Canadian government to spend billions on CCS, with dubious climate benefit

The Canadian government could spend tens of billions of dollars subsidising carbon capture and storage (CCS) projects to help the oil and gas industry reduce its emissions. But the technology has a poor track record and many proposed CCS projects in Canada are struggling to get off the ground. Even if they proceed, CCS will only capture a small sliver of the industry’s carbon pollution. 

In 2021, major Canadian oil sands companies said that slashing emissions from their operations using CCS could cost somewhere in the range of CAD$75 billion (USD$60 billion), and two-thirds of that total would need to be covered by the Canadian government.

While the federal government has not agreed to such hefty levels of public subsidy, Canada has been one of the largest funders of CCS in recent decades. Over the past forty years, Canada has spent USD$3.8 billion on CCS, placing it third behind Norway and the United States, according to a recent report from Oil Change International (OCI).

But that could be just the tip of the iceberg. Canada’s oil and gas industry has positioned CCS as a pivotal climate solution, and financial support from the Canadian government is ramping up. An array of subsidies covering capital investments as well as volumes of emissions captured could result in Canada funnelling between USD$12 and $41 billion to oil and gas companies building CCS projects in the coming years, OCI said.

The technology has an abysmal track record however. In the U.S., more than 80 percent of CCS projects failed due to either technical issues, high costs, or poor returns, according to a study from the International Institute for Sustainable Development (IISD). Many fail before they even break ground, or, if they do move forward, fail to capture CO2 emissions as promised. And the majority of CCS projects funnel CO2 back underground to increase oil and gas production, offering dubious climate benefits.

“CCS is a kind of lifeline for the industry. And it is sending exactly the wrong message both to the industry and to the public that somehow, if we just tack on this new technology, everything can continue as normal,” Lorne Stockman, research co-director at Oil Change International, told Gas Outlook.

The recent track record in Canada does not inspire confidence. Even with generous backing from the government, many Canadian CCS projects face significant financial headwinds.

In May, Capital Power announced that it was abandoning its CAD$2.4 billion proposed CCS project at the Genesee Generating Station in Alberta, calling it “not economically feasible.” 

“We have concluded that the economics for CCS at the Genesee site do not meet our targeted risk return thresholds,” Avik Day, president and CEO of Capital Power, told investors on an earnings call.

That project was particularly glaring because it fell apart even after both the provincial and federal governments pledged financial support, said Julia Levin, associate director of national climate at Environmental Defence, an environmental group that opposes CCS.

“It was one of the most promising examples of CCS and it failed,” Levin told Gas Outlook. She added that gas-fired power is already more expensive than renewables, so layering on billions of dollars of CCS infrastructure only drives up costs even more.

Another CCS project in Canada is also falling short. A billion-dollar retrofit of the Boundary Dam 3 coal plant in Saskatchewan has consistently failed to capture 90 percent of the greenhouse gas emissions that had been promised, according to an analysis from IEEFA. All the CO2 that is captured is subsequently used to boost oil and gas production, which ends up leading to even more emissions when those hydrocarbons are burned.

Carbon accounting schemes also raise questions about the efficacy of CCS. For instance, Shell sold over $200 million in carbon offset credits tied to its Quest CCS facility in Alberta, which captures some of the CO2 emitted during hydrogen production. The only problem was that credits never led to actual emissions reductions, according to a Greenpeace investigation earlier this year. A 2022 investigation from Global Witness found that during its operations, CCS at Quest used for blue hydrogen emitted more than it captured. The Canadian taxpayer ended up subsidising 93 percent of the cost of the project.

In response to questions from Gas Outlook, a spokesperson for Shell said Greenpeace’s claims “were inaccurate.”

“As a result of innovative fiscal and regulatory frameworks, nine million tonnes of CO2 have been captured at Shell’s Quest facility that would have otherwise been released into the atmosphere,” the Shell spokesperson said in an email.

In June, Shell announced that it would build on another CCS project in Alberta. The company says its Polaris project will capture 650,000 metric tonnes of CO2, capturing 40 percent of its Scope 1 emissions at the refinery and 22 percent at the chemicals complex. Both figures are far below the 90 to 95 percent capture rate that most CCS proponents claim is possible.

“Carbon capture and storage is a key technology to achieve the Paris Agreement climate goals,” Huibert Vigeveno, Shell’s Downstream, Renewable and Energy Solutions Director, said in June. “The Polaris and Atlas projects are important steps in reducing emissions from our own operations.”

However, onsite Scope 1 emissions are a small fraction of the global carbon footprint for oil and gas facilities. The vast majority of emissions occur when petroleum products are burned.

Even if CCS worked, the benefit would be “slight,” Levin said. “But in the meantime, companies can use it too to sell the public this story that [the] oil and gas industry is a willing partner” on climate.

Canada’s CCS troubles

There are roughly 30 commercial CCS projects from around the world, and they are only capturing 42.5 metric tonnes of CO2 per year, equivalent to less than 0.2 percent of the emission cuts required by 2030, according to a 2023 analysis from IISD.

Seven of those projects are in Canada, most of them in oil and gas. But they only capture 0.5 percent of the country’s emissions. Even within the sector, the amount of CO2 captured only accounts for 2.6 percent of the emissions needed for the oil and gas industry to make its contribution to national climate targets, according to IISD.

But even that figure may be overly optimistic. That is because around 70 percent of carbon captured is used to increase oil and gas production. Known as enhanced oil recovery, or EOR, carbon dioxide is injected into ageing wells to increase pressure and extract more resources.

“CCS is, therefore, facilitating continued Canadian oil and gas production—which the industry expects to grow by nearly 30% above 2020 levels by the end of the decade,” IISD wrote in a 2023 report. “CCS in the oil and gas sector is expensive, energy intensive, unproven at scale, and has no impact on the 80% of oil and gas emissions that result from downstream use.”

Despite these formidable challenges and drawbacks to CCS, the Canadian government has heavily supported the carbon capture plans from major oil and gas companies.

Perhaps the most high-profile case comes from the Pathways Alliance, a coalition of six major oil sands producers, which has proposed a $16.5 billion CCS project in Cold Lake, Alberta, that would include a 600-kilometre pipeline connecting oil sands production to an underground storage facility.

The Pathways Alliance has asked the Canadian government to subsidise 50 percent of the operating cost of the project. It also wants to bypass an environmental impact assessment. But Pathways has not announced FID on the project, and industry executives have bristled at criticism.

“These massive projects take a lot of thought and they take a lot of time. That’s why I do get a bit frustrated when I hear some politicians and others publicly state that we should already have shovels in the ground for the Pathways CCS project,” Cenovus Energy’s chief sustainability officer Rhona DelFrari told investors in May 2024. Cenovus is a member of Pathways Alliance.

“With what we know today…the government funding partnerships in Canada are not enough for large-scale CCS to proceed in the oil sands,” DelFrari said.

That came a few weeks after Canada’s Minister of Natural Resources Jonathan Wilkinson seemed to reproach what he saw as industry foot-dragging. “It is now time for the industry to start to show actual progress on the ground,” Wilkinson told the Calgary Herald in February. “We are, every day, moving closer to 2030 and it is time that we stop just advertising on television the great things we’re doing from an environmental perspective, and actually put shovels in the ground.”

Natural Resources Canada did not respond to questions from Gas Outlook.

One analysis from a watchdog group found that the Pathways Alliance has heavily promoted CCS as a climate solution in advertising to the public while privately expressing caution and uncertainty about the technological feasibility of CCS. The report also found that the industry group worked hard to secure subsidies for CCS, while at the same time lobbied to block or weaken other climate policy, such as the federal emissions cap on the oil and gas sector and regulations on methane.

“CCS is a way for the industry to oppose any kind of regulation. To say, ‘Hey, we’re doing this voluntarily. Absolutely don’t regulate us,’” Levin said. “We’re seeing that because Pathways Alliance and all their member companies are strongly opposed to the government’s emissions cap.”

Meanwhile, even as Cenovus and other Pathways Alliance members haggle with the federal government over subsidies on their stalled CCS project, Cenovus told investors that it plans on increasing oil and gas production by 19 percent over the next five years.

The industry has had to dial back its public sales pitch in June after anti-greenwashing legislation became law, which requires assertions about environmental benefits to be supported by evidence. The Pathways Alliance and other trade groups promptly scrubbed their websites, removing claims about climate benefits from CCS.

The Pathways Alliance did not respond to questions from Gas Outlook.

Canada’s oil sands companies will only install CCS if the Canadian government covers a significant portion of the cost, and even then, it’s not clear that it offers much climate benefit, critics say.

“The business case as we see it today, it entirely rests on public subsidy support,” Stockman said. “It makes sense for fossil fuel companies, and it makes no sense for everybody else.”