Ottawa's promising a tax credit for carbon capture — but is the tech worth the money?

The recent federal budget promised tax credits for carbon capture projects. What can we learn about the economics of carbon capture from the world's only fully-functioning carbon capture project — at Boundary Dam 3 in Saskatchewan?

Depending on who's asked, it's either a weapon against climate change — or an energy sector stalling tactic

Does carbon capture hold the promise of reversing some of the damage humanity has done to the planet's climate? Or is a blue-sky concept meant to stall the transition to a low-carbon economy? (Submitted by Dana Boyd)

Carbon capture and storage (CCS) is a young technology — but it's already a major flashpoint in the political argument over how to approach climate change.

On the one hand, it's one of the only technologies out there with the potential to reverse some of the damage already done to Earth's climate — by (perhaps, one day) scrubbing carbon directly from the atmosphere and rendering it harmless. (Trees do something like that already, of course.)

It also can clean up the high-emissions industrial processes — such as cement manufacturing — that the world will still need after we all stop burning coal.

On the other hand, many environmentalists suspect that carbon capture is a distraction thrown up by energy companies desperate to avoid ending their dependence on fossil fuels. Some question its benefits — and most reacted negatively to its inclusion in the recent federal budget.

Pleased with budget

The budget offers a tax credit to companies that invest in CCS technology and says the government will undertake a 90-day consultation process to design the credit.

"We were instrumental in the budget and we were very involved with the Alberta government in pushing for it," said Beth (Hardy) Valiaho of the International CCS Knowledge Centre in Regina.

Saskatchewan has the world's only functional carbon-capturing coal-fired power plant — at the Boundary Dam 3 near Estevan. Last month, the project announced that it had removed four million tonnes of carbon dioxide from its emissions since it opened in 2014.

Process operator Bill Wingerak (foreground) works in the control room of a carbon capture and storage facility at the Boundary Dam Power Station in Estevan, Sask. on Thursday, October 2, 2014. (Michael Bell/The Canadian Press)

"That's roughly equivalent of taking a million cars off the road for a year," SaskPower spokesperson Joel Cherry told CBC News.

There's a catch, however. The CO2 from Boundary Dam 3 is piped away to an oil field, where it's injected underground to push out hard-to-recover oil from deep deposits. Although the carbon removed from coal emissions does remain underground, the CO2 is used to recover oil — which, when consumed, produces more atmospheric carbon.

And according to the federal budget document, projects that use CO2 to pump oil are not eligible for the CCS tax credit.

Carbon in, carbon out

The oil industry's use of CO2 is "certainly an important aspect of making carbon capture economically viable as a generation option," said Cherry. It's a big part of the reason why the Alberta and Saskatchewan governments support carbon capture. It also helps to explain why many environmentalists distrust the technology.

Valiaho doesn't share their skepticism. "We're very happy to see carbon capture, utilization and storage put in the budget," she said.

But she acknowledged the energy industry probably will use the 90-day consultation period to argue that CCS projects that use harvested CO2 to access oil deposits should still be eligible for the tax credit.

"I think there's some room in the consultation period to try and make that bit be correct for the way Canada operates today," she said. Such "enhanced oil recovery" operations, she said, make up the majority of the CCS projects that have moved forward. "And of course, that return has been important."

The Boundary Dam 3 carbon capture project was supposed to sequester a million tonnes of carbon dioxide annually. This graph produced by the Institute for Energy Economics and Financial Analysis shows the institute's evaluation of the project's real-world performance. (The Institute for Energy Economics and Financial Analysis.)

Critics say re-purposing the carbon to extract more oil undermines the environmental logic of CCS projects.

"It ends up producing more oil, which in turn is then burned or used as an industrial feedstock, both of which emit CO2," said David Schlissel of the Ohio-based Institute for Energy Economics and Financial Analysis. He authored a recent study of Boundary Dam 3's CCS operations.

"When SaskPower claims that they've saved four million metric tons of CO2 from being emitted into the atmosphere, technically that's true, but only if you apply it to the Boundary Dam plant.

"If you look at the full cycle, you need to take into account the extra CO2 that's produced from burning the new oil."

A transitional technology?

CCS proponents argue that oil recovered through injections of harvested CO2 would simply be replaced by oil extracted elsewhere if it were taken off the market.

Valiaho said that because Canada can't stop using fossil fuels all at once, CCS can serve as a transitional technology, cutting emissions as economies switch to renewable forms of energy. She said oil harvested using captured CO2 accounts for about 37 per cent less carbon during its life cycle than does conventional oil.

"The fact that you can extract it even cleaner using an enhanced oil recovery process is only a benefit, as far as I can see," she said.

Schlissel questions that argument. "Proponents of carbon capture and using it for enhanced oil recovery say that a barrel of oil that's produced in Alberta displaces a barrel of oil that's produced somewhere else in the world. And there's no clear evidence that that's true," he said.

"It may happen to some degree, but I'm very confident that the net reduction in emissions at Boundary Dam 3 is not four million metric tonnes. It's a significantly lower number."

It works, with bugs

CCS technology is far from perfect, although those involved in the Boundary Dam 3 project say that they've worked out some of the bugs during its six years of operations.

SaskPower hasn't decided yet whether it wants to bet on the technology for the future.

"We're continuing to find improvements," said Cherry. "We've achieved stable operations. We're still working to increase the efficiency of the project there, but we've passed some pretty significant milestones recently and we are getting more than a hundred megawatts of low carbon baseload power from that facility."

SaskPower has decided already against expanding CCS to two more coal plants, BD4 and BD5, that are part of the Boundary Dam complex. It continues to study the option for two other plants, one of which isn't expected to reach the end of its life until 2047.

"It's going to depend on costs," said Cherry.

Carbon pricing changes the math

Valiaho said that oil recovery might make up a smaller part of cost-benefit calculations for CCS projects in the future as the cost of failing to capture carbon grows.

"When we now look at the carbon price in Canada going up to $170, this makes it a completely different economic case," she said.

The federal price on carbon emissions makes fossil fuels like coal more expensive to use, even coupled with carbon capture — which can only cut emissions, not eliminate them. Already, SaskPower has made a big commitment to natural gas generation and is looking at introducing small nuclear reactors in the 2030s.

And the company doesn't see any clear support for its own CCS program in the federal budget.

"Full details aren't going to be ironed out until after that 90-day consultation period," said Cherry.

"We're a Crown-owned provincial utility. We don't pay any tax. So with tax incentives, it's difficult to see what benefits we would get out of that."

Texas troubles

Other players in CCS have encountered cost issues. Last year, NRG Energy mothballed a billion-dollar carbon capture project attached to a coal-fired plant in Sugar Land, Texas.

The Petra Nova plant had been running for three years and had received $190 million from the U.S. government. In a report NRG prepared for the Department of Energy, it acknowledged that the plant had been left idle for many days due to technical issues and had fallen about 17 per cent short of its carbon capture goals — although it cited the low price of oil as a factor in the decision not to proceed with the project.

But CCS is very far from dead. The CCS Knowledge Centre is involved in a feasibility study to install the technology at the Lehigh Cement Plant in Edmonton. Elon Musk has announced a $100 million prize for the best CCS technology. There is even a project afoot to capture and bury carbon from biofuels.

And now, ExxonMobil is floating a proposal for a vast $100 billion carbon capture project in the refinery row area along the Houston Ship Channel.

"We believe the time is right for a large-scale collaboration in the United States between governments at every level, private industry, academia and local communities to create an 'Innovation Zone' approach to dramatically accelerate carbon capture and storage progress," Joe Blommaert, president of Exxon's low-carbon division, said in a blog post last week.


Evan Dyer

Senior Reporter

Evan Dyer has been a journalist with CBC for 25 years, after an early career as a freelancer in Argentina. He works in the Parliamentary Bureau and can be reached at evan.dyer@cbc.ca.

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