(Calgary) Disagreements over the financial risks of costly carbon capture and storage projects are slowing adoption of the technology in Canada.
It’s been six months since private company Entropy signed an agreement with the federal government under which Ottawa agreed to take on much of the risk associated with the company’s proposed carbon capture and storage project.
Entropy said it would move forward with the second phase of the $49 million project – located at its parent company Advantage Energy’s Glacier Phase 2 plant in Alberta – after the two parties signed the first agreement of the kind.
This “carbon offtake deal,” or “contract for difference,” has been hailed by many as an example of the way forward if Canada wants meaningful deployment of carbon capture and storage.
But six months after the agreement, no other company has managed to negotiate a similar agreement. Worse, the majority of carbon capture projects proposed for Canada still exist only on paper, and final decisions on investments have not yet been made.
Carbon capture, also known as carbon capture, storage and recovery (CCUS), is aptly named: the principle is to capture greenhouse gas (GHG) emissions from industrial processes and store them deep down. Its deployment is considered essential for the decarbonization of the energy sector.
Not all carbon capture projects are the same, said Mike Belenkie, president and CEO of Entropy. Their cost can vary considerably depending on factors such as the intensity of the emissions captured. It also depends on whether the site has access to local underground storage or whether it is necessary to invest in pipeline transport.
Captured carbon has no value on its own as a product, but can reduce a company’s carbon pricing expenses by reducing its overall emissions. Additionally, companies that deploy CCUS can generate carbon credits to sell to large polluters seeking to offset their own emissions.
But for carbon capture projects to make financial sense, companies need assurance that a future government won’t eliminate industrial carbon credits, or that the price of carbon credits won’t fall within 10 years , which would cancel out the expected return on investment.
This is where carbon contracts for difference, or carbon offtake agreements, come into play.
The federal government, through the $15 billion Canada Growth Fund, has committed to entering into such agreements with emitters that deploy CCUS – essentially guaranteeing that if the price of carbon falls below a certain threshold in the future, the fund will pay the difference.
The sticking point, however, is at what “strike price” these contracts will be triggered. The deal with Entropy saw the Canada Growth Fund agree to purchase up to 185,000 tonnes of carbon credits from Entropy for a term of 15 years at an initial strike price of $86.50 per tonne .
If the list price Entropy can expect to receive for its captured carbon falls below $86.50, the Canada Growth Fund will step in and pay the difference.
Even if that assurance was enough to convince Entropy to launch its project, other companies are likely looking for a significantly higher strike price, said Michael Bernstein, CEO of the nonprofit Clean Prosperity.
“What the Canada Growth Fund has tried to do is tailor-make negotiations with various issuers, prioritizing projects that they think are particularly attractive to taxpayers,” Bernstein said.
“That means they could face disagreements with the companies, as I believe they did with Capital Power over the appropriate price for this project. »
Earlier this spring, Edmonton-based Capital Power canceled its carbon capture project at its Genesee power plant, saying that while the project is technically viable, the economics don’t work.
The New Pathways Alliance, a consortium of companies proposing to build a $16.5 billion carbon capture and storage network for Alberta’s oil sands, has yet to negotiate a carbon offtake agreement. carbon with the Growth Fund.
For its part, the federal government is committed to developing a broader range of carbon offtake offerings adapted to different markets and their risks and opportunities. He said the Canada Growth Fund – which still has $6 billion set aside for contracts for difference – will explore the possibility of developing off-the-shelf contracts for certain jurisdictions, so that every contract does not have to be negotiated from scratch, one by one.
That would go a long way toward removing investor uncertainty, Bernstein said.
“There are different ways to do this, but Clean Prosperity’s recommendation is to have a standard strike price,” he said.
In an emailed statement, Carolyn Svonkin –– press secretary to federal Natural Resources Minister Jonathan Wilkinson – said the government is already investing more than $90 billion to help Canadian businesses decarbonize.
“The federal government expects all companies that have committed to CCUS projects to implement those projects as quickly as the climate crisis requires,” Ms. Svonkin said.
