The federal government and the Province of Alberta gave businesses looking to decarbonize through carbon capture, utilization and storage (CCUS) a financial boost by announcing incentives for the development of CCUS projects.

In November 2023, the federal government and the Province of Alberta announced separate measures aimed at incentivizing carbon capture, utilization and storage (CCUS) project development through the federal government’s CCUS investment tax credit (CCUS ITC) program, and the Canada Growth Fund and the Province of Alberta’s Carbon Capture Incentive Program (ACCIP).

The federal government’s Fall Economic Statement 2023 confirmed that the legislation implementing the previously announced CCUS ITC will be introduced this fall. The CCUS ITC will be set at 50% for equipment used to capture carbon and 37.5 for equipment used in transporting and storing carbon. In addition, the draft legislation released last August expanded the CCUS ITC to make a portion of enhanced oil recovery projects eligible for CCUS ITCs. The CCUS ITCs will be available from January 1, 2022.

In the Fall Economic Statement 2023, the federal government also committed to setting aside up to CA$7 billion of the capital contributed to the Canada Growth Fund, on a priority basis, to issue and fund carbon contracts for difference. Contracts for difference are important financial tools that have been used to facilitate the development of renewable power projects in Canada. The carbon contracts for difference will help facilitate investment in CCUS projects by guaranteeing carbon pricing irrespective of changes in laws or government policies and stabilizing and strengthening carbon markets.

The Fall Economic Statement 2023 comes more than two years after the federal government first unveiled its plans for an investment tax credit for CCUS developments. Critics suggest that this recent announcement is long overdue as the United States has had their Inflation Reduction Act and the green-technology investment incentives that came with it for over a year. The previous absence of communication from the federal government caused some concerns that investors would opt to operate in the United States instead of Canada, but those concerns should be softened with this update.

The Province of Alberta, just days after the Fall Economic Statement 2023, released its CCUS incentive in the form of ACCIP. ACCIP will provide a 12% tax credit to new eligible capital costs associated with CCUS project development. The Province stated that this benefit will work alongside the CCUS ITC and hopes it will encourage industries to develop CCUS technologies in Alberta while reducing emissions from industry within the Province. The Province stated that a portion of the funding from ACCIP will be accessed through the Technology Innovation and Emissions Reduction (TIER) fund.

Investors and prospective project proponents looking to develop CCUS projects in Canada, particularly in Alberta, should receive this news well.

Dentons will continue to monitor developments in the area of CCUS and provide updates as the legislation and form of carbon contracts for difference are publicly available. Please reach out to a member of our Energy Innovation and Transition group for assistance with analyzing eligibility for CCUS ITCs, ACCIP and/or negotiating carbon contracts for difference.

We wish to thank Jesse Dias, Articling Student, for his contributions to this article.