New Federal Government Tax Credit for Carbon Capture Offered to Fossil Fuel Companies by Canada

Of all the climate change initiatives budgeted this fiscal year in Canada, the biggest payout will be an investment tax credit to fossil fuel companies. Budgeted at $2.6 billion CDN over five years, the industry will be able to claim the following tax credits:

• A 60% tax credit until 2030 for implementing direct-air capture of CO2.
• A 50% tax credit for other carbon capture, utilization and storage (CCUS) projects.
• A 37.5% tax credit for the costs associated with building storage, transportation and use of captured CO2.

The steel and cement sectors will also be able to claim these tax credits which will be halved for all beginning in 2031. The government forecasts that the tax credits will help to reduce emissions by 15 megatons, and a 31% reduction from 2005 levels by 2030.

What makes this tax credit giveaway seem onerous is that since CCUS technology was first proposed Canadian governments have spent close to $6 billion in partnering with pilot and commercial projects, which for the most part, were abandoned when industry partners backed out.

Now that the industry is riding high with oil prices hovering near $100 US per barrel, and making money hand over fist (according to David Macdonald, Senior Economist, Canadian Centre for Policy Alternatives almost $22 billion in 2021), the government is once more giving taxpayer money away.

CCUS technology has matured over the previous two decades. Two projects from the early days of CCUS were completed, one in Saskatchewan, and the other in Alberta. Both have removed and stored several million tons of CO2, although the Saskatchewan project’s CO2 is being pumped into old reservoirs to enhance oil recovery. That means the stored CO2 is allowing the industry to emit more GHGs.

Another project, Carbon Engineering has demonstrated at a pilot plant in British Columbia that it can capture CO2 directly from the air. In 2018 the cost to capture a ton of CO2 had dropped from $600 to $100 CDN, and the gas was being used to produce low-carbon replacement fuels for gasoline and diesel-powered vehicles.

CCUS has been described by academics as a costly distraction from mitigating and adapting to global warming. A Stanford University study stated that CCUS technologies may do more harm than good by putting more non-carbon pollutants into the air. Why is that? Because the technology is extremely expensive, and when used to pull CO2 from smokestack emissions leaves many other GHG pollutants to escape into the air. This includes sulphur and nitrous oxides which contribute to respiratory diseases and global warming as well. The Stanford study concluded that CCUS does more damage than doing nothing at all with no net social benefit.

It should be noted that the industry was pressing the federal government to offer as much as a 75% tax credit. So maybe, 60, 50 and 37.5% should be seen as a win for taxpayers.

I still don’t understand the rationale behind providing this type of subsidy to an industry currently awash in cash. Wouldn’t the money be better spent on multi-residential buildings and home retrofits to make them more energy efficient so we use burn less oil and natural gas to stay warm in Canada’s cold winters? Or spent on companies building new zero-emission renewable energy projects? Or spent to train fossil fuel industry workers to create a substantial geothermal energy infrastructure since the skill requirement is readily transferable?

Am I guessing that the likely answer for this continued willingness to be suckered by the fossil fuel industry has everything to do with preserving existing jobs in areas of the country where these industries are dominant?