Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The U.S. approach to CCS

The American Recovery and Reinvestment Act of 2009, which came into effect on February 17, 2009, provides $1.5 billion to fund carbon capture and energy efficiency improvement projects, out of the $77 billion in funding committed to clean energy and energy-efficiency programs. That legislation also amends certain tax provisions of the 2008 Emergency Economic Stabilization Act, such that a taxpayer that injects CO₂ into secure geologic storage is eligible for $20 per tonne of CO₂ provided that it would otherwise be emitted into the atmosphere, or $10 per tonne that is deposited as a tertiary injectant into an enhanced oil or natural gas recovery (EOR) project. Furthermore, the U.S. Department of Energy (DOE) sponsors several research-and-development initiatives to advance CCS technology, including the Carbon Sequestration Leadership Forum, the Carbon Sequestration Core Program and the Regional Carbon Sequestration Partnerships. In addition, the DOE has, among other things, announced an $8 billion federal loan-guarantee program for CCS, with $6 billion earmarked for projects incorporating CCS into industrial gasification, retrofitted and new coal-based power generation, and the remainder to coal gasification projects.

CCS is also an important component of the climate-change solutions put forward in two significant pieces of legislation currently proposed in the U.S. to address climate change. The Clean Energy Jobs and American Power Act, commonly known as the Kerry-Boxer Bill, currently under discussion in the U.S. Senate, provides for an incentive program for the deployment of CCS projects and the establishment of a per-ton incentive program for CCS projects that would be financed by allowances. Likewise, The American Clean Energy and Security Act of 2009 (ACES), narrowly passed by the U.S. House of Representatives on June 26, 2009, provides for a series of incentives around CCS that total an estimated $100 billion through 2030 and $240 billion through 2050 for use of CCS with coal-fired generation. Among other things, ACES (a) authorizes energy-industry participants to create a Carbon Storage Research Corporation that uses a small surcharge on fossil-fuel-generated electricity sales (with state approval) to produce approximately $1 billion per year for ten years to fund at least five large-scale CCS projects, (b) allocates 4% of cap-and-trade allowances to subsidize CCS deployment costs and (c) provides for additional bonus allowances for coal fired generation projects to adopt CCS projects.

The U.S. Department of Energy (DOE) has also invested almost $1.5 billion in CCS demonstration projects as part of its Clean Coal Power Initiative (CPPI). In July 2009, the DOE awarded $408 million to two projects. This past week, the DOE awarded another $979 million to three other projects. Each of these projects involves retrofitting flue gas streams at existing coal-fired power plants with different types of CCS technology and capturing at least 1 megatonne of CO₂ emissions annually, with the captured CO₂ then being sequestered in deep saline acquifers or used in EOR.

The Canadian approach to CCS

Since 2006, the Canadian federal government has provided $375 million to support the development of CCS technologies. In the 2009 federal budget, the government established an $850 million Clean Energy Fund to provide funding over five years for the demonstration of promising technologies, including large-scale CCS projects. The Clean Energy Fund also provides $150 million over five years for clean-energy research and development. An additional $125 million is available for CCS projects under the ecoENERGY Technology Initiative of Natural Resources Canada. The federal government is also considering providing favourable tax treatment to CCS projects through an accelerated capital-cost allowance for such projects.

Canada-wide potential for CCS may be as high as 600 megatonnes per year (roughly 40% of Canada's projected GHG emissions in 2050), but this potential resides primarily in western Canada. The geology of the Western Canadian Sedimentary Basin (WCSB) makes western Canada well suited for CCS projects, as it is estimated that the WCSB may be able to store up to several hundred years' worth of CO₂ emissions.

CCS in Alberta

Nowhere is the development of CCS projects more important than in Alberta. The province has Canada's most carbon-intensive economy, due primarily to its reliance on coal-fired generation for its power and its energy industry, including the oil sands. In Alberta's 2008 Climate Change Strategy: Responsibility / Leadership / Action, the Government of Alberta committed to reducing its projected emissions for 2050 by 200 megatonnes of CO₂ (or 14% below actual 2005 levels). The province proposes to achieve 70% of these reductions, or 139 megatonnes, through CCS. In the shorter term, Alberta has set a target of capturing 5 megatonnes by 2015.

In order to turn these goals into reality, in April 2008, Alberta established the Carbon Capture and Storage Development Council (CCS Council) and, in July 2008, announced that it would provide $2 billion in funding through a provincial CCS Fund to be administered by the CCS Council for three to five large-scale CCS projects. Projects are eligible to receive up to 75% of the project's total incremental cost to capture, transport and store CO₂, with a maximum of 40% of approved funding distributed during design and construction stages, 20% at the outset of commercial operation and the remaining 40% paid during commercial operation over a maximum period of ten years.

To date, the Government of Alberta has announced agreements to fund four projects (Shell Quest, Project Pioneer and Alberta Carbon Trunk Line). Funds were also committed to a fifth project, the Alberta Saline Aquifer Project led by Enbridge, but the project was subsequently cancelled. The scale of each of these projects is significant:

• For the Shell Quest CCS project (estimated to cost $1.35 billion), the Government of Alberta committed $745 million over fifteen years to Shell Canada Energy and its partners, Chevron Canada Ltd. and Marathon Oil Sands L.P., along with $120 million to be committed by the federal government from its Clean Energy Fund. It is anticipated that the Shell Quest CCS project will capture and store up to 1.2 megatonnes of CO₂ per year from the Scotford Upgrader and the Scotford Upgrader Expansion.
   
• Similarly, the Government of Alberta committed $436 million over fifteen years and the federal government committed $343 million from the Clean Energy Fund and the ecoENERGY Technology Initiative to the Project Pioneer CCS project, a partnership of TransAlta Corporation, Capital Power and Alstom, at TransAlta's Keephills 3 coal-fired power generation facility. The project will use a chilled-ammonia process to capture CO₂ from the Keephills facility to be used for EOR in nearby conventional oil fields, and is expected to capture 1 megatonne of CO₂ annually beginning in 2015. The Alberta Carbon Trunk Line proposed by Enhance Energy Inc., in partnership with North West Upgrading Inc., is a 240-kilometre pipeline that will transport CO₂ supplied from the Agrium Redwater Complex and, once built, the Northwest Upgrader, for use in EOR elsewhere in Alberta.
   
• The Government of Alberta has committed $495 million to the Alberta Gas Trunk Line, which is scheduled to start construction in 2011 and be in operation in 2012. It is anticipated that the line will transport 5,100 tonnes per day of compressed CO₂ initially, increasing to 40,000 tonnes of CO₂ per day in fifteen to twenty years.
   
• Most recently, the Government of Alberta signed a Letter of Intent with Swan Hills Synfuels to invest $285 million in the Swan Hills In-Situ Coal Gasification (ISCG) Project. The Swan Hills ISCG Project will use ISCG to access coal seams located 1,400 metres underground, producing "syngas" that will be piped to Whitecourt, Alberta and used to fuel a new high-efficiency combined-cycle 300 MW power generator. Up to 1.3 megatonnes of CO₂ created during the gasification process will be captured and used for EOR in the Swan Hills area. Construction is expected to begin in 2011, with CCS to start by 2015.

The federal government has also agreed to fund three other Alberta projects through its ecoENERGY Technology Initiative: (a) the Heartland Area Redwater Project (HARP), lead by ARC Resources, a project designed to demonstrate the feasibility of CO₂ storage in the Redwater Leduc Reef - which is estimated to have a total storage capacity of one gigatonne of CO₂ - north of Edmonton near an area of heavy industry and development; (b) the Integrated Carbon Capture and Enhanced Oil Recovery project, led by Enhance Energy, involving the capture of CO₂ emissions from a large fertilizer plant and an upgrader located in the Alberta Industrial Heartland and transmission of the CO₂ for EOR purposes or permanent sequestration; and (c) Husky Energy Inc.'s development of new knowledge and methods for EOR in heavy oil reservoirs, using CO₂ as an injectant.

Activity is also occurring without government sponsorship. In 2006, Capital Reserve Canada Ltd. acquired mineral rights to approximately 2,000 acres of land in Two Hills, Alberta, located between Edmonton and Fort McMurray, with a view to constructing 250 salt caverns and the infrastructure to support the storage capacity of up to 113 megatonnes of CO₂. Additionally, EOR operations have been under way in Alberta for a number of years, with increasing emphasis on reducing GHG emissions through the process. For example, Glencoe Resources Ltd. has partnered with MEG Global Canada Inc. and NOVA Chemicals Corporation, who sell CO₂ to Glencoe from their petrochemical plants, to significantly increase recovery from declining oil fields while achieving annual CO₂ emissions reductions of up to 220,000 tonnes.

CCS in other Canadian provinces

While CCS is of particular importance as a solution to reduction of GHG emissions in Alberta, a number of other provinces are also looking to CCS projects as part of their climate-change solution.

A successful CCS pilot project has been in operation in Saskatchewan since 2000. The Weyburn project, currently the world's largest operational CCS project, involves the capture of CO₂ from a coal gasification plant in Beulah, North Dakota and transportation of the compressed CO₂ by pipeline to oil fields in Weyburn, Saskatchewan, where EnCana runs a $1 billion commercial EOR operation and the Petroleum Technology Research Centre runs a research project that now includes monitoring at Apache Canada's Midale field. It has been reported that, since 2000, more than 13 megatonnes of CO₂ have been injected without any leaks being detected by scientists after extensive monitoring of the project.

The 2008 federal budget included $240 million in new federal funding for a major CCS project in Saskatchewan. A portion of these funds is currently being used to offset the Boundary Dam project development costs. The Boundary Dam project, led by SaskPower in partnership with the federal and Saskatchewan governments, is a seven-year, $1.4-billion government-industry partnership to rebuild and then re-power a major coal-fired power generation unit at Boundary Dam. When fully operational in 2013, the 115 to 120 megawatt (estimated) demonstration project would capture approximately one megatonne of CO₂ annually for use in EOR projects in Saskatchewan.

Spectra Energy has plans to develop a large-scale integrated CCS project in northeastern British Columbia, near Spectra's Fort Nelson natural-gas plant. Spectra is proceeding with a feasibility assessment for the project, which previously received $3.4 million in support from the B.C. government. The project is also supported by the ecoENERGY Technology Initiative and the U.S. DOE's National Energy Technology Laboratory, through the Energy & Environmental Research Center's Plains CO₂ Reduction Partnership.

Challenges ahead

While a number of CCS projects received government support in Canada, significant challenges remain to their further development.

The most significant challenge is likely to be financial, with some estimates marking the cost of CCS at over $100 per tonne of sequestered CO₂. This makes CCS very expensive (particularly compared to the $15 per tonne cap currently in place in Alberta and the $11 per ton to $28 per ton price proposed in the Kerry-Boxer bill in the U.S.). However, CCS is still in its infancy and it is anticipated that CCS will become much more economic over time, as technology improves and more commercial-scale projects are developed. Proponents have also taken the position that the cost of CCS is comparable to available alternatives that can reduce GHG emissions on a large scale. For example, a study by the International Energy Association found that without Carbon Capture and Storage, the world's overall costs to reduce emissions to 2005 levels by 2050 would increase by 70%. That study suggests that total investment in CCS needs to be $3.5 trillion to $4 trillion up to 2050.

There are also significant areas of regulatory uncertainty with respect to CCS in most jurisdictions, including Alberta. This uncertainty includes pore tenure (i.e. who owns the right to inject and store CO₂ in the underground pore spaces) and long-term monitoring and liability obligations. The Government of Alberta has previously indicated that it would release regulations addressing these matters by the end of this year. In the U.S., both the Kerry Boxer bill and ACES propose to direct the Environmental Protection Agency to develop and implement regulations dealing with CCS.

Notwithstanding these (and other) challenges, governments in Canada and the U.S. appear committed to forging ahead with CCS projects, since they see few viable alternatives that will meet energy needs while satisfying GHG emissions goals. The Government of Alberta appears particularly committed, given its access to cheap coal, its high demand for energy at the oil sands, its available storage caverns and its current levels of GHG emissions. No doubt global collaboration will be required if CCS is to become truly feasible, and huge opportunities await those who are able to make CCS more cost-effective, ensure the security of storage, develop CO₂ source clusters and pipeline networks and address the concerns of local communities. Only time will tell if CCS will be the solution to the climate change problem in Alberta and an important part of the solution elsewhere in Canada and the U.S.