A worker stands on a steam-assisted gravity drainage pad at Cenovus’ Sunrise oil facility northeast of Fort McMurray, Alta., on Aug. 31, 2023.Victor R. Caivano/The Associated Press
When the chief executives of most of Canada’s major oil-and-gas companies sent an open letter to federal party leaders this week, calling for a sweeping reduction of regulatory obstacles, they made passing reference to the technology on which they’ve long pinned their sustainability hopes.
“Canada’s oil sands industry has been investing heavily in research and regulatory approvals to develop new carbon capture and storage [CCS] projects that have the potential to reduce the sector’s carbon emissions intensity,” they said. “Thus, an expanding Canadian oil and natural gas sector helps the world’s efforts to tackle this global challenge.”
But with their actual demands, they sent a much different signal – one that suggests many of them are setting aside the carbon-capture dream, and with it the promise of reducing pollution while growing production, for the foreseeable future.
It came in the letter’s call for Ottawa to end its involvement in industrial carbon pricing (separate from the consumer carbon price already being reduced to zero) and leave the matter entirely to the provinces, which echoed a call by Conservative Leader Pierre Poilievre a day earlier.
That may fit the zeitgeist, heading into a federal election campaign in which removing barriers to economic competitiveness and especially resource development – in the face of U.S. President Donald Trump’s threat to Canadian sovereignty – will be a major theme. The race to prove growth-friendly bona fides is such that by the end of this week Prime Minister Mark Carney was flirting with scrapping the government’s planned cap on oil-and-gas sector emissions, despite saying during this winter’s Liberal leadership campaign that he would keep it.
But industrial carbon pricing is a different animal. Until recently, it was publicly supported by some of the same 14 executives who signed the letter, and publicly opposed by few others.
That wasn’t just because it was seen as preferable to other potential federal climate policies, including the proposed emissions cap.
It was also because it seemed to be the only way to make most investments in carbon capture economically viable.
Never mind that Ottawa has already implemented a 50-per-cent tax credit to help cover carbon capture’s capital costs. A common refrain from the sector has been that CCS is still a hard sell to shareholders, because it has high operational costs once installed, without on its own generating any revenues.
Industrial carbon pricing could solve that problem, the thinking went, by adding value to abated carbon emissions. For each captured tonne, companies would generate credits that could both spare them compliance costs, and be sold to other industrial emitters.
What the largest producers ostensibly wanted, to this point, was greater certainty that the industrial price would go up as scheduled, and that the credit-trading market would take shape accordingly. The Pathways Alliance – an industry representing six companies that make up about 95 per cent of all oil-sands production, and primarily focused on their CCS interests – was until recently in negotiations with Ottawa to try to land credit-value guarantees. In other words, they wanted insulation from risk that the system would be scrapped or weakened.
What they now want, effectively, is less certainty about the price and the credits.
If Ottawa were to drop its current policy, some provinces would still keep their own industrial pricing regimes. That may include Alberta, which has had such a system in place since before it was federally required. But the provinces would no longer predictably increase the price annually nor increase stringency, as Ottawa requires to avoid a federal backstop being imposed.
And it’s a safe bet that the federal government would not continue trying to negotiate deals to guarantee the value of carbon credits generated by provincial systems over which it had no control.
That doesn’t mean every carbon-capture project would necessarily be doomed. Strathcona Resources Ltd. SCR-T (which doesn’t belong to Pathways) is one oil-sands company proceeding with a $2-billion investment. Although it’s backed by capital-cost financing from the federal Canada Growth Fund, Strathcona executive chair Adam Waterous – a signatory to this week’s letter – has said he doesn’t think carbon pricing is needed to make it work.
But Strathcona has thus far been an outlier, with relatively low operational costs because its facilities are situated above carbon-storage reservoirs, reducing the need to transport captured carbon. Mr. Waterous has also expressed an unusually optimistic view about investors valuing CCS in the long-run.
By contrast, the other oil-sands giants’ plans have stalled, as Pathways has unsuccessfully tried to negotiate many billions of dollars in carbon-credit guarantees with Ottawa.
The failure of those talks to date may be part of the reason for the industry’s repositioning pricing. If neither business nor government is willing to take on enough of CCS’s financial risk to make it work, then a rising cost per tonne of emissions will just make production more expensive.
There are other obvious explanations for the attitudinal shift.
The economic war launched on Canada by Mr. Trump makes any sort of capital investments more difficult than previously, and those with long and uncertain pay-off periods all the more so.
And for any executives who were lukewarm on decarbonization as either an environmental or a competitiveness imperative to begin with, it may seem less important than ever to pay lip service, amid the more immediate existential threats preoccupying the country.
None of this easily fits with the case Canada’s fossil-fuel sector has been making, for many years previous, that it’s committed to reducing the carbon-intensity of domestic production to remain viable in the coming decades, when global oil-and-gas demand starts to shrink.
The federal campaign expected to start this weekend will test whether many Canadians disagree with the implicit message from the industry – and Mr. Poilievre – that now is not the time to worry about that.
