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    Canada’s CCS tax credit strong for job support, CCS centre says


But private sector will need more than tax credits to advance CCS, International CCS Knowledge Centre says. [Image: Quest CCS]

by: Dale Lunan

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Natural Gas & LNG News, Americas, Premium, Political, Tax Legislation, Carbon Capture and Storage (CCS), News By Country, Canada

Canada’s CCS tax credit strong for job support, CCS centre says

Canada’s proposed regulations for an investment tax credit for carbon capture, utilisation and storage (CCS/CCUS) projects include strong provisions to support jobs and promote the development of large-scale CCS infrastructure, the International CCS Knowledge Centre said August 31.

With one week left in the government’s public consultation period, the Knowledge Centre has published a detailed review of the draft legislation for the CCUS investment tax credit (CCUS-ITC) released August 4. The plan for a Canadian tax credit for CCS was first unveiled in Canada’s 2023 budget as Ottawa’s response to US president Joe Biden’s Inflation Reduction Act, which offers lucrative tax credits for CCS investments.

The Knowledge Centre’s review found that in order to receive the largest possible tax credit on eligible CCS project expenditures, developers must meet two main labour requirements: workers involved in CCS must be paid according to prevailing equivalent collective agreements for such work; and reasonable efforts must be made to ensure 10% of labour in Red Seal trades are performed by apprentices.

“We are very pleased to see the government’s support for fair labour practices and wages in the CCS industry,” said Beth Valiaho, the Knowledge Centre’s vice-president of policy, regulatory and stakeholder relations.

The CCUS-ITC is the federal government’s centrepiece for incentivising heavy industries to build CCS projects by covering 50% of the capital cost of CO2 capture projects between 2022 and 2030.

The tax credit is higher – 60% – for projects that capture CO2 directly from the atmosphere and also covers 37.5% of the cost for facilities required to transport, utilisation and permanent storage of CO2.

In addition to the labour requirements, the Knowledge Centre’s analysis of the draft legislation found that the CCUS-ITC applies to the full chain of CCS operations, from CO2 capture to transportation and certain forms of storage and/or utilisation. The CCUS-ITC is applicable to projects in which captured CO2 is used and permanently stored in the manufacture of cement, but not for projects which contemplate using captured CO2 in enhanced oil recovery.

Canada’s current emissions reduction plan expects national CCS capacity to more than triple, to at least 15mn tonnes/year by 2030. But the Canada Energy Regulator (CER) has said that for Canada to achieve net-zero by 2050, CCS in Canada would need to reach 60mn-80mn tonnes/year by 2050, compared to 7mn tonnes/year currently.

“CCS projects must get started immediately if Canada is to achieve its ambitious goals for cutting greenhouse gas emissions at least 40% from 2005 levels by 2030 and reaching net-zero emissions by 2050,” Valiaho said.

The Knowledge Centre estimates that construction and development of three new large-scale CCS projects in Canada would generate nearly C$3bn in gross domestic product (GDP) and support more than 6,000 jobs through development and construction.

The Pathways Alliance – a partnership of the six largest oil sands companies – has announced plans to invest more than C$24bn in one of the world’s largest CCS projects and other emissions reduction technologies, creating 35,000 construction-related jobs, 1,000 permanent operating jobs and more than C$50bn in GDP.

Capital Power, which is pursuing a CCS project at its gas-fired Genesee power plant near Edmonton, says the project would provide roughly 580 full-time jobs on average during the 3.3-year construction period, and up to 1,000 during peak construction. Meanwhile, international cement producer Heidelberg Materials aims to build the world’s first full-scale CCS project at its Edmonton cement plant by 2026, creating 800 full-time jobs and approximately 7,000 person-years of employment in the process.

The new briefing on the draft CCUS-ITC legislation also highlights how the tax credit alone may not be sufficient for private-sector developers to proceed with their projects, adding that it is critical for the government to finalise other CCS-related policy measures, including carbon contracts for difference that protect investors from potential changes to federal carbon prices. 

The government announced its intention to introduce these contracts in its 2022 Fall Economic Statement and said it plans to launch consultations on these measures in the coming months.

The Knowledge Centre’s detailed review of the CCS investment tax credit can be downloaded here.