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Will Canada’s Carbon Capture Tax Help the Country Reach its Ambitious Climate Targets?

by Martina Igini Americas Apr 17th 20224 mins
Will Canada’s Carbon Capture Tax Help the Country Reach its Ambitious Climate Targets?

Carbon capture technologies are gaining momentum in the race to net-zero emissions. Canada is now betting on them to reach its ambitious climate targets by 2030. Prime Minister Justin Trudeau recently announced one of the country’s largest single industrial tax incentives to fund carbon capture projects. He is proposing a refundable investment tax credit to encourage oil and gas companies – which represent 10% of Canada’s economy – to lower their emissions through carbon capture technologies. 

What is Carbon Capture?

Carbon capture, usage and storage (CCUS) technologies have been around since the 1970s but have only started gaining momentum in recent years. An increasing number of experts are banking on them as an important ally in the race to lower CO2 emissions and in keeping the world’s temperature rise below 1.5C. Even though these technologies have been proven to be effective in capturing and storing carbon dioxide underground permanently before it is released into the atmosphere, high development costs and little economic incentives have hindered their takeoff for decades. Now, the carbon capture wave is finally underway, with 27 facilities already operating worldwide – which put away around 40 million metric tons of carbon dioxide annually, roughly 1% of global annual emissions – and more than 100 underway.

Canada’s Carbon Capture

Carbon Capture, Utilisation, and Storage. Image by Natural Resources Canada

Canada’s Carbon Capture Tax

Canada is the world’s 11th biggest CO2 emitter and has higher emissions per capita than China and the US. In 2019, the oil, gas and transport sectors were the largest GHG emitters, accounting for 52% of the country’s total emissions.

Here, fossil fuels represent the second most important source of electricity generation. Oil and gas alone make up nearly 10% of the country’s economy and demand for these fuels is expected to continue for decades. Hence, finding a way to keep producing energy from these sources while lowering CO2 emissions has now become a priority for Canada. The country recently set down more ambitious climate goals, with plans to cut oil and gas emissions by 42% and reach an overall 40% reduction in emissions from 2005 levels by 2030. To help meet its obligations under the Paris Agreement, the country has adopted a nationwide carbon tax, one of the largest financial tools to combat climate change and an efficient way to push polluting companies to develop more efficient production processes or switch to cleaner fuels altogether. However, it might not be enough to deter industries to reduce carbon emissions. For this reason, Canada is now betting on a new strategy: carbon capture.

In April 2022, Prime Minister Justin Trudeau proposed a refundable investment tax credit for oil and gas businesses to help finance carbon capture projects. It will cover 50% of the cost of equipment to capture CO2 and an additional 37.5% credit for transportation, storage, and use of CO2 emissions through CCUS projects beginning in 2022. The federal government will set aside C$2.6 billion (USD$2.1 billion) in the first five years, and as much as C$8.6 billion (USD$6.8 billion) by 2030. Along with the carbon capture tax, Trudeau announced C$9.1 billion (USD$7.2 billion) in new spending to reach the country’s ambitious climate targets. 

You might also like: Carbon Capture Technology is Finally Underway

Is a Carbon Capture Tax a Good Strategy?

The proposal for tax credits for carbon capture, utilisation, and storage technologies sparked heated debates between advocates and environmental groups. While Canadian oil and gas companies welcomed Trudeau’s proposal with enthusiasm, environmental groups felt different about it. Many climate advocates believe that the only way to avoid a catastrophe is by winding down fossil fuel production. Strategies like carbon capture – they warn – are yet another subsidy to fossil fuel companies and they will only delay climate actions. Another factor that opposers of CCUS technologies point out is that, while they are a useful instrument in capturing carbon coming from large industrial facilities, they cannot offset smaller emitters such as fossil-fuel-powered vehicles.

The US and Canada are well-positioned players in the carbon capture field. The latter  is one of the few to have made inroads in developing new technologies and it is believed to have a significant competitive advantage both in engineering technologies and the ability to store carbon underground due to the favourable country’s geology. The country currently has three operating facilities and is now looking to expand the sector and ramp up CCUS deployment to decarbonise the sector without ceasing to produce oil and gas. While having strategies such as national carbon pricing and carbon capture systems in place is certainly essential and ‘unavoidable’ in meeting emission reduction targets – as the latest IPCC report stated – a gradual fossil fuel phase-out would still be Canada’s best and safest option to reach net-zero emissions by 2050.

You might also like: 5 Pressing Environmental Issues in Canada in 2023


About the Author

Martina Igini

Martina is the Managing Editor at Earth.Org. She holds two BA degrees, in Translation/Interpreting Studies and Journalism, and a MA in International Development from the University of Vienna. After working at the United Nations Global Communication Department in Vienna, she joined a newspaper in Italy as a reporter before moving to Hong Kong in 2020. Her interests include sustainability and the role of public policy in environmental protection with a focus on developing countries.

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