Canada—Oil & Gas

EVAN HALL, DAVID WAINER & CELINA GLABUS 
— Reporters —

Canada’s Carbon Management Strategy
                On September 27, 2023, the Canadian Federal Government launched its Carbon Management Strategy (Strategy) to promote a competitive and robust carbon management sector in Canada. Canada has established itself as a leader in global carbon management, with approximately one-seventh of the world’s active large-scale carbon management projects, and the Strategy establishes a vision for Canada to leverage this leadership and its natural resources to advance carbon management, meet Canada’s net-zero emissions goals, and create sustainable economic growth across the country. To accomplish this, the Strategy outlines five key priorities to ensure Canada is well-positioned to meet the increasing global demand for carbon capture, utilization, and storage (CCUS) and continue its global leadership in carbon management. These priorities are:

(1)   accelerating innovation and research, development, and demonstration (RD&D);

(2)   advancing policies and regulations;

(3)   attracting investment and trade opportunities;

(4)   scaling up projects and infrastructure; and

(5)   building partnerships and growing inclusive workforces.

Accelerating Innovation and RD&D
                The objective outlined in the Strategy for accelerating innovation and RD&D is to develop and advance the commercial viability of carbon management technologies across sectors, quantify Canada’s carbon dioxide (CO2) storage potential, and inform future regulatory development. To that end, the federal government plans to strategically advance and support RD&D for both mature and emerging technologies, including advancing early-stage carbon removal technologies, minimizing CO2 capture costs, creating opportunities for CO2 utilization, and developing geotechnical mapping across the country.

                To support this RD&D, the 2021 federal budget provided $319 million over seven years to Natural Resources Canada to develop the commercial viability of CCUS technologies. In addition, the federal government will continue to fund early-stage RD&D activities across the CCUS chain to minimize investment uncertainty. Federal investment support currently is and will be available through various federally backed accelerators and funds to support the commercialization of innovative carbon management solutions. The Strategy also notes that the federal government intends to focus on front-end engineering and design (FEED) studies to support demonstration of CCUS technologies in sectors where carbon capture is difficult. Targeted early-stage support is anticipated to advance technologies for large-scale deployment, including carbon management applications in cement, iron, steel, and chemicals.

                CCUS RD&D is well established in Canada. For example, the Saskatchewan-based Weyburn-Midale CO2 Monitoring and Storage Project (Weyburn Project) has successfully stored over 40 million tonnes of CO2 over 20 years. The Weyburn Project has been supported by and benefitted from RD&D from over 30 universities, research councils, private laboratories, and geological surveys and agencies (both government and private sector), and demonstrates Canada’s ability to harness collaboration across government, industry, and research institutions. This collaboration will be critical to develop and deploy innovative carbon management solutions and attract large-scale investment.

Advancing Policies and Regulations
                The Strategy highlights Canada’s intention to ensure regulatory frameworks underpin responsible carbon management development and promote international alignment with global industry partners.

                Canada’s resources are regulated in tandem by both provincial and federal governments. Provinces have their own subsurface resources, including pore space underground CO2 storage, and are primarily responsible for regulating CCUS activities within their jurisdiction, while the federal government is responsible for, among other things, CO2 transport via pipeline across intra-provincial and international borders. As a result of strong regulatory frameworks from both levels of government, Canada currently has several robust enabling policy and regulatory frameworks for carbon management. Alberta, British Columbia, and Saskatchewan have regulations in place covering pore space tenure acquisition and management of long-term liability for CO2 storage, as well as measurement, monitoring, and verification requirements. Enabling frameworks in Manitoba, Ontario, and Nova Scotia are underway.

                The Strategy highlights Canada’s motivation to attract more global investment by developing policies that provide certainty, transparency, and durability in the sector. To accomplish this, the Strategy notes that organizations such as the International Organization for Standardization, of which Canada is a member, and the Canadian Standards Association are working on establishing standardized CCUS design, construction, operation, risk management, quantification, and monitoring and verification metrics to promote international alignment. This standardization can increase certainty and improve confidence for both industry and investors alike.

                Together with enabling policy and regulatory frameworks, the Strategy notes that Canada has advantageous investment tools that support carbon management deployment. For example, the Refundable CCUS Investment Tax Credit (CCUS ITC) is valued at $3.1 billion over the first five years, and approximately $7.6 billion by 2030, for projects that enable CO2 storage. This could allow project proponents to capitalize on attractive investment opportunities and commercialize offset credits when their projects achieve emission reduction activities, thus providing proponents the opportunity to lower their upfront capital investment and heighten their return upon project commercialization. In addition, the Canada Growth Fund, a $15 billion investment vehicle set up in 2022, is expected to accelerate private investment in decarbonization and support clean technology projects by providing project financing and contracts for differences to backstop the future price of carbon.

                A key aspect of Canada’s suite of investment tools is the ability for project proponents to capitalize on multiple policy measures at once, referred to as “stacking.” Proponents may be able to take advantage of the CCUS ITC, as well as Clean Fuel Regulation credits, and incentives from the Canadian Infrastructure Bank; permitting proponents to stack policy benefits encourages investor certainty throughout the Canadian carbon management value chain.

Attracting Investment and Trade Opportunities
                Market growth for CO2-based products has been forecasted to reach US$1 trillion per year by 2030. While Canada’s regulatory environment, subject-matter expertise, and inherent natural resource advantages allow Canadian companies to attract significant foreign investment, Canadian carbon management companies need to be able to turn domestic solutions into large-scale global solutions to capture this investment. The Strategy notes that Canada has and intends to continue to support Canadian technologies as they seek to scale their commercial opportunities by developing measures such as direct investment in RD&D, investment tax credits, demand-side incentives, and support for workers. These measures will assist Canadian companies to commercialize their technology at all stages of development on a global scale. In addition, Canada’s Trade Commissioner Service plans to advance carbon management promotion by showcasing technologies and solutions to foreign buyers, strategic partners, and foreign investors. The Strategy also states that the government may leverage comprehensive free trade agreements and increase bilateral cooperation with key partners to build on its success and reputation as an energy leader.

Scaling Up Projects and Infrastructure
                The Strategy also highlights that the expansion of carbon management infrastructure will be critical to meet the sector’s evolving capacity needs across the value chain. The federal government intends to work with the private sector to explore collaborative financing options to support strategic investment in this critical infrastructure, including targeting carbon management hub (Hub) development. Hubs connect CO2 emitting facilities through transportation infrastructure to a centralized location or “hub,” where it can be properly managed. These hubs can capitalize on shared technical and commercial resources to decrease costs and commercial risk for all stakeholders. The federal government has already identified several optimal carbon management hub locations in Alberta, Saskatchewan, and British Columbia, where ideal geological formations for carbon sequestration exist and robust regulatory frameworks are already established. Further, tools such as the Canadian CCUS Assessment Framework, developed by Natural Resources Canada, can be used to facilitate large-scale CO2 transportation and infrastructure planning and guide strategic carbon management advancement across regions CCUS projects expand to across the country.

Building Partnerships and Growing Inclusive Workforces
                The Strategy was developed through engagement with provincial and territorial governments, industry, academia, the financial sector, and indigenous peoples, highlighting the importance of growing the carbon management industry in an inclusive manner that respects equity-seeking groups. Canada’s commitment to reconciliation with indigenous peoples is emphasized, focusing on meaningful consultation with indigenous communities in all stages of carbon management project development, as well as partnership with indigenous peoples as participants in project development, operations, and ownership.

                Canada’s Interim Sustainable Jobs Plan, which focuses on establishing jobs in sectors that support Canada’s path to net-zero, will ensure accountability, transparency, and engagement to guide national efforts in the carbon management sector. The federal government will also continue to ensure that the carbon management sector is led by inclusion, diversity, equity, and accessibility through proposed legislation that will require Sustainable Jobs Action Plans to be released every five years.

Conclusion
                As global demand for CCUS continues to rise, Canada’s federal government has sought to position itself and the carbon management industry as a leader in this growing sector. By accelerating RD&D efforts, advancing dynamic policies and regulations, attracting investment and trade opportunities, scaling up infrastructure, and growing inclusive workforces, the Strategy aims to maintain Canada’s position as a global energy leader and contribute to a growing call for innovative carbon management technologies. Canada’s CO2 storage and resource potential, paired with its carbon management expertise, will affirm its place on the international energy stage and draw investment into Canada as the industry continues to take shape.