government of Alberta sees CCUS as an important part of the province’s environmental and economic future, its most recent announcement outlines the need for an established regulatory system surrounding carbon sequestration tenure.
The Government of Alberta’s announcement outlines the path for the issuance of carbon sequestration rights whereby hub operators can provide sequestration services to a number of industrial facilities (i.e., dedicated geologic storage without associated oil or gas recovery). While most CCUS projects in Canada use the technology to efficiently extract fossil fuels from the ground, the announcement relates to dedicated geologic storage hubs only. The announcement does not refer to projects that will inject and store carbon emissions for enhanced oil or gas recovery - such operations will continue to operate under the mineral rights tenure system. The Alberta government’s strategy is to shift the focus from large, stand-alone CCUS facilities to the development of industrial “hubs” with shared carbon emission transport and storage infrastructure.
The Government of Alberta intends to consider industry proposals to develop individual carbon storage hubs through a competitive selection process. The selection process is currently under development, but it is expected that proposals should identify appropriate geographic locations for injection operations as well as infrastructure to transport the captured carbon dioxide. Operators will need to demonstrate fiscal, technical, and operational expertise in order to be granted sequestration rights. Successful operators will be subject to certain legislative and regulatory requirements and must obtain necessary approvals from the Alberta Energy Regulator. Further, it is expected that successful operators will provide open access to hubs, establish fair service rates, account for carbon offsets or future credits, and provide opportunity for Albertans to realize a fair economic benefit as projects develop.
At this time, Alberta Energy and the Government of Alberta is not considering changes to existing legislation or regulations. It is expected that successful proponents will enter into further discussions with Alberta Energy to develop the conditions and agreements under which the hub will operate. The Government of Alberta may choose to approve additional storage hubs in the future in response to market demand.
CCUS developments in 2021
In addition to the announcement from the Government of Alberta, there are a number of other recent developments relevant to CCUS as both industry and governments look for ways to achieve aggressive emission reduction targets for the future.
The latest federal budget released on April 19, 2021 supports the transition of Canada’s energy industry to a low carbon future by providing a number of significant incentives. There are three incentives that may be relevant to CCUS projects:
- CCUS incentives to introduce investment tax credits for capital invested in CCUS projects, and to include CA$319 million over seven years for Natural Resources Canada to support research and development to improve the commercial viability of CCUS technologies. The tax credit incentive is expected to take effect in 2022, and will include CCUS and “blue” hydrogen production projects. This incentive will exclude all carbon related enhanced oil recovery projects. The government will run a 90-day consultation to seek inputs from relevant stakeholders in regards to the design of the tax credit.
- The “green bond” provides CA$5 billion from 2021 to 2022 to facilitate investment in “green” infrastructure, clean technology innovations, nature conservation, and other efforts to address climate change. Additional details will be provided by the government in the coming months.
- The green project funding imitative commits CA$4 billion over seven years to the Net Zero Accelerator. This is in addition to the CA$3 billion over five years committed on December 11, 2020. The incentive aims to expedite decarbonisation projects and scale up clean technology projects across the country. It is part of the Strategic Innovation Fund and proposals are accepted on a continuous basis. However, no project funding has been announced so far. The funding also commits CA$1 billion over five years to draw in private sector investments for large-scale clean technology projects. It aims to address the barriers to acquiring private sector investments faced by large clean technology projects. No details regarding eligibility has been provided thus far.
Alberta-Canada CCUS Steering Committee
In March of this year, Canada’s Minister of Natural Resources and Alberta’s Minister of Energy announced the launch of the Alberta-Canada Carbon Capture, Utilization and Storage (CCUS) Steering Committee. The working group consists of officials from the Government of Alberta and Canada and will be advised by industry representatives and other experts. The group seeks to explore opportunities with CCUS technology, and how Alberta can lead the way in setting up Canada to be a global leader in emissions-reducing technology. The Steering Committee seeks to leverage Alberta’s expertise in CCUS to unlock new investments and create jobs while lowering emissions.
Suncor Energy and ATCO Ltd. Hydrogen Project
On May 11, 2021, Suncor Energy Inc. (Suncor) and ATCO Ltd. (ATCO) announced they would be collaborating on a potential “multi-billion-dollar” hydrogen project to produce more than 300,000 tonnes of hydrogen per year. Suncor will build and operate the hydrogen production and carbon dioxide sequestration facilities, while ATCO will be responsible for constructing and operating the associated pipelines and hydrogen storage facilities. The companies anticipate to capture and store more than 90% of the carbon dioxide produced from energy required to make hydrogen. 65% of the hydrogen produced will be used by Suncor in its Edmonton refinery and is expected to reduce emission up to 60% in that facility. 20% of the hydrogen will be added to the provincial natural gas grid, and the remaining 15% may be commercially available for use by transportation, agricultural fertilizer, large heavy-haul trucking, and other industries.
There are regulatory concerns that need to be addressed before commencement, including availability of provincial and federal financial support, carbon sequestration rights, emission reduction compliance credits, regulations to allow hydrogen blending into natural gas, and investment tax credits for CCUS.
Canada’s CCUS opportunity is substantial, according to ATB Capital Markets. Analysts estimate that global CCUS investments could be in the US$375 billion to US$650 billion range by 2030 – with up to CA$45 billion in revenue potential for Canada. CCUS will likely play an important role in Canada’s decarbonisation pathways to reach net-zero emissions by 2050.
Canada is poised to take advantage of its existing expertise in CCUS and federal and provincial governments are collaborating to implement regulatory frameworks to establish Canada as a world leader in emissions reductions. The extent of CCUS development depends heavily on improving existing technology and appropriate investment from both the private and public sector. As discussed, the Government of Alberta’s most recent announcement is one of several initiatives under consideration in order to advance CCUS in Canada.