The question of who should bear the financial risk for pricey carbon capture and storage projects has become a stumbling block slowing the technology's adoption in Canada.

It has been half a year since privately held Entropy Inc. inked a deal with the federal government that saw Ottawa agree to underwrite much of the risk for the company's proposed carbon capture and storage project.

Entropy said it would go ahead with its $49-million second phase of the project — located at parent company Advantage Energy's Glacier gas plant in Alberta — after the two parties signed the first-of-its-kind deal. Called a "carbon offtake agreement," or "contract for difference," the deal was hailed by many as an example of what needs to be done if Canada is to see a significant rollout of carbon capture and storage.

But six months after the Entropy agreement, not a single other company has successfully negotiated a similar deal. And the bulk of carbon capture projects proposed for Canada still only exist on paper, with final investment decisions yet to be made.

Carbon capture, or CCUS as it is often called, traps harmful greenhouse gas emissions from industrial processes and stores them deep underground. Its deployment is widely seen as being key to successfully decarbonizing the energy sector.

So what's the holdup? It comes down in part to tension between government and industry over the perceived financial risk of CCUS investments, and differing opinions about how much of that risk should be borne by taxpayers.

"If you're the government, you want to make sure the money that taxpayers are paying is being spent wisely," said Entropy CEO Mike Belenkie.

He added not all carbon capture projects are the same. Their cost can vary widely based on factors like the intensity of the emissions being captured and whether the site has access to local underground storage or must invest in pipeline transportation.

“For carbon capture and storage to work, there has to be a relentless focus on picking the best projects," Belenkie said.

Carbon capture rollout lags as industry, Ottawa at odds over who shoulders risk. #CDNPoli #CarbonCapture #CCS

Captured carbon doesn't have any value on its own as a product, but can lower a company's own carbon tax expenses by reducing its overall emissions. In addition, companies that deploy CCUS can generate carbon credits to sell to big polluters looking to offset their own emissions.

But companies have said in order for carbon capture projects to make financial sense, they need some kind of assurance that a future government won't come in and eliminate the industrial carbon price, or that the bottom won't fall out of the carbon credit market 10 years down the road and remove the expected return on investment.

That's where carbon contracts for difference, or carbon offtake agreements, come in.

The federal government, through the $15-billion Canada Growth Fund, has committed to reaching such agreements with emitters who deploy CCUS — essentially guaranteeing that if the price of carbon falls below a certain level in the future, the fund will pay the difference.

The sticking point, though, appears to be at what "strike price" these contracts will be triggered. Entropy's successful carbon offtake agreement saw the Canada Growth Fund agree to purchase up to 185,000 tonnes of carbon credits from Entropy for a 15-year term at an initial strike price of $86.50 per tonne.

That means if the market price Entropy can expect to receive for its captured carbon falls below $86.50, the Canada Growth Fund will step in and pay the difference.

While that assurance was enough to convince Entropy it could make a go of its project, other proponents are likely seeking a significantly higher strike price, said Michael Bernstein, executive director of the non-profit organization Clean Prosperity.

"What the Canada Growth Fund has been trying to do is bespoke negotiations with various emitters, prioritizing projects that they think are particularly good value for taxpayers," Bernstein said.

"It means they could face disagreements with companies, as I believe they did with Capital Power around what the appropriate price was for that project."

Earlier this spring, Edmonton-based Capital Power cancelled plans for a proposed carbon capture project at its Genesee power plant, saying while the project is technically viable, the economics don't work.

The Pathways Alliance, a consortium of companies proposing to build a $16.5-billion carbon capture and storage network for Alberta's oilsands, also has yet to successfully negotiate a carbon offtake agreement with the Growth Fund.

In a February report, global consultancy Wood Mackenzie warned there is a real chance of the Pathways project being "delayed and potentially scuppered" if industry and the federal and provincial governments cannot come together to underwrite the risk that exists.

At a recent investor update, an executive for Pathways Alliance member Suncor Energy Inc. reiterated the industry's refrain that it needs more certainty before moving forward with "material capital commitments" for carbon capture.

For its part, the federal government has pledged to develop an expanded range of carbon offtake offerings tailored to different markets and their unique risks and opportunities. It has said the Canada Growth Fund — which still has $6 billion left earmarked for contracts for difference — will explore developing ready-to-go contracts for certain jurisdictions, so that each contract doesn't have to be negotiated from scratch one by one.

That would go a long way toward removing investor uncertainty, Bernstein said.

"There are various ways you could do this, but Clean Prosperity's recommendation is to have a standard strike price," he said.

"You would basically design a contract that says 'Come one, come all, at $100 a tonne' or whatever price you choose and then let everyone that’s cheaper than that come and fill it," Belenkie said.

In an emailed statement, Carolyn Svonkin — press secretary to federal Natural Resources Minister Jonathan Wilkinson — said the government is already investing more than $90 billion to help Canadian companies decarbonize, so it's time for industry to step up and help carry the load.

"The federal government expects all companies who have committed to CCUS projects to move as quickly on these projects as the climate crisis requires," Svonkin said.

This report by The Canadian Press was first published June 4, 2024.

Keep reading

Article: "Its deployment is widely seen as being key to successfully decarbonizing the energy sector."

No evidence provided to support this claim.
The IPCC ranks CCS as one of the least-effective, most-expensive climate change mitigation options.

Inefficient, energy-intensive, expensive. Requires infrastructure on a massive scale.
CCS captures a fraction of industry's upstream emissions and zero emissions downstream at the consumer end. Captures no other fossil-fuel pollutants.
CCS is required only in hard-to-decarbonize sectors like cement and steel. In the energy industry, energy alternatives that do not bake the planet already exist.

The Alberta Govt recently advised Ottawa that carbon capture (CCS) cannot be counted on to reduce O&G industry emissions:
"Alberta's formal response to Ottawa's proposal says … oilsands production has already risen above the forecasts that were used to establish the proposed 100-megatonne limit and that the technology needed to bring emissions down enough doesn't yet exist."(Calgary Herald, 05-Feb-24)

As the Pembina Institute notes, in the oilsands sector "most CO2 is emitted in low concentration streams, and the efforts to capture it will be challenging and expensive." Where CO2 sources are small or diffuse, e.g., in the oilsands apart from upgraders, CCS is not economical or practical.

Energy ecologist Vaclav Smil: "Mark my words, there'll be no massive sequestration of carbon. There hasn't been any, and there'll not be any next year, or 2025, or 2030."

American Petroleum Institute: "Some estimates suggest that the amount of infrastructure necessary to perform geologic storage on a meaningful level is equivalent to the existing worldwide infrastructure associated with current oil and gas production."

"Yet even RBC admits that a rapid deployment of [carbon capture] technology isn't very likely.
"'It's pricey, slow to build, adds costs, relies on complex engineering, and sometimes fails to capture or store emissions effectively.'
"But there is one clear advantage to be gained from carbon capture and storage — it buys the oil and gas industry time." (The Tyee)

J.P. Morgan Bank: "One of the highest ratios in the world of energy science: the number of academic papers written on carbon sequestration divided by the actual amount of carbon sequestration (~0.1% of global emissions at last count)."

The Alberta Electric System Operator (AESO) does not put much stock in carbon capture either:
"During his press conference Thursday, AESO president and CEO Mike Law expressed scepticism around the viability of such technology in the short-term.
"'Uncertainty with developing low-carbon technologies — whether carbon capture, hydrogen, small modular reactors — means AB is at a greater reliability and cost risk if cost and performance do not materialize as currently anticipated.'" (CBC, 2023)

"Every Dollar Spent on This Climate Technology Is a Waste" (NY Times)
"What the technology, known as C.C.S., also does is allow for the continued production of oil and natural gas at a time when the world should be ending its dependence on fossil fuels.
"… But by promoting C.C.S., the fossil fuel industry is slowing the transition away from fossil fuels."

"Don't Fall for Big Oil's Carbon Capture Deceptions" (Scientific American)
"Carbon capture technology is a PR fig leaf designed to help Big Oil delay the phaseout of fossil fuels
"… More fundamentally, the biggest problem with industrial carbon capture schemes is that they are largely a ploy by Big Oil to delay action to phase out fossil fuels. These projects give fossil fuel companies a greenwashing boost, cloaking pollution underneath fake environmental responsibility, helping them claim that they are taking serious climate action, all the while continuing to build out additional fossil fuel infrastructure and rake in trillions in profits. … Carbon capture is being used to distract the world from rapidly phasing out fossil fuels, all on the taxpayer's dime."

The O&G industry supports CCS, but only if taxpayers pick up most of the bill. Privatize the profits, socialize the costs. The O&G industry's business model.
Even if governments agree to pay industry's business costs, the high cost per tonne of CO2 captured make it a terrible investment.
Huge opportunity costs. We have cheaper ways to cut more emissions faster. Why invest limited public resources in CCS, when far more cost-effective solutions are available?
CCS provides political cover for fossil-fuel expansion and new projects. Climate plans based on fossil-fuel expansion and CCS are designed to fail.

CCS is an industry smokescreen. Its main purpose is to provide political cover for O&G expansion.
If Pathways Alliance believes in CCS, let them pay for it.