Canadian oil companies seek government support to build carbon capture facilities

World's fourth-largest oil producer has set a goal of generating net-zero emissions by 2050

Crude oil tanks at Kinder Morgan's North 40 terminal in Sherwood Park, Alberta, Canada. Oil companies are seeking government support to build carbon capture facilities. Reuters

Oil and gas companies are asking the Canadian government to design a tax credit to pay for 75 per cent of the cost to build carbon capture facilities that will curb greenhouse gas emissions, the country's main energy industry group said on Thursday.

The Canadian Association of Petroleum Producers (Capp) made the request to the Department of Finance in August, just before the federal election campaign, setting the tax credit at a level high enough to provide an economic return, Ben Brunnen, the association's vice-president of oil sands, told Reuters.

Carbon capture facilities are expected to be a key part of global efforts to contain emissions from fossil fuel production. Canada is the world's fourth-largest oil producer and has a set a goal of generating net-zero emissions by 2050.

The carbon captured from oil and gas operations is less concentrated than that of some other large emitters, such as fertiliser plants. That means that capture costs are higher on a per tonne basis for oil companies, Mr Brunnen said.

"Because of that, this [credit] needs to be designed to drive a balance and reflect the economic realities," he said. "The government role should be providing the playing field to enable companies to make these investments."

Prime Minister Justin Trudeau's Liberal government began industry consultations in June on the make-up of its proposed carbon capture investment tax credit, before the national election last month. Mr Trudeau won a third term and discussions are expected to resume before the government finalises the credit next year.

Mr Trudeau's government has not said what level of tax credit it is considering. At 75 per cent, the Canadian credit would be comparable to support offered in the US, once legislators sweeten the American tax credit, Mr Brunnen said.

Many environmental groups oppose reliance on carbon capture to address global warming, calling it expensive and a means of prolonging fossil fuels production.

"We're talking about an industry that created this problem, that also made billions of dollars over the last 40 years knowing that climate change is a problem," said Cam Fenton, Canada team leader for 350.org.

Although the government calls its proposed carbon capture support a tax credit, Capp wants it to function more as a grant, with Ottawa reimbursing carbon capture proponents a percentage of their costs as they build the facilities, Mr Brunnen said.

Canada aims to provide incentives for at least two enormous carbon capture centres by 2030 and to sequester at least 15 million tonnes of carbon annually in total by that year. Realistically, Canada might advance two projects in the next three years with combined capacity for three million tonnes of carbon sequestration per year, costing about C$3 billion (US$2.4 billion), Mr Brunnen said.

Several companies have stepped forward with proposals for carbon capture centres in Alberta, including Royal Dutch Shell , TC Energy and a consortium of the five biggest Canadian oil producers.