Canadian eco organizations have signed a letter to Finance Minister Chrystia Freeland and other ministers on March 10th 2021, asking them not to implement a carbon capture (CC) tax credit. A version of a CC tax credit is already adopted in the US and is called 45Q. 47 organizations including Greenpeace, Amnesty International, and Environmental Defence have placed their signatures.
According to the 45Q tax credit in the US, enacted in February 2018, emitters that capture their CO2 can earn $50 per ton of CO2 stored permanently or $35 for carbon capture and utilization including enhanced oil recovery (EOR).
Carbon Capture Tax Credit Opposition
Environmental groups oppose the tax because it can incentivize oil companies to use the captured CO2 for EOR. That could eventually result in net positive carbon emissions.
The letter states: “Despite a veneer of green, such a tax credit could result in a significant amount of foregone revenue, and enable the production of more carbon than is captured.” “Since the overall incentive for power plants and industrial facilities to sell captured CO2 to oil companies for use in extraction would be more lucrative than the incentive for facilities to directly sequester their carbon pollution, this measure would primarily incentivize oil extraction.”
The Environment Minister Jonathan Wilkinson has said that adding carbon capture is part of a larger plan to fight climate change. He also claims a net increase in emissions will not be seen. The reason is – “it’s part of a plan to reduce emissions”.
Most carbon capture projects in Canada are used for enhanced oil recovery. The process includes using captured CO2 to push more oil out of the ground. The CO2 then stays sequestered underground but increases oil extraction.
Carbon capture projects in Canada rely on government support to get started. However, capturing CO2 for EOR is raising doubts about the tax credit’s cost-effectiveness in cutting emissions in the immediate future.