Carbon Capture Tax Credits Debated, as PBO Estimates They Could Cost $1 Billion More Than Estimated

The Quest carbon capture and storage facility owned by Shell in Fort Saskatchewan, Alta., in a file photo. (The Canadian Press/Jason Franson)

A new report by the Parliamentary Budget Officer (PBO) says the federal government’s tax credit encouraging companies to invest in carbon capture technology will likely cost more than Ottawa estimated.

The PBO’s Feb. 1 report estimates the cost of the investment tax credit for carbon capture, utilization, and storage (CCUS) at $5.7 billion for the six years from 2022–’23 to 2027–’28.

A second PBO report released on the same day, which examined a separate federal tax credit for investments in clean hydrogen, estimates that it would reduce federal revenues by $5.7 billion over five years, from 2023–’24 to 2027–’28.

Lumped together, the two investment tax credits could cost more than $11 billion—roughly a billion more than what Ottawa estimated.

One environmental group points out that they could end up costing even more.

“These tax credits are being designed without a ceiling,” said the group Environmental Defence in a Feb. 1 statement. “That means the final cost for Canadian taxpayers could end up being much, much greater.”

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The group did not have anyone available for an interview.

In its statement, Environmental Defence pointed to a $16.5 billion carbon capture hub in northern Alberta proposed by Pathways Alliance, which is made up of some of Canada’s largest oilsands companies.

Environmental Defence says this one project alone could end up claiming as much as $6 billion in tax credits.

“These tax credits violate the Government of Canada’s own rules around ending fossil fuel subsidies,” the statement said.

“Carbon capture and storage is a dangerous distraction being promoted by the oil and gas industry to prolong business as usual,” said the group, which believes Ottawa should be pouring more resources into renewable energy like wind and solar, along with energy storage.

Others see it differently.

“The reality is, the world is going to keep using oil and gas products for many, many years to come,” Colin Craig, president of the think tank SecondStreet.org, told The Epoch Times.

“So the question becomes, does Canada sell those resources to the world? Or does the world rely on other nations?” he asked, noting that it is “often other nations with terrible human rights track records, or in the case of Russia, a country that is using oil and gas profits to attack other countries.”

‘Totally Different Way of Thinking’

Mr. Craig says Environmental Defence may have a point about the tax credits exposing taxpayers to risk. However, he argues that there’s a simple way to shield taxpayers.

“What you do is you approve more oil and gas projects in Canada, because the world is going to keep buying these resources, whether it’s from us or someone else. But you take some of the government revenues from those new projects and you use them to help pay companies to reduce emissions,” he said.

“It’s not going to cost taxpayers money, because it’s going to be money from projects that the government has currently blocked.”

Mr. Craig pointed to the decision by Vancouver-based Teck Resources Ltd. in 2020 to withdraw its application for a multibillion-dollar mining project in Alberta days before an expected federal government decision, citing the political discourse over climate change.

The Frontier oilsands project would have been a $20.6 billion development expected to create an estimated 7,000 construction jobs, 2,500 operating jobs, and some $12 billions in federal income and capital taxes.

“We’re talking about enormous amounts of money that could be untapped to help develop clean technology. So, you know, by blocking that project, does that mean the world is going to use less oil? No, it means that they’re going to buy more oil from countries like Russia, or Qatar, or Saudi Arabia or somewhere else,” Mr. Craig said.

“It’s a totally different way of looking at this, but it’s one that helps protect taxpayers, it helps create thousands of jobs in Canada, it helps with geopolitical benefits as well. But it requires a totally different way of thinking in Ottawa.”

‘A Bonus’

For its part, the federal government has said the investment tax credit is about creating a cleaner economy and good jobs. While no one from Finance Canada responded to a request for comment, federal Finance Minister Chrystia Freeland praised the CCUS tax incentive during a speech in Calgary on Dec. 20.

She was announcing a $200 million investment in Entropy, describing it as “a world-leading carbon capture and sequestration company headquartered here in Calgary.”

Ms. Freeland added that the investment would help Entropy commercialize its CCUS technology for use around the world.

“And as a bonus, the project will also benefit from our CCUS Investment Tax Credits,” she said.