CALGARY — A private investor recently approached SaskPower, the Province of Saskatchewan’s public energy utility, with an unconventional proposal.

Rather than build a natural gas plant equipped with carbon-capture technology in Canada, they could build it in the U.S., just two kilometres south of the border—then export the electricity back into Canada. 

A senior SaskPower executive recalled the pitch during a public speech last October, according to two sources who were in attendance. The rationale for the project was several fold: it would give Saskatchewan a cleaner electricity source to help meet its net-zero targets; sidestep Canada’s more complicated regulatory system; and more importantly, the investor had said, the carbon-capture component would let SaskPower and its investors take advantage of generous subsidies offered under U.S. President Joe Biden’s Inflation Reduction Act. 

“Obviously, the Inflation Reduction Act is a huge part of that,” Troy King, SaskPower’s chief strategist, said at the event hosted by the Canadian Nuclear Association. “It’s just much more economical to do it there.” 

The investor’s pitch may have seemed needlessly complicated—SaskPower told The Logic it currently did not have plans to build a natural gas facility outside of Saskatchewan—but it illustrates deeper concerns within Canada’s decarbonization industry, particularly among developers of carbon-capture and -storage (CCS) technology, in which SaskPower is a pioneer. 

CCS is central to Ottawa’s wider plans to reach net-zero emissions, and to its goal to slash oil and gas sector emissions 42 per cent by 2030. However, Canadian companies in the nascent sector are warning that capital is flowing into the U.S. at the expense of domestic players.

American policymakers have sought to cut red tape for major energy projects and offered as much as US$1 trillion in cleantech subsidies under the IRA. Canada, by comparison, has yet to introduce legislation for a promised tax credit that would help heavy carbon-emitters build CCS infrastructure. Other regulatory details aimed at driving down CCS costs remain unwritten. 

“We are a little concerned it’s taking this long,” Mark Cameron, vice-president of external relations for the Pathways Alliance, a consortium of six oil-sands producers, told The Logic. 

According to draft regulations Finance Canada released last August for a tax credit that was initially promised in the 2021 budget, developers would be able to write off 50 per cent of a CCS project’s initial equipment costs. But the government has yet to table legislation officially introducing the policy, and missed a key deadline to do so before Parliament rose for the summer. 

A spokesperson for Finance Minister Chrystia Freeland, Katherine Cuplinskas, did not directly address The Logic’s questions about the CCS tax credit, but said in a statement that Canadian competitiveness has “always been a priority for our government.” 

Pathways—whose members include Calgary oil giants Suncor Energy, Canadian Natural Resources, Cenovus Energy, Imperial Oil, ConocoPhillips and MEG Energy—is planning to build a $16.5-billion carbon-capture project that would collect emissions from more than 20 oil-sands projects and transport the carbon to via pipeline to a storage site south of Fort McMurray. Expected to reduce net emissions by 10 megatonnes per year by 2030, it will be one of the biggest CCS sites in the world.

Cameron said the IRA offers developers a guaranteed price of US$85 for every tonne of carbon they sequester, which makes U.S. projects comparably more economical by covering operating costs. Canadian oil-sands companies have lobbied for their own additional support to subsidize operating costs, arguing that billion-dollar CCS projects are too risky without guaranteed income generated from the carbon they store underground.

In an April research note, CIBC analysts estimated that the Pathways CCS project would offer an initial return on investment of about nine per cent, while a similar development in the U.S. would generate a 20 per cent return. 

“It’s a much more open program with very clear rules [and] a pretty generous support mechanism from the government,” Cameron said. “So we have to have a certain degree of level playing fields between ourselves and the United States for these projects to be competitive.” 

Meanwhile, U.S. energy rivals are poised to advance CCS projects at a faster clip than Pathways. American oil multinational Chevron is moving ahead with a major CCS development offshore Texas. Houston-based Occidental Petroleum has set aside up to US$1 billion for its own facility in the Permian Basin formation, which spans Texas and New Mexico, using technology from B.C.’s Carbon Engineering. 

Canada—and particularly Alberta—has its own pipeline of CCS projects, including Pathways’s megaproject. Dow Chemical is building a massive ethylene facility near Edmonton with CCS capabilities, while the federal government has laid out plans to support at least 10 other low-emissions facilities in coming years.

The longer Canada delays the tax credit and regulations, the more industry representatives worry about projects going south. Several large Canadian companies have cited the IRA as central to recent investments they’ve made in the U.S. Saskatoon-based Nutrien CEO Ken Seitz said IRA subsidies incentivized the fertilizer maker’s plan to build a clean ammonia plant in Louisiana. Asset-management behemoth Brookfield said the legislation would offer a “significant boost” to a pair of wind and solar acquisitions it recently announced in Colorado and Maryland. Earlier this year, fuel distribution company Parkland Fuel shelved its plans to build a biofuel facility in B.C., citing the comparable “advantages” of the IRA, as well as broader market uncertainty. 

Kanata Energy, a Calgary-based company proposing to build a Canadian blue ammonia plant with CCS capabilities alongside the Frog Lake First Nation, is moving ahead with a second project south of the border at a time when details around Canada’s CCS tax credit and other potential support are sparse. 

Kanata CEO Robert Delamar said the company is still fully committed to its planned investments in Alberta. But Kanata has tilted its focus recently toward a US$2.5-billion ammonia facility with CCS capabilities that it is building in Wyoming, as well as a separate US$1-billion CO2 pipeline. Kanata and its partners—the company is co-developing the plant alongside Wyoming’s Glenrock Energy, while the pipeline will be operated by U.S. midstreamer Williams Companies—hope to start construction on both projects in 2025. 

Delamar estimates that the U.S. subsidies will cover two-thirds of the capex of the multibillion-dollar facility. 

“I think everything would have been probably fine in Alberta, but then Joe Biden came along and dumped a truckload of money on the decarbonization sector in the U.S., and the end result is it just supercharged the sector,” he said. 

Such lavish payouts have already taken a toll on the broader energy-technology industry in Canada. In a recent panel hosted by the Macdonald-Laurier Institute, Kevin Krausert, the CEO of Calgary-based Avatar Innovations, an accelerator that helps partner energy-tech startups with major oil companies, said young innovators are increasingly looking to the U.S. to base their operations.

“I can’t tell you of an energy-transition technology startup whose goal isn’t to move to the United States. Like, this is a major concern for Canada.”