A tax credit for the 2022 budget supporting carbon capture projects is getting cooked in Canada. The country is preparing a tax incentive to foster investments into carbon capture initiatives that would likely be similar to the one offered in the US called Section 45Q tax credit.
The credit will also exclude carbon capture that’s used to boost oil production or enhanced oil recovery. As of today, 81% of the carbon captured through carbon capture and storage is used for enhanced oil recovery (EOR), which involves injecting carbon dioxide underground to force more petroleum to come out to the surface.
Even though 45Q tax credit still funds such utilization projects in the US, they are considered to drive up emissions instead of reducing them even though the exact net result is hard to calculate. Therefore, the carbon capture technology nowadays is mostly used for sustaining oil emissions instead of burying them permanently under the ground which is its initial purpose.
“The oil industry and the coal industry see this as a way to keep their industries going… So they green-wrap it as a way to save produced CO2… But the economics of those failing power plants, coupled with a volume-based tax credit that pays up to US$50 per tonne for any carbon an operator can capture, turn Section 45Q into an incentive to burn and emit more carbon, not less,” said David Schlissel, a Massachusetts-based consultant associated with the Institute for Energy Economics and Financial Analysis.
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The new credit tax is also tied to the federal government’s goal to cut emissions 40% to 45% below 2005 levels by 2030. It also aims to support the technical side of carbon capture and try to overcome some of the hurdles that are still in place when moving the technology to other areas of deployment where it has not been used so much.
