With Canada’s federal budget just a month away, the country’s oil sands industry is once again demanding more generous federal subsidies—or what it prefers to call “clarity” on Ottawa’s intentions—before investing its own lavish shareholder returns in the technology it says it needs to decarbonize its operations.
At the center of the dispute is one of the world’s largest carbon capture, utilization, and storage (CCUS) projects. The massive CAD $16.5 billion development would eventually connect more than 20 oilsands facilities in Alberta through a CO2 pipeline to underground storage. At stake is not only Canada’s effort to decarbonize its energy sector, but the reputation of a controversial technology the energy industry is heavily promoting as a decarbonization solution.
Trouble has been brewing for years. But it hit a new peak in October, when Climate & Capital Media’s Canadian media partner, The Energy Mix, reported that the industry-funded International CCUS Knowledge Centre warned that the federal government’s 2035 target date for grid decarbonization would be extremely difficult to meet based on the current state of the technology unless taxpayer subsidies were dramatically increased.
Managing expectations
The Pathways Alliance, whose six members account for about 95% of the country’s oil sands extraction, now says the companies won’t advance with the project they’ve promised to build unless the government increases the $7.1 billion tax credit that is already on the table.
“The government funding partnerships in Canada are not enough for large-scale CCS to proceed in the oilsands,” Rhona DelFrari, chief sustainability officer at Cenovus Energy, told the company’s investor day recently in Toronto.
At stake is not only Canada’s effort to decarbonize its energy sector, but the reputation of a controversial technology the energy industry is heavily promoting as a decarbonization solution.
This latest demand comes even after the government lowered expectations from previous plans to reduce emissions by 42% over 2019 levels after the industry complained that earlier federal emissions caps were “very aggressive” and “almost unrealistic.”
Broken promises
This comes as no surprise. The history of carbon capture technology is littered with missed deadlines, fines for missed targets, and broken promises. As far back as 2014, the Boundary Dam carbon capture facility in Saskatchewan set out to achieve a 90% capture rate before consistently poor performance forced it to downgrade its target to 65%. In 2015, the troubled project had to pay a C$12-million penalty to Cenovus Energy after failing to deliver its quota of captured CO2 to the Alberta Fossil’s Enhanced Oil Recovery operation. In 2017, the Saskatchewan government admitted the province’s ratepayers were paying an “implicit” carbon tax of nearly $60 per tonne to support the plant.
Yet the industry mainly insists that carbon capture technology is ready to contribute seriously to emission reductions if the Canadian taxpayer bears a significant financial burden. “Without competitive fiscal incentives, our country risks being left out as large-scale emissions reduction investments are developed and deployed elsewhere where they get the best returns,” says DelFrari.
Progress, not PR
The industry has also repeatedly delayed beginning construction in disputes over government assurances. Last month, a frustrated Jonathan Wilkinson, minister of energy and natural resources, called on the industry to“start to show actual progress on the ground” rather than just running a PR campaign to tout its decarbonization commitments. “They [the industry] continue to drag their heels despite the federal government delivering on everything that is promised,” said spokesperson Carolyn Svonkin.
“By blaming the federal government for lack of support, Cenovus continues to work toward controlling the message that they are not responsible for emission reductions,” wrote David Van Alstyne, president of CleanTechonomics Energy Ltd. He speculated that without funds, the company would do “probably nothing” to decarbonize.
Free cash flow to investors, not carbon capture
While continuing to delay carbon capture, Cenovus said last week it planned to increase its oilsands extraction by 19% over the next five years, Reuters reported. “This represents a new pathway into global markets,” Chief Commercial Officer Drew Zieglgansberger told investors. During that same event, Cenovus also committed to return 100% of its free cash flow to investors.
There is a rich irony in asking for taxpayer subsidies to capture carbon while returning cash profits to investors from extracting oil and gas.
There is a rich irony in asking for taxpayer subsidies to capture carbon while returning cash profits to investors from extracting oil and gas. “Why not allocate that free cash flow to decarbonizing your operations instead of relying on public monies to increase investor returns?” Van Alstyne asked. “Cenovus remains focused on self-interest and shareholder returns.”
Canada’s bottomless oil industry tax credit
Even before the tax credit funds begin to flow, the government is receiving warnings that the program may run more than $1 billion over budget, as the Canadian Broadcasting Corporation (CBC) reported last month. CCUS subsidies that were meant to cost $4.6 billion between 2022 and 2028 could ultimately exceed $5.7 billion because the tax credits are not capped. “That means the final cost for Canadian taxpayers could end up being much more significant.”
One would think the technology’s latest setbacks would cause the government to reconsider its commitment to carbon capture to meet ambitious emission reduction targets by 2035. Quite the contrary. Finance Minister Christiana Freeland continues to insist that the technology is a “historic investment” in Canada’s clean transition. “Carbon capture, utilization, and storage are essential to reducing Canada’s emissions,” says her press secretary, Katherine Cuplinskas. “Canada cannot afford to miss out on this economic opportunity”
That economic opportunity is fading by the day as the reality of the cost and complexity of capturing carbon at scale sinks in.
