Entropy, Calgary-based carbon capture company, agrees to first-ever carbon contract for difference with feds

It’s the Canada Growth Fund’s first transaction in Alberta’s carbon market. The Pathways Alliance applauded it as a move that lowers risk associated with decarbonization projects

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A Calgary-based carbon capture company is receiving $200 million from the federal government, coupled with a carbon credit agreement that intends to de-risk investment in carbon capture.

Climate policy organizations hope the deal lays the groundwork for a standard contract that would help increase the speed at which decarbonization projects are undertaken in Canada — and help it compete with the United States for low-carbon capital.

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The Canada Growth Fund and Alberta oil and gas company Advantage Energy Ltd. announced the deal Wednesday morning. The funds will be invested in Entropy Inc., a subsidiary of Advantage.

“This is a historic moment for carbon capture. It’s a historic moment in terms of establishing the financial architecture that makes carbon capture work,” Deputy Prime Minister Chrystia Freeland said at a Wednesday announcement in Calgary.

It’s just the second investment the CGF — Ottawa’s $15-billion cleantech financing agency — has made to date; its first was announced in late October, with $90 million going to Calgary-based geothermal company Eavor.

‘It could be the beginning of something bigger and broader’

A key element of the agreement is a fixed-price carbon credit purchase agreement — called a Carbon Credit Offtake Commitment — of up to one million tonnes per year. It’s the first agreement of this type.

The federal government has previously alluded to the framework as one that would give certainty to companies investing in emissions-reducing technology such as carbon capture.

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The initial allocation of the agreement targets the sale of up to 185,000 tonnes per year of carbon credits at an initial price of $86.50 per tonne, lasting over a 15-year term. Those credits will come from Advantage’s Glacier gas plant, the company’s first carbon capture utilization and storage (CCUS) project.

It will remove enough investment risk that Entropy will be able to proceed with that project’s $49-million second phase.

Reaching that one-million-tonnes-per-year mark will happen through future Entropy CCUS projects on similar terms — up to 600,000 tonnes per year, with the option of expanding by 400,000 annual tonnes for other future projects.

The deal could result in the CGF owning about 20 per cent of Entropy.

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The carbon contracts for difference agreement are a starting point for getting the carbon credit market into balance, said Dale Beugin, executive vice-president with the Canadian Climate Institute. Up to $7 billion has been set aside in the CGF’s budget for such contracts.

“(This) is good for investment for Entropy . . . That next layer is, well, what does this mean for the market more broadly, not just for Entropy’s credits, but for everybody else’s credits? I think it doesn’t mean much yet — but it could be the beginning of something bigger and broader.”

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Entropy deal could inform future carbon contracts for difference framework, says climate policy organization

The next step should be to create a framework companies can qualify for instead of cutting individual deals with the CGF, said Michael Bernstein, executive director of Clean Prosperity, a Canadian climate policy organization. He said the Entropy deal would likely inform the final result of a broad framework for contracts for difference.

“This deal could prove really important if it leads to more and more deals and a broader program that becomes standardized . . . It’s a very positive step in a long journey that I hope the government is going to undertake,” Bernstein said.

When asked whether the deal will allow a broader framework to be created and what timelines it could operate on, Freeland referenced the $7 billion set aside in the CGF for negotiating deals similar to Entropy’s.

“We hope this is the first of many,” Freeland said.

The Pathways Alliance, a group of the Alberta oilsands’ largest producers, applauded Ottawa for the agreement, saying it helps de-risk investments in emissions-reduction projects.

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“We continue to work with the federal government and the Canada Growth Fund to determine the most appropriate way (carbon contracts for difference) can be applied to major decarbonization projects such as ours,” Mark Cameron, vice-president of external relations for Pathways, said in a statement to Postmedia.

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Carbon capture, utilization and storage lines. Photo by Alberta’s Industrial Heartland Association

According to a news release, Entropy will have approximately $460 million of capital available at the end of the investment, which — combined with investment tax credits, CCUS incentives and project financing — creates a path to execute $1 billion of CCUS projects and abate more than 1 million metric tonnes per year.

Beugin said the carbon offtake agreement is a massive win for strengthening Alberta’s carbon credit market.

“If firms don’t expect credits to be valuable, private investment won’t flow into low-carbon projects. By guaranteeing value for Entropy Inc.’s carbon credits, this investment drives emissions reductions, without crowding out private investment,” he wrote in a statement after the deal was announced.

In March 2022, Entropy announced a $300-million investment agreement with Brookfield Asset Management, a global alternative asset manager with more than $850 billion of assets under management.

— With files from The Canadian Press

[email protected]

X: @mattscace67

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