July 21, 2024

Carbon seize shops dangerous greenhouse gasoline emissions from industrial processes deep underground. Because the federal authorities signed a take care of Entropy, there was no different contracts to cowl the danger of carbon seize initiatives.

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The query of who ought to bear the monetary threat for expensive carbon seize and storage initiatives has change into a stumbling block slowing the expertise’s adoption in Canada.

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It has been half a 12 months since privately held Entropy Inc. inked a take care of the federal authorities that noticed Ottawa comply with underwrite a lot of the danger for the corporate’s proposed carbon seize and storage undertaking.

Entropy mentioned it might go forward with its $49-million second section of the undertaking — situated at mother or father firm Benefit Vitality’s Glacier gasoline plant in Alberta — after the 2 events signed the first-of-its-kind deal. Referred to as a “carbon offtake settlement,” or “contract for distinction,” the deal was hailed by many for example of what must be finished if Canada is to see a major rollout of carbon seize and storage.

However six months after the Entropy settlement, not a single different firm has efficiently negotiated the same deal. And the majority of carbon seize initiatives proposed for Canada nonetheless solely exist on paper, with closing funding choices but to be made.

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Carbon seize, or CCUS as it’s usually referred to as, traps dangerous greenhouse gasoline emissions from industrial processes and shops them deep underground. Its deployment is broadly seen as being key to efficiently decarbonizing the power sector.

So what’s the holdup? It comes down partially to rigidity between authorities and business over the perceived monetary threat of CCUS investments, and differing opinions about how a lot of that threat must be borne by taxpayers.

“For those who’re the federal government, you wish to be sure that the cash that taxpayers are paying is being spent properly,” mentioned Entropy CEO Mike Belenkie.

He added not all carbon seize initiatives are the identical. Their price can range broadly primarily based on elements just like the depth of the emissions being captured and whether or not the positioning has entry to native underground storage or should spend money on pipeline transportation.

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“For carbon seize and storage to work, there must be a relentless deal with selecting the very best initiatives,” Belenkie mentioned.

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Michael Belenkie, CEO of Entropy, a Calgary-based carbon seize agency, seen in a file picture from Friday, April 23, 2021. Azin Ghaffari/Postmedia file

Carbon seize initiatives want assure of secure market

Captured carbon doesn’t have any worth by itself as a product, however can decrease an organization’s personal carbon tax bills by decreasing its total emissions. As well as, firms that deploy CCUS can generate carbon credit to promote to huge polluters trying to offset their very own emissions.

However firms have mentioned to ensure that carbon seize initiatives to make monetary sense, they want some form of assurance {that a} future authorities gained’t are available in and get rid of the commercial carbon value, or that the underside gained’t fall out of the carbon credit score market 10 years down the highway and take away the anticipated return on funding.

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That’s the place carbon contracts for distinction, or carbon offtake agreements, are available in.

The federal authorities, via the $15-billion Canada Development Fund, has dedicated to reaching such agreements with emitters who deploy CCUS — basically guaranteeing that if the worth of carbon falls beneath a sure degree sooner or later, the fund pays the distinction.

The sticking level, although, seems to be at what “strike value” these contracts can be triggered. Entropy’s profitable carbon offtake settlement noticed the Canada Development Fund comply with buy as much as 185,000 tonnes of carbon credit from Entropy for a 15-year time period at an preliminary strike value of $86.50 per tonne.

Meaning if the market value Entropy can count on to obtain for its captured carbon falls beneath $86.50, the Canada Development Fund will step in and pay the distinction.

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Whereas that assurance was sufficient to persuade Entropy it might make a go of its undertaking, different proponents are possible looking for a considerably larger strike value, mentioned Michael Bernstein, govt director of the non-profit group Clear Prosperity.

“What the Canada Development Fund has been attempting to do is bespoke negotiations with numerous emitters, prioritizing initiatives that they assume are notably good worth for taxpayers,” Bernstein mentioned.

“It means they might face disagreements with firms, as I imagine they did with Capital Energy round what the suitable value was for that undertaking.”

Amid business issues, Ottawa vows to develop carbon offtake choices

Earlier this spring, Edmonton-based Capital Energy cancelled plans for a proposed carbon seize undertaking at its Genesee energy plant, saying whereas the undertaking is technically viable, the economics don’t work.

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The Pathways Alliance, a consortium of firms proposing to construct a $16.5-billion carbon seize and storage community for Alberta’s oilsands, additionally has but to efficiently negotiate a carbon offtake settlement with the Development Fund.

In a February report, world consultancy Wooden Mackenzie warned there’s a actual probability of the Pathways undertaking being “delayed and probably scuppered” if business and the federal and provincial governments can not come collectively to underwrite the danger that exists.

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An worker with the Pathways Alliance explains how a proposed carbon seize and storage undertaking primarily based in Chilly Lake works in the course of the Oil Sands Commerce Present at Shell Place on September 13, 2023. Vincent McDermott/Fort McMurray At the moment/Postmedia Community jpg, SP, apsmc

At a current investor replace, an govt for Pathways Alliance member Suncor Vitality Inc. reiterated the business’s chorus that it wants extra certainty earlier than transferring ahead with “materials capital commitments” for carbon seize.

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For its half, the federal authorities has pledged to develop an expanded vary of carbon offtake choices tailor-made to completely different markets and their distinctive dangers and alternatives. It has mentioned the Canada Development Fund — which nonetheless has $6 billion left earmarked for contracts for distinction — will discover creating ready-to-go contracts for sure jurisdictions, so that every contract doesn’t need to be negotiated from scratch one after the other.

That might go a good distance towards eradicating investor uncertainty, Bernstein mentioned.

“There are numerous methods you could possibly do that, however Clear Prosperity’s suggestion is to have a typical strike value,” he mentioned.

“You’d principally design a contract that claims ‘Come one, come all, at $100 a tonne’ or no matter value you select after which let everybody that’s cheaper than that come and fill it,” Belenkie mentioned.

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In an emailed assertion, Carolyn Svonkin — press secretary to federal Pure Sources Minister Jonathan Wilkinson — mentioned the federal government is already investing greater than $90 billion to assist Canadian firms decarbonize, so it’s time for business to step up and assist carry the load.

“The federal authorities expects all firms who’ve dedicated to CCUS initiatives to maneuver as rapidly on these initiatives because the local weather disaster requires,” Svonkin mentioned.

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This report by The Canadian Press was first revealed June 4, 2024.

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