On Monday, Canada’s oil and gas drillers gathered at the Hyatt Regency hotel in downtown Calgary, coming off what’s been a down year. But the mood was cautiously optimistic.
Things could be looking up, in the drillers’ eyes. The recent energy agreement reached between Alberta and Ottawa? A “game changer,” said an industry head.
Another game changer? Enhanced oil recovery, or EOR.
Many may be unfamiliar with the term, which refers to technology that captures carbon dioxide from industrial emitters before injecting it underground in order to squeeze extra oil out of reservoirs. The carbon dioxide is then trapped underground.
“I mean, EOR is a game changer for the conventional business,” said Mark Scholz, president of the Canadian Association of Energy Contractors.
“It places Canada, finally, in a much better, competitive situation, vis-a-vis the United States,” he said, referring to a tax credit that already exists south of the border tied to EOR.
Ottawa previously unveiled an investment tax credit that would reimburse carbon capture projects but didn’t include enhanced oil recovery in that initiative.
That decision was frustrating for some in the industry, who argue the technology can be part of a strategy to combat climate change and could include some spillover benefits.
But it pleased some environmental advocates, who said such a credit effectively acts as an “inefficient fossil fuel subsidy,” promoting more fossil fuel production and leading to an increase in emissions.
“To have tax credits for the capital costs of developing carbon capture — that in itself is a subsidy because it provides a financial advantage,” said Aly Hyder Ali, program manager of oil and gas with Environmental Defence, told CBC News.
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Last week’s memorandum of understanding between Alberta and Ottawa states that Canada will extend tax credits and other policy supports to encourage large-scale carbon capture, storage and utilization projects, including those related to the Pathways Plus project and EOR “in order to provide the certainty needed to attract large additional sources of domestic and foreign capital.”
“We were always puzzled; we were always concerned that EOR was removed from the conversation,” Scholz said.
“This is good for the environment. This is good for our members’ customers, who are going to be able to extract more product out of the ground, which means that, in turn, that additional revenue can be plowed back into the ground.”
Alberta Premier Danielle Smith was at Monday’s “state of the industry” luncheon, too. And she shared the drillers’ relatively bullish assessment of the conditions to come for multiple reasons, including the changes tied to EOR.
“[David] Yager, one of my energy advisers, said that there’s 40 different fields that, using enhanced oil recovery, can be given new life,” Smith said.
She also said she mentioned EOR to Prime Minister Mark Carney during her first meeting with him after he won the election.
“I said, ‘This is one of the irritations for Alberta. Can we find some compromise on this, knowing that the bulk of the CO2 that’s going to be captured is going to be stored?’ And he was amenable to that.”
Green Party Leader Elizabeth May certainly didn’t participate in the celebrations.
Earlier this week, she told The Canadian Press that she viewed the deal as a “significant betrayal and a reversal” after then-cabinet minister Steven Guilbeault was tasked with winning May’s vote for the budget last month.
Speaking to CBC News on Tuesday, May said she was “still in shock” that what she had been told would be “so casually violated within 10 days.”
“The MOU was deeply offensive, but the most shocking thing was that a commitment made directly to me and that appeared in the budget was reversed,” May said, referring to enhanced oil recovery not being eligible for a federal tax credit.
“[It’s] a direct subsidy to produce more oil, to companies that are already obscenely wealthy and making obscene levels of profit … We shouldn’t be subsidizing the production of fossil fuels at all.”
In a statement last week, Guilbeault cited the reversal on the EOR tax credit as one of his reasons for leaving cabinet. Others in the party have also raised concerns about the change.
Liberal MP Patrick Weiler, speaking to reporters on his way into a Liberal caucus meeting Wednesday, said Canada has a “pretty clear stance” to move away from inefficient fossil fuel subsidies, and extending tax credits to enhanced oil recovery is a “step in the wrong direction.”
“I think that’s a really important thing that the prime minister will have to answer about,” Weiler said.
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On Wednesday, Finance Minister François-Philippe Champagne said he would get back to reporters on why the government contradicted the budget in the deal.
“I think what you’ve found in the budget is that there’s a number of tax credits. I would say that we’re probably, in the G7, the country which has offered the most competitive tax environment for clean technology when it comes to natural resources,” he said.
“I would say that Canada is well-positioned to be a responsible and also a sustainable producer of natural resources.”
Enhanced oil recovery has not generally been considered a climate solution, said Janetta McKenzie, director of oil and gas with the Pembina Institute, a Calgary-based environmental think-tank.
“It could, in theory, produce a lower-carbon barrel … that’s not really what the climate cares about, but it is also a method to unlock more oil production, more than really reduce emissions overall,” she said.
There’s a lot of talk about Canada producing lower carbon fossil fuels than other countries, McKenzie noted.
“It’s a good thing to want to do, but it doesn’t mean that we should lose sight of the overall impact of oil and gas production on the climate,” she said.
“What we’re looking for is lower absolute emissions, and carbon capture can help with that, but only if it doesn’t lead to higher emissions overall.”
Energy minister defends oil pipeline deal, says it has ‘wins for the environment’
Federal Energy and Natural Resources Minister Tim Hodgson told the Canadian Press on Thursday that including tax credits for EOR in the MOU was something that was “important to Alberta.”
“I think different people can have different perspectives. When you are injecting carbon permanently into the ground and permanently sequestering it, that is a good thing. I think there is a belief that it is a productive thing to do,” Hodgson said.
The MOU also laid the groundwork for a new bitumen pipeline through British Columbia. As a precondition to the approval of that pipeline, federal officials said the Pathways Plus project, which would see a major carbon capture, utilization and storage project established near Cold Lake, Alta., must move ahead.
