Canadian Energy Law : Lawyers & Attorneys for Environmental Energy Law

The federal government had committed $342.8 million to the project. These funds were to have come from its $1 billion Clean Energy Fund and its ecoENERGY Technology Initiative. The Province of Alberta had agreed to invest an additional $436 million from the Alberta CCS Fund, a $2 billion program announced in 2008 to advance carbon capture and storage technology.

A feasibility study conducted for Project Pioneer determined the technology was viable and that capital costs would be consistent with expectations. However, reports suggest that even with the committed government funding, the project would not have been economically viable because of two factors. First, because of the relatively low cost of carbon under Alberta’s carbon pricing scheme, the project would have generated insufficient savings on carbon offsets or carbon charges under that scheme. Second, the project was not able to secure sufficient guarantees of revenue from the sale of CO2 for enhanced oil recovery purposes.

These two factors are at play in the broader project development sector in Canada. Low or non-existent carbon prices across Canada make carbon-reduction projects (including non-carbon based power generation, energy storage, and CCS projects) less financially attractive, particularly in an era of already low natural gas prices. At the same time, a variety of energy (and non-energy) projects are challenged by an inability to secure bankable off-take agreements. For example, development of a number of renewable generating projects in Alberta is being slowed by a scarcity of opportunities to obtain long-term power purchase agreements.

The federal and Alberta provincial governments have focused their carbon strategies on capture and storage, rather than reduction. The failure of Project Pioneer, despite large amounts of government financial support, may force a rethink in tactics (although likely not in strategies).

Introduction to CCS

CCS involves the capture, compression, transportation, and underground injection of high volumes of CO2 emissions, which would otherwise be released into the atmosphere by industrial greenhouse gas (GHG) emitters. CCS is a promising technology that may enable certain emissions-intensive industries to reduce CO2 emissions while still maintaining reliance on fossil-fuels or emissions-intensive processes. The North American oil and gas industry has captured and injected CO2 into existing reservoirs to displace oil and enhance recovery (known as enhanced oil recovery or EOR) since the 1970s, and also captures CO2 in connection with international natural gas processing, where the high pressure-produced acid gas must be stripped of contaminants to meet pipeline specifications. Higher cost opportunities also exist to capture CO2 from flue gas at refinery and petrochemical operations, and also in the steel, ammonia, and ethanol production industries. Finally, electricity generators have a stake in the success of CCS as they are major emitters and can incorporate CCS technologies into both existing and new coal-fired or gas-fired operations to reduce the release of CO2.

There has been substantial political support and fiscal incentives for multiple demonstration projects of CCS, and, in fact, this technology is widely recognized by governments, research institutions and industry as an essential tool for the reduction of GHG emissions and a cornerstone in climate change policy. As detailed in past ETCC Updates, Canadian governments have provided approximately $3 billion of funding for CCS in Canada, in connection with research, development, and demonstration of CCS. Nonetheless, there are several significant hurdles to the widespread implementation of CCS.

Part I: The Economic Viability of CCS and the Cost of Carbon

Cost is one hurdle to the widespread implementation of CCS. While not a legal issue per se, carbon pricing (and, by extension, the economic viability of CCS) is affected by legislative measures, e.g. cap-and-trade or a carbon tax. For CCS to be economically viable, the market price for carbon would need to exceed $90 per tonne¹ of CO2, by some estimates, compared to a market price in compliance-based markets of around $20 per tonne in Europe and $8-13 (Cdn.) per tonne in Alberta (which is subject to a price cap of $15 per tonne). Without sufficiently high pricing, CCS will be dependent on subsidies. The International Energy Agency (IEA) has indicated that $20 billion of immediate support is required to establish CCS technologies within the next decade. Its Executive Director has also suggestedthat thirty new projects would need to be constructed annually to stabilize GHGs and that one quarter of global power generation would need to incorporate CCS by 2050 to meet reduction goals. A recent audit by the Global Carbon Capture and Storage Institute found that only 62 of 213 active or planned projects were fully integrated commercial-scale projects, of which only seven were actually operating. The scarcity of viable projects is largely attributable to high cost, even with subsidies. For example, in early March 2010, one of the largest electricity generators in the U.S. cited economics when it pulled out of a $700 million CCS project in Alabama that was earmarked for $295 million in federal funding.

Update on Proposed Federal Carbon Pricing Legislation in Canada and the United States

CANADA

In North America, the price of carbon is currently determined on voluntary markets, various exchanges, or by local compliance-based legislation. No federal legislative framework exists, such as emissions quota or a carbon tax, and it appears unlikely that any such framework will be developed this year. On February 1, 2010, Environment Minister Jim Prentice announced that Canada intends to harmonize its legislation and policies with those of the United States. Following the December 2009 global climate change talks in Copenhagen, Canada filed with the U.N. an emissions reduction target of 17% from 2005 levels by 2020, matching that of the United States. Canada's target had previously been to cut Canada's GHG emissions 20% by 2020 from 2006 levels. Minister Prentice further indicated that Canada would only be willing to implement cap-and-trade or a regulatory regime when the U.S. signalled that they would do the same.

UNITED STATES

As discussed in greater detail in our December 2009 update, recent months have seen considerable activity in the U.S. Congress on the climate change front. Several bills have been proposed, including two cap-and-trade bills (the Waxman-Markey bill and Kerry-Boxer bill) that have since failed to garner enough support to pass in the Senate. In response, Senators Joseph Lieberman, John Kerry and Lindsey Graham are developing a bipartisan climate change bill that would strike a compromise between existing approaches. The bill, which is intended to be released in mid-April, proposes a carbon tax on transportation fuels and cap-and-trade for electricity-generating utilities. On March 9, U.S. President Barack Obama met with key senators at the White House to discuss climate change efforts in the Senate and reemphasize its priority. Meanwhile, an effort is underway in the U.S. House of Representatives to delay or block the Environmental Protection Agency (EPA) from regulating GHGs. Reports indicate that executives and investors are increasingly questioning whether the U.S. climate change debate will be resolved this year.

Carbon Markets in the U.S. and Canada

Amid legislative uncertainty and the outcome of Copenhagen, confidence in the strength of the carbon market is eroding. Regional Greenhouse Gas Initiative (RGGI) permits auctioned in the RGGI March 10 quarterly auction sold at an average of $2.07 per tonne which, while up $0.02 from the record low in December 2009, is still ten times cheaper than in Europe. The low price has been attributed also to an oversupply of carbon allowances and reduced energy demand caused by the recession. Even the EU, with a compliance-based market, is struggling with reduced demand and an oversupply of carbon allowances. Industry insiders suggest that it is the U.S. and Australia's failure to commit to real reductions that has given the EU little incentive to tighten up emissions caps - an action that would increase the demand for offsets. With a soft and volatile carbon market and the absence of definitive climate change legislation, many investors in North America must rely on fiscal incentives, policy pronouncements, and provincial and state initiatives to guide investment.

The legislative void at the federal level has been filled to some extent by the more than twenty U.S. states and seven Canadian provinces that are either implementing or proposing climate change strategies locally, or are participating in or observing a regional trading system. In Canada, Alberta has implemented cap-and-trade, British Columbia and Quebec have implemented carbon taxes, and British Columbia, Manitoba, Ontario, and Quebec are committed to or are taking steps towards implementing cap-and-trade. As discussed in our December 2009 ETCC Update, British Columbia, Manitoba, Quebec, and Ontario are also parties to the Western Climate Initiative (WCI), a regional GHG cap-and-trade regime the first phase of which is to take effect in 2012. The WCI is expected to be four times bigger than the current RGGI, which is the only operational regional trading system in North America. Recent reports have indicated that members of the RGGI and WCI are in discussions regarding the feasibility of linking their regimes.

While regional initiatives may fill a gap, comprehensive federal legislation is still an important goal. In fact, two commonly identified structural impediments to CCS include the lack of a national strategy to control CO2 emissions and the need for coordinated efforts among federal and state or provincial governments. For one thing, the scope of implementation matters for pricing strategies like cap-and-trade or carbon taxes. In the case of cap-and-trade, especially, meaningful economy-wide compliance-based emissions caps and appropriate standards for what qualifies as abatement are required for an efficiently operating market. Whether the federal legislature adopts a carbon tax, cap-and-trade, cap-and-dividend, or a combination thereof will impact the pricing of carbon and will determine which kind of market-based incentives are available. Depending on the details of proposed federal legislation, its implementation may require the harmonization of existing rules across the provinces. Such harmonization may be resisted by provinces with local legislation, like Alberta, which may conflict with or may not be as stringent as proposed federal legislation. Nonetheless, the hope is that any harmonization associated with the introduction of federal legislation will provide administrative and legislative certainty to industry, which does not exist in today's regulatory patchwork.

Part II: Identified Regulatory Gaps

The other impediment to CCS that has been identified is the existence of significant regulatory gaps - CCS having consistently been identified as a technology where regulation is needed. The IEA, the Alberta Carbon Capture and Storage Development Council, and the U.S.-Canada Clean Energy Dialogue Action Plan, to name only a few, have identified the regulatory gap as an issue or offered guidance on how regulations should be designed. Additionally, in February 2010, President Obama released a Presidential Memorandum establishing an Interagency Task Force on Carbon Capture and Storage with the mandate of overcoming legal and other barriers to the widespread cost-effective deployment of CCS within 10 years. Despite this call for regulation, only a handful of jurisdictions are developing or have adopted CCS-specific regulations (notably Australia, several U.S. states and certain international treaties). In others, such as the EU and the U.S., guidelines of CCS regulation have been adopted or proposed, but no actual regulations have been implemented. It was expected that Alberta, which has five major CCS projects in the pipeline which are to be developed over the next several years and $2 billion committed to these projects, would release regulations on CCS last year. According to recent reports, however, the Government of Alberta will not confirm whether a bill is being prepared.

The bulk of regulatory work for low carbon technologies will have to occur at a local level. The federal government can set emissions pricing or targets, regulate those activities (including transportation) that occur on federal lands, inter-provincially or internationally, and establish minimum technical or performance standards. Provinces have the authority to regulate health and safety, sitting, permitting, property laws, and emissions legislation and will likely need to do the bulk of work relating to injection, monitoring, and verification. For the capture, transportation, and injection well components of CCS, existing regulations (such as regulations for acid gas and EOR) provide a natural framework on which regulation could be based. Storage, however, is a unique process in the sense that it is expected to be perpetual and every site is different. It has been recommended that specific regulations relating to property rights and liability at the storage site (both during injection and post-closure) be developed that attend to the long-term nature of the process and that are flexible enough to address site-specific characteristics, emerging technologies and new information.

Property Rights

Property rights should be formalized with respect to the storage site (i.e. subsurface and pore space property rights and liabilities) and the mechanisms by which the rights to CO2 are transferred throughout the supply chain. With respect to the ownership of CO2, it is necessary to determine whether the owner of the source of CO2 retains ownership, or whether it is transferred as a result of capture, transportation, and/or sequestration by the operator. With respect to rights to the storage site, it is necessary to contemplate the possible impacts of a CCS license on land title (especially that of First Nations), access rights, mineral rights and pore space ownership. Much of this will turn on whether CO2 becomes tied to the property into which it was injected or whether it retains a separate legal identity. For instance, where ownership of surface rights is divorced from the subsurface rights, third parties may be granted access rights to the lands or rights for mineral or petroleum licensing over the same property.

Liabilities

Potential liabilities at the storage site include harm to local environment or human health caused by leakage or common law liabilities, such as nuisance, negligence, or trespass. When operators are liable, they carry the risk of compensatory damages. Consequently, where regulation is uncertain, participants may be exposed to unlimited risk. This exposure is exacerbated by uncertainties such as the reliability of capture, the effectiveness of monitoring methodology and remediation techniques and physical site specific risks, including subsurface fractures, tectonics, well integrity and non-geologic operational risks. Regulators should assign clear responsibility for leaks or excursion outside of the area subject to a CCS license, expressly setting out liabilities and penalties and their scope (especially in respect of remediation) and requiring appropriate operational and corrective measures. One of the most important ways to manage long-term liabilities associated with CCS is through careful site selection. Stringent siting regulations can ensure that injection wells are not sited in areas that could potentially damage public and private property, such as population centres, areas in communication with subsurface resources, including water sources or minerals, or sensitive habitats. Additionally, regulators should review the design of the injection well, the quantities of CO2 that can be injected, and reservoir pressure limits.

One of the most the crucial issues for CCS projects is the assignment of long-term responsibility for sites, including post-closure. In many jurisdictions, the operator must post financial assurance and assume responsibility for monitoring and verification for a certain length of time, at which point the responsibility for sites will transfer to the public sector. It is therefore necessary for regulators to assign responsibility for long-term financing and management of the site, to determine when the public sector should assume responsibility for post-closure liabilities and remediation and to select the regulatory agency responsible for long-term stewardship of CCS sites.

Conclusion

CCS has gained momentum as a promising technology to facilitate GHG emissions reductions. Two commonly identified impediments to the widespread deployment of CCS include the cost of implementing CCS and a lack of regulation addressing unique CO2 storage issues. While CCS has enjoyed various financial incentives and political support, it is equally necessary to develop a comprehensive legislative framework to give potential investors regulatory certainty and stable market-based incentives. Comprehensive and broadly implemented legislation that puts a price on carbon would encourage investment in carbon abatement technologies and help offset the current cost disadvantage of CCS. The second major type of impediment - an unclear regulatory environment - creates a risk of unpredictable and un-measurable liability that impedes investment. Well-designed regulations would mitigate this risk by clearly identifying the ownership of CO2, the scope of associated potential liability and remediation obligations, and the long-term liability for CCS.

¹ Unless otherwise noted, monetary amounts in this article are stated in U.S. dollars.  

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.

What is Carbon Capture and Storage?

CCS technology involves capturing high-volume CO2 from large industrial sources before it is emitted into the atmosphere and then compressing, transporting and injecting it into deep underground geological formations where it is intended to remain permanently trapped. In some cases, CO2 can be utilized in a process termed enhanced oil recovery (EOR) which entails pumping the gas into declining oil fields where it dissolves into the remaining oil, thereby reducing its viscosity and pushing it into production wells, resulting in increased oil production.

Why adopt CCS?

In Canada, proponents believe the potential of CCS to reduce the environmental footprint of both the oil sands industry and electrical generation plants powered by fossil fuels is vast. New facilities could be built "capture-ready", and the technology could also be retrofitted into existing industrial plants. However, while the individual components of CCS are all being deployed at an industrial level, the safety of the entire process has not been definitively proven and its commercial feasibility is reportedly still many years away.

Although CCS has yet to be implemented on a large scale in Canada, research at numerous demonstration plants has indicated that when applied to an industrial facility, CCS is capable of reducing CO2 emissions by approximately 80-95%. Moreover, Canada has an abundance of fossil fuel reserves located in close proximity to suitable underground storage sites with potential for EOR, providing ideal circumstances for CCS development.² The world's first CO2 measuring, monitoring and verification initiative, Weyburn-Midale, was launched in Saskatchewan in 2000. The demonstration project, in its second and final phase, is a government-industry partnership sanctioned by the International Energy Agency (IEA). Test results indicate that long term (i.e., 5,000 year) underground CO2 storage is safe, and the second phase is planned to result in a best practices manual to guide both technical and policy components of future CCS projects.

CCS regulation in Canada

CCS implementation, which would cover CO2 capture, pipeline transportation and injection, is expected to fall under the authority of provincial agencies that regulate oil and gas and power generation. Similarly, while responsibility for water management and regulation is shared by the federal, provincial and municipal governments, provincial agencies would presumably address the potential for leakage and conduct environmental impact assessments in respect of groundwaters that lie solely within a province's boundaries.

Existing federal and provincial oil and gas legislation covers certain aspects of CCS, including capture and transportation-related issues such as construction and health and safety. However, in most Canadian jurisdictions, CO2 storage activities such as access rights and legal characterization, and injection and post-injection activities such as monitoring and liability, have yet to be adequately addressed.³

Encouraging CCS deployment

In April 2007, the federal government released its "Turning the Corner" plan for reducing GHG emissions. The proposed regulatory framework includes mandatory and enforceable targets for emissions reduction from all major industrial sectors. Details of the plan were released in March 2008 and will effectively require the use of CCS or equivalent technology by 2018 in order to meet these targets. The federal government has committed $250 million in funding for the development of CCS and recently announced a call for proposals under a new $125 million fund to advance CCS technologies. In addition, various provincial measures to encourage or mandate GHG mitigation are being developed, including an existing $2 billion fund to advance CCS projects in Alberta.

Challenges and the road ahead

Notwithstanding these developments, a number of technical, regulatory and policy impediments cast a shadow of uncertainty on the future development and implementation of CCS in Canada. According to some experts, CCS will not be commercially viable for at least a decade - and even then large scale implementation will still be many years away. The IEA recently warned that the G8 countries must immediately make $20 billion available for CCS funding if the technology is to become established by 2020. In addition, regulatory uncertainty may discourage private investment in the technology, while environmental groups concerned with the safety and experimental nature of CCS argue that government investment should be directed instead toward proven renewable energy sources such as hydro, solar and wind power.

Clearly, several measures will be necessary to facilitate the successful adoption of CCS technology. Monitoring, reporting and verification guidelines must be developed and safety concerns, such as leakage, must be addressed. Further, Canadian governments will need to continue to provide research and development incentives to advance demonstration projects, akin to the U.S. industrial tax credit for CCS implementation included in the recently enacted Emergency Economic Stabilization Act of 2008.

According to proponents, the development of an effective, harmonized regulatory system in Canada is a key first step toward developing both industry and community confidence in the technology. Moreover, CO2 storage needs to be demonstrated rapidly and at a wider variety of locations in order to assess the potential for CO2 retention in varying geological formations and develop criteria for site selection. Proponents believe that expanded demonstration will also provide critical data to enable the development of CO2 monitoring and verification processes and risk management practices. This, in turn, is expected to accelerate the deployment of CCS and facilitate the progress required for large-scale commercial emissions reductions in the future.

¹ The IPCC is a scientific intergovernmental body set up by the World Meteorological Organization and by the United Nations Environment Programme, established to provide the decision-makers and others interested in climate change with an objective source of information about climate change.
² This storage potential is particularly immense in the rock formations of the Western Canadian Sedimentary Basin.
³ International Energy Agency website. In January 2008, the Canada-Alberta EcoENERGY CCS Task Force made a range of recommendations regarding how to address these outstanding issues.

Alberta was the first province to take action against GHG emissions; introducing a legislative regime in the spring of 2007. Under the regime, facilities with yearly GHG emissions over 100,000 tonnes are obliged to make annual emissions intensity reductions. The regime provided the foundation for Canada's first mandatory carbon trading market, commencing July 1, 2007. The Alberta government is still developing the rules of this market and hopes to have a system in place later this spring. In the interim, trading for compliance is already occurring. An offset system, including certain approved protocols and a registry, is already up and running in the Province. Offsets are considered to be a key compliance option for regulated entities under the Alberta regime.

In addition, CCS is receiving significant attention in Alberta as in other provinces and at the federal level. A number of large industrial emitters in Canada perceive significant opportunities for CCS in Western Canada and, through an alliance called ICO2N, have expressed a willingness to invest in CCS and use the Western Canadian Sedimentary Basin's estimated capacity to store emissions. Given its potential capacity to generate emissions credits (and its potential assistance in petroleum recovery), CCS may prove to be of significant importance in the development of emissions trading, both in Alberta and federally.