Capital Power’s big carbon capture project is on hold – it’s a sign that we have to work even harder on decarbonizing Canadian industry

Originally posted in The Globe and Mail.

Last week, Capital Power Corp. shelved plans for a carbon capture project at its natural gas-powered generating station west of Edmonton. The $2.4-billion project would have been the largest of its kind in Canadian history, capturing as much as three million tonnes of emissions a year.

This is bad news for Canada’s and Alberta’s emissions-reduction targets and for our plans to develop a low-carbon economy. We urgently need to find a way forward.

Capital Power was making significant progress on the project when the company pressed pause, citing concerns about economic feasibility. With so much of the project’s economics resting on incentives from Canada’s carbon pricing system for large emitters, it’s clear this system isn’t yet living up to its potential.

To decarbonize our economy and hit our climate targets, we have to build a lot of low-carbon projects – fast. What’s needed now is for the federal government to follow through on its commitments to strengthen Canada’s industrial carbon pricing system.

Carbon pricing is our cornerstone climate policy, so what choice does the government have other than to make it work better? Its 2030 Emissions Reduction Plan says Canada will need 30 million tonnes of carbon capture by a little over five years from now. But we haven’t had a new megatonne-scale carbon capture project since Shell Quest launched in 2015.

It is widespread uncertainty about the future of industrial carbon pricing that’s holding up major low-carbon investment. The solution needs to be equally extensive: a standardized carbon contracts for difference program that’s easy to access and guarantees carbon-credit revenue for low-carbon projects right across the economy. Companies are counting on that revenue to make their projects economically viable, and a lot of them can’t make the business case for a big investment without some kind of guarantee.

It’s all well and good to sign bespoke deals like the Canada Growth Fund did with Calgary’s Entropy Inc. late last year, backstopping at least 600,000 tonnes of emissions reductions a year over 15 years. But next to the industrial emissions reductions we need to achieve, that deal is just a drop in the bucket.

We have to cut more than 150 megatonnes per year of annual industrial emissions by 2030 to achieve the federal government’s targets. Modelling my organization did recently with Navius Research shows that a broad-based program of carbon contracts for difference will be essential to achieving a substantial share of those reductions.

It’s true that carbon pricing isn’t the only factor at play in Canada’s industrial decarbonization. Capital Power’s decision was undoubtedly influenced by other factors.

But the fact is we can use the existing industrial carbon pricing system to drive a lot more decarbonization if we offer firms more certainty about the system’s long-term durability. Both the federal and provincial governments need to step up to make that happen.

The federal government made encouraging commitments in the recent federal budget to develop an expanded range of carbon contracts for difference offerings, potentially including standardized contracts. This could unlock billions of dollars in investment.

What we need now is for the government to follow through quickly on its promises. Canada’s peers are already offering big guarantees on carbon pricing for domestic industry. Germany, Britain, the Netherlands and Denmark have all launched ambitious contracts for difference programs. Denmark has funded its program at the same level as Canada’s – in an economy barely one-fifth the size of ours.

Provinces also have an important role to play. Alberta is home to more than half of Canada’s industrial emissions, and the Alberta government has committed to achieving net-zero emissions by 2050. Despite a challenging relationship of late, Alberta and the federal government have a common interest in reducing industrial emissions and should work closely together to make carbon contracts for difference succeed.

Our climate targets are extremely ambitious, but we have an industrial carbon pricing system already in place that can do a lot to help achieve them. What we don’t have a lot of is time, so we need to act quickly to unlock the power of carbon pricing and get building.

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Want to reduce industrial emissions? Get rid of interprovincial trade barriers

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