The Canadian federal government has unveiled a $7.1-billion refundable tax credit program to help the country’s oil and gas industry pursue technology to scrub greenhouse gas emissions from its operations.
The announcement, part of the 2022 federal budget, is meant to provide incentives to develop nascent carbon capture and storage technology through to 2030. The tax breaks to the fossil fuel industry are expected to cost $2.6 billion in taxpayer dollars over the first five years, and other $1.5 billion annually after that until 2030.
Pushback from environmental groups, policy experts and climate scientists was swift.
“We know that the technology is too risky,” said Temitope Onifade, a researcher with the Canada Climate Law Initiative. “We are not yet sure if it works well.”
“I’m not sure where the government gets this science.”
According to the budget, the tax break will apply to direct air capture (DAC), which seeks to suck carbon directly out of the atmosphere. That carbon can then be used to produce net-zero jet fuel in a difficult-to-decarbonize industry.
Tax breaks will also be given to stimulate investment in equipment that scrubs carbon emissions from oil and gas production facilities, power plants or heavy industry. The budget states they are meant to spur investment into equipment to transport the captured carbon and store it underground before it escapes into the atmosphere.
The tax credit does not apply to carbon capture, utilization and storage technology (CCUS) that pumps the captured carbon underground to force oil to the surface — a technique known as “enhanced oil recovery.”
Proponents of the technology say it offers a realistic path to wean Canada off fossil fuels without sinking the economy.
“By lowering the carbon footprints of Canada’s traditional energy producers, the credit aims to ensure that they are a stable source of cleaner energy both domestically and internationally,” states the Liberal budget.
Mark Zacharias, a special advisor to the Simon Fraser University-based research group Clean Energy Canada, said the organization recognizes CCUS is “a tool in a toolbox to get Canada to net-zero emissions,” but that the size of the tax credits was a surprise.
“$2.6 billion [over the first five years] is very generous to the industry,” he said. “Ideally, though, we’d like to see this level of support going to renewables.”
Critics say the technology is unproven at scale. At best, they say it offers a path to ‘greenwashing,’ a social licence for the fossil fuel industry to maintain production. At worst, they say, it could fail to deliver on its promises.
"What a bad week for the climate,” said Greenpeace climate and energy campaigner Patrick Bonin, pointing to the tax credit. “This budget is just another act of the tragically bad play the Trudeau government is trying to put on as a climate leader.”
In a written statement Thursday, David Suzuki Foundation senior climate policy adviser Tom Green said: “There’s no reason taxpayers should foot the bill for fossil fuel companies’ belated efforts to clean up their act when they are awash in excess profits.”
“Contrary to what the oil and gas lobby would have us believe, carbon capture is a ‘wildcard’ technology that the IPCC’s recent report found is expensive and will deliver little climate benefit.”
Or as Onifade put it, “If we rely on it too much, it puts us in a very precarious position. We will be locked in a carbon-intensive economy for a long time.”
Onifade was among more than 400 Canadian climate scientists and other academics who in January sent a letter to the federal government calling on it to scrap a proposed tax credit.
Describing the tax credit as “a substantial new fossil fuel subsidy,” the group said it undermines the Liberal government’s election promise to eliminate fossil fuel subsidies by 2023.
“Despite decades of research, CCUS is neither economically sound nor proven at scale, with a terrible track record and limited potential to deliver significant, cost-effective emissions reductions,” stated the letter, pointing to a facility in Saskatchewan which failed to meet its targets.
Instead of funding “wildcard” technologies, Onifade said Canada should be pouring money into proven technologies like solar farms and wind turbines.
“Why not renewables — the ones we know are very cheap? Why are we not pumping money into that? I’m very confused,” he said. “We’re just hoping that innovation is going to give us something. But we just don’t have enough time to experiment with this technology.”
Onifade acknowledges CCUS does offer a viable solution in industries that are especially hard to decarbonize, such as metal and cement production.
The amount of money put up for the CCUS tax break could also go a long way toward helping insure people against the rising costs of climate disasters. In other cases, it could help vulnerable communities adapt, from Indigenous communities in Canada’s melting north to the B.C. towns battling wildfire, flooding and heat waves, said Onifade.
“I’m not against industries trying to learn more about CCU. What I’m against are tax dollars going to carbon capture and storage when we don’t have anything to show for it,” he said.
In her speech in the House of Commons Thursday, Finance Minister Chrystia Freeland said climate action is no longer a matter of political debate.
"It is an existential challenge," she said, pointing to a green transition as a "pillar for growth."
"The world economy is going green," she said. "Canada can be the vanguard, or we can be left behind. That is, of course, no choice at all — which is why our government is investing urgently in this shift."