Is carbon capture a game changer for Canada’s climate change strategy: A practical primer for business

October 18, 2022 | P. Jason Kroft, Ghazal Hamedani, Simon Igelman, Hayden Sahid

Introduction

In 2020, Canada produced over half a billion tonnes of carbon dioxide (CO2) emissions from fossil fuels and industrial operations. The next year, the Canadian legislature passed the Canadian Net-Zero Emissions Accountability Act, which legally enshrined Canada’s commitment to net-zero emissions by 2050. To complete its goal, Canada has 28 years to wipe off this half a billion tonnes of CO2 from its emissions balance sheet.

Net-zero emissions is a necessary goal to help save the planet for future generations. The industries that need to do the heavy lifting to get us past the finish line, however, are those that significantly contribute to Canada’s economy. Thus, Canada must strike a balance between meeting its emissions goals and sustaining its leading economic industries. To master this balancing act, one option under serious continued consideration by the Canadian federal government and numerous Canadian provinces is carbon capture, use, and sequestration (CCUS). CCUS, to be discussed and described in this article, presents an innovative technology that may help Canada sustain its energy and industrial sectors while reducing their impact on Canada’s climate.

What is CCUS?

CCUS: Represents the “suite of technologies that capture CO2” from industrial (mining, manufacturing, etc.) or energy-producing facilities (oil, gas, etc.) or directly from the atmosphere. The CO2 is captured, compressed, and transported into storage or used to create products.

Carbon Capture: Technologies that remove CO2 directly from the air, industrial emission streams, or from combustion in the process of creating energy.

Carbon Storage: Once CO2 is captured, the CO2 can be housed in various subsurface locations such as depleted oil reservoirs, deep saline formations, in coal beds, or salt caverns.

Carbon Use: The process of recycling captured CO2 to create energy or physical products.

The climate of CCUS: Change is ahead

The province of Alberta is Canada’s CCUS darling. For over a decade, Alberta’s legislature enacted laws to regulate CCUS. These regulations have encouraged the growth of CCUS projects within the province. Alberta’s legislature passed laws to create both a clear regulatory framework for corporations to implement CCUS projects and a funding roadmap to promote the innovation of CCUS technology.

As of 2020, Alberta stands as the largest producer of CO2 in Canada due to the growth in its fossil fuel sector. If Alberta implements CCUS technology on a wide scale, CCUS could capture and store the CO2 produced by the sector. CCUS can protect the growth of the sector while zeroing out the sector’s emissions. Thus, CCUS can play a crucial role in the province’s balancing act of meeting climate change goals while sustaining its economic growth.

The second largest producer of CO2 in Canada is Ontario, however, the province does not yet have the same CCUS legislative framework as Alberta. Ontario’s slow start to CCUS has been attributed to certain legislative restrictions found in Ontario’s Oil, Gas and Salt Resources Act and Mining Act. The recent public support of CCUS technology implied by the provincial government, suggests that necessary legislative changes could be forthcoming. Ontario’s Premier and Minister of Energy have both signed “Ontario’s Low-Carbon Hydrogen Strategy,” a strategy that supports changes to certain pieces of provincial legislation that could open up the province to corporations looking to implement and develop CCUS technology.

Ontario’s Ministry of Northern Development, Mines, Natural Resources and Forestry (NDMNRF) is taking a lead in revisiting and potentially changing the province’s legal and regulatory framework to encourage the development of CCUS projects. The NDMNRF “regulates the drilling and operation of wells used for activities such as the exploration and production of oil and natural gas, the underground [and]… energy storage projects under the Oil, Gas and Salt Resources Act and the Mining Act.” [1] The NDMNRF has proposed legislative amendments to both the Oil, Gas and Salt Resources Act and the Mining Act aimed at clarifying the regulatory framework of CCUS. Additionally, these amendments would position the NDMNRF as the authorizing power to both approve permits to use Crown lands for CO2 storage and enter into agreements with corporations to explore, test, and pilot CCUS projects.

These legislative changes would give Ontario businesses the ability to take advantage of the vast amounts of government funding and tax credits for CCUS projects. Last year, the federal government “announced it would spend $319 million over seven years for the research, development, and advancement of the commercial viability of CCUS technologies.” [2] In the 2022 federal budget, investment tax credits were proposed that would cover 37.5% to 60% of the cost of eligible equipment used in CCUS projects. These tax credits would lighten the heavy burden for corporations looking to start CCUS related businesses because the largest economic hurdle for CCUS businesses to become profitable is the initial upfront cost of the equipment.

CCUS is capable of becoming one of the most useful tools used across the country to both meet emissions goals and maintain economic growth. It has the ability to reduce CO2 in heavy-emitting sectors without impeding the sectors’ economic growth. The initial financial burden of CCUS, the main hurdle for CCUS innovation, is being tackled by the federal government through grants and tax incentives. However, it is up to the provinces to ensure these financial incentives are open to businesses in their respective jurisdictions. With legislative changes on the horizon, Ontario could be the next big CCUS hub.

[1] The Government of Ontario, “Ontario’s Low-Carbon Hydrogen Strategy: A Path Forward” (2022) at 43.

[2] Aidan Macnab, “Energy sector working toward emissions reduction with renewables and new decarbonization methods” (5 October 2022), online: Lexpert <>

Disclaimer

This publication is provided as an information service and may include items reported from other sources. We do not warrant its accuracy. This information is not meant as legal opinion or advice.

Miller Thomson LLP uses your contact information to send you information electronically on legal topics, seminars, and firm events that may be of interest to you. If you have any questions about our information practices or obligations under Canada's anti-spam laws, please contact us at privacy@millerthomson.com.

© 2022 Miller Thomson LLP. This publication may be reproduced and distributed in its entirety provided no alterations are made to the form or content. Any other form of reproduction or distribution requires the prior written consent of Miller Thomson LLP which may be requested by contacting newsletters@millerthomson.com.