Canada oil sands carbon capture project struggles to get key contract
05/09/2023 11:00
By Steve Scherer
OTTAWA, Sept 5 (Reuters) - Canada is struggling to get a
key tool in place for major carbon capture and storage (CCS)
projects, said a representative of one of the largest such
ventures, as the country seeks to launch incentives vital to
cutting emissions from Alberta's oil sands.
A government fund has told the Pathways Alliance,
comprised of the six largest oil and gas producers in Canada,
that their project is too large and too risky for a contract for
difference, a tool which would lock in future carbon credit
prices, the representative told Reuters.
The mechanism gives investors in CCS certainty about their
future revenue by setting a minimum price for their carbon
credits. Oil companies in the country's highest-emitting sector
are counting on CCS to help dramatically cut emissions while
continuing to pump oil and gas.
Pathways is still in talks with the government to set up
such a contract, though probably not through the C$15 billion
($11 billion) Canada Growth Fund - a body set up last year by
the Finance Ministry to help attract private investment in clean
tech by mitigating financing risks - the representative said.
"We sincerely do want to figure out a path to work with
them," said a finance ministry official who was not authorized
to speak on the record.
Canada is the world's fourth-largest oil producer, and Prime
Minister Justin Trudeau has made getting to net-zero by 2050 a
guiding principle of his government in recent years.
However, Canada is lagging behind the U.S., which has
offered massive incentives to clean tech companies under the
U.S. Inflation Reduction Act (IRA) for more than a year now.
But Canada's system is more complex because, unlike the
U.S., it has a carbon pricing system that will allow companies
that capture or reduce emissions to sell carbon credits.
Carbon credits represent reduced or avoided carbon
emissions, and companies use them to mitigate greenhouse gases
they generate. However, environmental groups have said these
schemes allow companies to appear to take climate action when in
reality they are not cutting emissions.
The Pathways Alliance CCS hub would store emissions from 14
oil sands projects at an estimated cost of C$16.5 billion ($12.2
billion) by 2030. The project will take years to build and so
Pathways is counting on government support to move forward.
The government has told Pathways that the Growth Fund may
not be equipped to handle some projects, said the Pathways
representative who asked not to be named. The alliance includes
Canadian Natural Resources Ltd CNQ.TO , Suncor Energy SU.TO ,
Cenovus Energy CVE.TO , Imperial Oil IMO.TO , ConocoPhillips
Canada COP.N and MEG Energy MEG.TO .
Pathways aims to sequester 14 megatonnes of carbon per year
and the federal benchmark for credits in 2030 is set at C$170
per tonne. The contract would help pay for capital and operating
costs, Pathways says.
Canada set up the Growth Fund last year, which is run
through the Public Sector Pension Investment Board, a federal
Crown corporation.
Jessica Eritou, a spokesperson for the Finance Ministry,
said the government and the Growth Fund are speaking with many
commercial project proponents to understand the demand for
carbon contracts for difference, and how "we can best facilitate
these."
A number of other industries are also looking to use
contracts for difference. Adam Auer, president of the Cement
Association of Canada, said the contracts are vital to
attracting foreign investment.
"We need to have the details finalized and to get some
contracts in place before we have the level of certainty that's
needed to get some of that foreign capital into our country."
($1 = 1.3591 Canadian dollars)
(Reporting by Steve Scherer
Editing by Denny Thomas and Josie Kao)
((steve.scherer@thomsonreuters.com; +1-647-480-7889;))