Mixed Signals: “Carbon Capture Tax Credit” Includes Projects Extracting More Oil


Carbon Capture Tax Credit: The federal government’s much-anticipated tax credit designed to encourage carbon capture and storage is facing criticism from environmentalists and climate policy experts. The draft legislation initially praised for its commitment to reducing emissions, has come under scrutiny for allegedly allowing projects that involve both carbon capture and increased oil extraction.

First introduced in the 2021 federal budget, the tax credit aims to accelerate carbon capture technology, a method employed to sequester and store carbon dioxide underground, ultimately contributing to achieving net-zero emissions by 2050. However, recent revelations suggest a significant departure from the initial promises made by the government.

According to the draft legislation reviewed by policy experts, the tax credit does not exclude projects that engage in enhanced oil recovery (EOR). In EOR, captured carbon is piped to an oil field, and injected underground to recover more oil, raising concerns among critics who argue that this inclusion amounts to subsidizing oil production.

Environmental Concerns: Tax Credit Accused of Subsidizing Oil Production

The inclusion of projects involving EOR in the tax credit has drawn sharp criticism from environmental advocates. Julia Levin, associate director of the advocacy group Environmental Defence, contends that the current form of the tax credit represents a significant rollback from its initial promises, effectively subsidizing oil production instead of prioritizing emission reduction.

As debates intensify, climate policy experts question the effectiveness of carbon capture technology as a viable tool for reducing emissions. A recent report from the International Energy Agency casts doubt on the potential of “implausibly large” carbon capture projects as a solution to the global climate crisis.

Policy Shift: Experts Argue for Stricter Inclusions in Carbon Capture Legislation

Legislation to implement the carbon capture tax credit is expected to be tabled shortly, following the conclusion of the final round of consultations between August 4 and September 8. The tax credit, available retroactively from January 1, 2022, initially excluded Enhanced Oil Recovery projects, as outlined in the 2021 budget. However, the latest draft reveals a departure from this stance.

Projects using up to 90 per cent of captured carbon for EOR will still qualify for the tax credit for the portion devoted to dedicated geological storage without extracting oil. This shift in policy has raised concerns about the true efficacy of the tax credit in achieving its goal of reducing emissions.

Industry Flexibility: Supporters See Tax Credit as Crucial for Carbon Capture Advancement

While critics decry the inclusion of EOR projects in the tax credit, industry proponents argue that the flexibility provided by the current legislation is essential for the advancement of carbon capture technology. Beth (Hardy) Valiaho, a vice president at the International CCS Knowledge Centre, believes that the tax credit will aid the industry in adapting to the complexities of integrating carbon capture and storage projects into existing facilities.

Janetta McKenzie, senior analyst of oil and gas at the Pembina Institute, acknowledges that the tax credit sets a “lower bar” for subsidized projects. However, she sees this as a positive aspect, providing the oil and gas industry with flexibility in adopting a technology that is still in the early stages of commercial development.

Carbon Capture’s Checkered Track Record in Emission Reduction

Carbon capture technology, despite its promise, has faced scepticism regarding its ability to significantly reduce emissions on a large scale. Over 400 scientists and academics previously urged Finance Minister Chrystia Freeland to abandon the planned tax credit, even before the inclusion of EOR projects.

Critics argue that carbon capture projects at oil and gas sites fail to address the emissions produced when consumers use oil or gas. In Canada, where eight commercial carbon capture facilities exist, only about 0.5 per cent of the country’s total annual emissions are captured, according to the International Institute for Sustainable Development.

As more than a dozen additional capture projects are in development, questions linger about the effectiveness of carbon capture technology in achieving substantial emission reductions. The controversy surrounding the tax credit highlights the ongoing debate over the role of carbon capture in addressing the urgent challenges of climate change.

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