Successful proponents selected from initial industrial heartland Request for Full Project Proposals for Carbon Capture Utilization and Storage (CCUS)

On March 31, 2022, the Government of Alberta (GOA) announced that six proposals for the development of carbon storage hubs servicing Alberta’s industrial heartland region near Edmonton have been selected to work with the GOA on evaluating the suitability of their respective proposed locations for storing CO₂ emissions. These proposals were submitted pursuant to the GOA’s first Request for Full Project Proposals (RFPP) published on December 2, 2021 (discussed in this previous insight). In the next stage of the competitive process, the successful proponents will work with the GOA to further evaluate the suitability of their respective project locations for permanent CO₂ storage.

The six project proponents selected to proceed to the evaluation stage of the process are:

• Bison Low Carbon Ventures Inc. – Meadowbrook Hub Project;
• Enbridge Inc. – The Open Access Wabamun Carbon Hub;
• Enhance Energy Inc. – The Origins Project;
• Pembina Pipeline Corporation and TC Energy Corporation – Alberta Carbon Grid;
• Shell Canada Limited, ATCO Energy Solutions Ltd. and Suncor Energy Inc. – Atlas Carbon Sequestration Hub (Atlas Hub); and
• Wolf Midstream and partners.

If a proponent can satisfy the GOA that their proposed project can provide permanent storage, they will then be able to work with the GOA on the terms of an agreement under the Mines and Minerals Act that would grant the proponent the pore space tenure necessary to inject CO₂ into the target formation. For now, it is not clear whether the GOA intends to include terms in such a pore space tenure agreement that would provide for open access to the hub or address the rates charged by the hub operator for access.

Surface rights and regulatory approvals are not granted through the RFPP process. If a proponent is able to secure the requisite pore space tenure, they would still need to obtain the surface rights necessary for any gathering, transmission and injection facilities. They would also still need to seek approval from the Alberta Energy Regulator for such facilities and for the overall subsurface injection scheme.

Second Request for Full Project Proposals for CCUS underway

As expected, a second RFPP is now open to proposals for carbon sequestration hubs that primarily target emissions arising from outside of Alberta’s industrial heartland region. The GOA will accept submissions for Full Project Proposals under this second RFPP between April 25 and May 2, 2022. These Full Project Proposals must be based on updated Guidelines that were published by the GOA in early March. Those Guidelines will be familiar to parties who considered participating in the first RFPP round, with relatively minor changes to refine the specific information the GOA expects to see from proponents.

The federal government incentivizes the development of carbon storage hubs

On April 7, 2022, the Canadian federal government released its 2022 federal budget and reaffirmed that the strategic implementation of CCUS projects is an important part of the plan to reduce Canada’s greenhouse gas emissions by proposing a refundable investment tax credit for CCUS. The proposed CCUS investment tax credit is intended to help mobilize readily available private capital to support the development of prosperous Canadian businesses through the energy transition. The proposed CCUS investment tax credit would be available to businesses that incur eligible CCUS expenses commencing in 2022. Eligible CCUS expenses relate to CCUS projects that permanently store captured CO₂ in dedicated geological formations or concrete but does not include enhanced oil recovery. The CCUS investment tax credit rates will be set at the following amounts from 2022 through 2030:

• 60% for investment in equipment to capture CO₂ in direct air capture projects;
• 50% for investment in equipment to capture CO₂ in all other CCUS projects; and
• 37.5% for investment in equipment for transportation, storage and use.

These rates will be reduced by 50% for the period from 2031 through 2040, in an effort to encourage industry to rapidly lower emissions.

Takeaways

The successful proponents under the GOA’s initial RFPP and prospective proponents under the GOA’s second RFPP will likely be encouraged by the proposed federal CCUS investment tax credit. Industry groups have been recommending that the federal government implement a credit of up to 75% to cover the high costs required to develop and operate CCUS projects. In recognition of these high associated costs, the federal government confirmed that they will also engage with the provinces in the expectation that they will provide further financial incentives to encourage the development of CCUS projects. The proposed CCUS investment tax credit may not be sufficient to make each proposed CCUS project economical in the current conditions on its own but it is clearly an important step in the right direction.

Dentons will continue to monitor developments in the area of carbon capture, utilization and storage and provide updates as the carbon sequestration tenure process advances. Please reach out to a member of our Energy Innovation and Transition group for assistance with requesting clarifications under the RFPP process and/or the structuring and implementation of your proposed CCUS projects.

Special thanks to Ana Cherniak-Kennedy, student-at-Law, who assisted in preparing this insight.