Varcoe: Premier leaves door open to more Alberta incentives for carbon capture megaproject in oilsands

Danielle Smith said the government wants to ensure it continues to get the ‘maximum value’ out of the industry’s ongoing development in Alberta

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The Alberta government has promised to provide grants to carbon capture projects built in the province, including the ambitious $16.5-billion development proposed by the Pathways Alliance.

But is the province prepared to provide even more incentives for the massive carbon capture and storage network that oilsands producers want to build in Alberta?

It doesn’t sound like Premier Danielle Smith has closed the door on the idea, which has been suggested by some members of the Pathways Alliance in recent weeks.

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“One thing we have to be aware of is that there is no money in investing in CO2 abatement technology; that is just a 100 per cent cost to a company,” Smith said in an interview.

“We are talking with Pathways. We’ve got a working group with them, as well as with the federal government, to find out what it is they need to get to the finish line on this project . . . So our conversations continue.”

Work on the group’s foundational carbon capture network is being advanced, as oilsands producers strive to reach net-zero emissions by 2050.

The alliance represents six of the largest oilsands operators, including Cenovus Energy, Canadian Natural Resources and Suncor Energy. So far, the member companies have indicated the financial incentives in Canada aren’t enough to give the project the final green light.

The network would link more than 20 oilsands facilities, via a pipeline, to a storage hub in the Cold Lake area. The project would be one of the world’s largest carbon networks, capturing up to 12 megatonnes annually.

To see decarbonization projects built, the federal Liberal government is establishing an investment tax credit that would cover up to half of the eligible capital costs for carbon capture, utilization and storage (CCUS) developments.

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Federal legislation for the credit is expected to be formally passed later this month. Ottawa has also promised to offer carbon contracts for difference (CCFDs) that would lock in the future carbon price for such initiatives.

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In November, the province unveiled details of its Alberta Carbon Capture Incentive Program, offering 12 per cent grants for CCUS project capital expenditures.

It’s estimated the initiative will cost Alberta between $3.2 billion and $5.3 billion by 2035, and trigger about $35 billion in capital investment.

In an interview last month, Canadian Natural Resources executive chair Murray Edwards stressed the importance of the foundational oilsands project.

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“We want to see the federal government put their commitment on paper,” he said.

“The province has come forward with some initial support in terms of (grants), but I think there has to be additional support there that will allow the industry to show further investment back in the province.”

Murray Edwards
Canadian Natural Resources Ltd. executive chairman Murray Edwards speaks at the annual shareholders meeting at the Telus Convention Centre in Calgary on Thursday, May 2, 2024. Brent Calver/Postmedia

Similarly, Pathways Alliance executive chair Derek Evans said more provincial support is “very important,” along with the proposed investment tax credits (ITC).

“The ITCs deal with the capital side of the equation and we’ve often talked about how we need to see combined capital support in that 75 per cent range,” Evans said in an interview last month.

So is the province willing to consider something beyond the 12 per cent grant already on the table?

Derek Evans of Pathways Alliance
Derek Evans of Pathways Alliance. Courtesy, Pathways Alliance

Alberta’s premier said the government wants to ensure it continues to get the “maximum value” out of the industry’s ongoing development in the province.

She pointed to the province’s current royalty structure, which sees oilsands projects face a lower rate until they reach a payout phase, when total project revenues top total capital and operating costs.

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At that point, the royalty rates significantly increase.

“When you look at what we’ve done before, we allowed for our oilsands companies to pay a lower royalty rate until they had paid off the capital cost of their expansions,” Smith said.

“If we need to be thinking along those lines . . . we have to wait and see where the federal government is coming in. We have to understand a little bit more about what that would look like. But it’s not unusual for us to do those kinds of things, in order to make sure that we have a viable industry and that we’re going to be able to continue to see projects come on stream.

“So those are the kinds of conversations that we’re having. It would have to be based on something that we’ve already done in the past if we’re going to go down that way. And at the moment, the only thing we have on the table is the 12 per cent ITC.”

Alberta Premier Danielle Smith
Alberta Premier Danielle Smith speaks at the Inventures 2024 conference at the Telus Convention Centre in Calgary on Friday, May 31, 2024. Gavin Young/Postmedia

Federal Natural Resources Minister Jonathan Wilkinson noted recently that Ottawa has put larger incentives on the table for CCUS than the province has created.

“For the last several years, the Pathways Alliance has committed to important emissions-reduction targets for the oilsands,” Carolyn Svonkin, the natural resources minister’s press secretary, said in a statement.

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“We continue to encourage Pathways to accelerate tangible action.”

Jonathan Wilkinson
Energy and Natural Resources Minister Jonathan Wilkinson. Peter J. Thompson/National Post/File

Analysts say there are still some missing pieces to the puzzle to move the oilsands’ CCUS project forward, particularly the federal carbon contracts for difference.

Emitters need a better understanding of the value of the carbon price in the long term, said analyst Jared Dziuba with BMO Capital Markets.

There have also been discussions in the past about what types of capital spending could be considered eligible for CCUS grants in Alberta.

“There is negotiating positioning happening . . . between all levels of the government and the industry,” Dziuba said Monday.

Critics believe enough incentives are already on the table — or shouldn’t be given in the first place.

“These guys can afford to pay for it,” Greenpeace Canada’s Keith Stewart said of oilsands producers. “There is no reason why (they) should be asking the Alberta taxpayer to foot the bill.”

Pathways Alliance Cold Lake CCUS project
An employee with the Pathways Alliance explains how a proposed carbon capture and storage project based in Cold Lake works during the Oil Sands Trade Show at Shell Place on September 13, 2023. Vincent McDermott/Fort McMurray Today/Postmedia Network

But Martha Hall Findlay, director of the University of Calgary’s School of Public Policy, believes Ottawa needs to ensure the CCFDs are available, which potentially won’t cost the federal government anything if the industrial carbon price rises to $170 a tonne by 2030, as planned.

“If we lower our emissions profile for our oil and gas in Alberta, we should then be able to have the support to not only maintain production, but also increase production,” said Hall Findlay.

“All three — the province, the companies and the federal government — have to get together and say, ‘How are we going to work this out together?’ ”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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