CCS Series: Government Subsidies Keep Alberta’s CCS Pipe Dream Afloat

Fri, 2014-02-21 09:24Raphael Lopoukhine
Raphael Lopoukhine's picture

CCS Series: Government Subsidies Keep Alberta’s CCS Pipe Dream Afloat

carbon capture and storage

This is the second installment of a two-part series on carbon capture and storage. Read Part 1, Alberta's Carbon Capture and Storage Plan Stagnate as Carbon Price Lags.

As Alberta falls behind on its goal to capture 30 million tonnes of carbon emissions a year by 2020, hundreds of millions of dollars in government subsidies are being pumped into the carbon capture and storage (CCS) sector.

Enhance Energy’s Alberta Carbon Trunk Line project is receiving $495 million from Alberta and $63.3 million from Ottawa. Enhance says on its website the project would have been much smaller without the government investment.

Shell Canada, with partners Chevron Canada Ltd. and Marathon Oil Corp., is developing Alberta’s only other CCS project, called Quest, with $120 million in federal and $745 million in provincial support. Shell aims to sequester more than one million tonnes of carbon dioxide per year from its Scotford upgrader, starting in late 2015.

Shell told Postmedia it paid $400 million in taxes and royalties in 2012 and the project is requiring the company to share its expertise with other companies.

As part of the agreement for funding Alberta’s two CCS projects, the knowledge gained from developing the projects is being shared with the CCS community at large, says Mike Fernandez, executive director of sustainable energy at Alberta Energy.

In Saskatchewan, SaskPower hoped to start its $1.3-billion CCS project to capture one million tonnes of carbon dioxide by April 2014, said Tyler Hopson, a SaskPower spokesperson. Although recent delays have postponed the project coming on line.

With $240 million from the federal government and the rest of start-up funding coming from SaskPower, the Crown corporation will use the carbon dioxide from its coal-fired plant at Boundary Bay for enhanced oil recovery operations. SaskPower is also building a $60-million facility to provide firms with space to test their capture technologies.

Even with major government support, projects are not guaranteed.

Cancelled CCS projects

TransAlta Corp. announced in 2012 it was abandoning its CCS project connected to its new Keephills 3 coal-fired plant. Despite $342 million from Ottawa and $436 million in funding from Alberta, TransAlta cancelled the project because “the market for CO2 sales and the value of emissions reductions in Alberta and Canada are not sufficient,” according to the project’s final report.

The project would have accounted for about 20 per cent of Alberta’s total carbon dioxide emissions reduction target by 2015. Instead, the company decided to pay the $15-per-tonne penalty for carbon over a certain level.

What’s really needed, of course, is a regulatory framework on CO2 that puts a value on that CO2. A significant value,” Don Wharton, vice-president of policy and sustainability at TransAlta, told the Globe and Mail.

 “The federal government came out with coal regulations that basically allow all their [TransAlta’s] plants to continue to emit at their current level until the end of their economic life,” Severson-Baker says. “In the meantime, the Alberta government hasn’t followed through with its plan to increase the amount of money it charges on a per-tonne basis for large emitters and it has remained at $15-a-tonne for the last five years.”

With no stronger carbon regulations in sight, fossil fuel companies drop projects to reduce or sequester carbon.

The other cancellation occurred in early 2013. Swan Hills Synfuels deferred building its Synfuels LP gas plant to turn underground coal into synthetic natural gas because of low natural gas prices. As a result, Alberta backed away from providing $285 million in subsidies to help build the carbon capture technology.

CCS investment is the same as a refinery or power plant, it is a very capital-intensive investment where you need that guaranteed revenue stream over time, so it is not just a question of what the carbon price is today, it’s, ‘Can I lock in that carbon price over the long-term?’ ” said Andrew Leach, energy economist from the University of Alberta.

No GHG Regulations and No New Funding Plans

In a year-end interview, Prime Minister Stephen Harper said federal greenhouse gas regulations for the oil and gas industry are delayed again. Harper said the regulations would have to wait until they can be harmonized with the United States.

With weak coal regulations and no new oil and gas regulations to boost the cost of pumping unabated atmosphere-heating gases, there are also no new funding plans for new CCS projects coming down the pipeline in Alberta.

There are no plans; no new funding plans for a big CCS funding program,” Fernandez at Alberta Energy said.

A carbon tax would allow companies to make their own decisions, Severson-Baker says, whereas direct funding for CCS puts government in the role of choosing technologies.

Alberta Would Need 25 Quest Projects

According to Alberta’s 2009 climate plan, the province aims to capture 30 million tonnes of carbon emissions annually by 2020. If all goes well, Shell Canada’s Quest and Enhance Energy’s Alberta Carbon Trunk Line will only be sequestering roughly three to four million tonnes by 2020.

In 2012, Simon Dyer, policy director at the Pembina Institute, did the math for the U.S. House Committee on Energy and Commerce:

Alberta’s climate plan states that 30 MT of annual reductions will be derived by CCS by 2020 — the equivalent of building 25 Quest-type projects in the next 8 years. Clearly, this is a fiction.

When Alberta projects to 2050, the province aims to capture and store 139 million tonnes of emissions.

When I look out to 2050, yes we acknowledge it is an aggressive target and we are going to need to see commercial CCS at dozens of sites, possibly at a hundred sites,” Fernandez said. “I am pretty confident as the price of carbon starts to rise in North America, the cost of this technology will come down and it is very realistic to hit our 2050 CCS targets.”

In mid-December, a Vancouver-area start-up Inventys Thermal Technologies announced former U.S. energy secretary Steven Chu was joining its board. In the announcement, Inventys’ president said its new technology could cut capital and operating expenses to less than a fifth of current processes, reported the Globe and Mail.

As the CCS technology matures, the cost to sequester will drop, but the speed and decrease needed to make CCS a commercial solution can only be achieved via a price on carbon, Severson-Baker says. 

Will the carbon stay put underground?

If the technology became practical and Alberta was somehow sequestering 139 million tonnes of emissions per year by 2050, research has shed light on concerns this could cause earthquakes and ultimately release the trapped carbon dioxide.

A 2012 study published in the Proceedings of the National Academy of Sciences by Mark Zoback and Steven Gorelick of Stanford University reveal there is a “high probability” injecting large amounts of carbon dioxide into brittle rocks will trigger earthquakes and even small quakes could break the seal of the carbon repository.

The authors concluded, “large-scale CCS is a risky, and likely unsuccessful, strategy for significantly reducing greenhouse gas emissions.”

With the carbon needing to be stored underground forever, will the oil companies of today be around in a hundred years to monitor their oceans of carbon dioxide sitting under the surface?

Read part 1, here.

Image Credit: Pembina Institute via Flickr

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