CALGARY — The federal government unveiled its highly anticipated tax credit for carbon capture, utilization and storage (CCUS) Thursday, providing heavy emitters with massive cost relief on proposed projects, but at a lower rate than what some proponents have said is needed to usher in what could be a multibillion-dollar industry. 

Ottawa will allow industrial-scale emitters like oil and gas companies to write off 50 per cent of equipment costs for CCUS projects, the Liberals’ 2022 budget said. “Direct-air capture” projects, which suck carbon emissions directly out of the atmosphere, are eligible for a 60 per cent credit, and a 37.5 per cent credit will be applied to equipment used for transportation, storage and use. The threshold is lower than requested by the oil and gas industry and the Alberta government; both had wanted Ottawa to cover as much as 75 per cent of costs. 

The government will cut those rates in half from 2031 to 2040 “to encourage the industry to move quickly to lower emissions,” the budget states. 

The policy, among the largest investment credits that Ottawa has ever introduced, plays a central role in the federal government’s plans to reach net-zero emissions by 2050. The oil and gas sector is projected to decrease carbon emissions 42 per cent below 2019 levels by 2030, a reduction that is expected to come in large part from sequestration. 

CCUS involves capturing CO2 at facilities, transporting it, and injecting the harnessed carbon deep underground for storage, or using it in other industrial processes like concrete production.

The tax-credit policy is expected to cost $2.6 billion over five years starting in 2022–23, then about $1.5 billion annually between fiscal 2026–27 through 2030. 

The budget calls the policy a “key part of the government’s broader plan to work with industry towards the goal of decarbonization” with the aim of “securing Canada’s place as a leader in CCUS.” 

“By lowering the carbon footprints of Canada’s traditional energy producers, the credit aims to ensure that they are a stable source of cleaner energy both domestically and internationally,” the document states. 

As Finance Minister Chrystia Freeland tabled the budget Thursday afternoon, it remained unclear whether the tax credit would be enough to spur the level of investment that some observers had hoped for. Oil-company CEOs have said CCUS projects are strictly an added cost rather than a long-term investment; Cenovus and Suncor’s chief executives have previously estimated the cost of the sector achieving net zero by 2050 at $75 billion.

Mike Moffatt, senior director at the Ottawa-based Smart Prosperity Institute, said the tax credit could still be enough to bring numerous sequestration projects online. 

“It wasn’t everything that they asked for, but often in these situations you ask for more than what you expect, to have a little bit of wiggle room,” he said. “I think overall this will be promising.” 

Last week, the Alberta government announced that six CCUS projects, involving major oil players like Suncor, Shell Canada and Enbridge, would be allowed to advance under the government’s new regulatory regime. The projects still need to pass environmental assessments. 

In a recent research note, CIBC analysts estimated the federal government would need to cover at least 45 per cent of CCUS costs in order to spur investments using existing technologies. For new technologies, the credit would have to be closer to 70 per cent.

The analysts said CCUS could “transform Canadian oil and gas into one of the lowest GHG-emission feedstocks in the world,” and framed the technology as “one of the largest near-term opportunities for Canada to advance its climate-change agenda.” 

The technology faces pushback from many environmentalists, scientists and academics, over 400 of whom wrote a letter to Freeland in January urging the government not to introduce the tax credit, saying it would only deepen Canada’s dependence on fossil fuels.