Canada must provide more certainty to investors in low-carbon projects or risk losing out on billions of dollars needed to meet its decarbonization goals, experts say.
While the Canada Growth Fund aims to attract investment by providing a sort of insurance policy against fluctuations in carbon credit values, its programs must broaden their approach quickly and clarify eligibility criteria to be more effective, says Clean Prosperity.
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“Industries across Canada agree that a broad-based carbon contracts program will increase carbon-market certainty and help secure final investment decisions on big decarbonization projects,” the Toronto-based think tank writes.
Clean Prosperity recommends that the Growth Fund offer standardized contracts to all emitters—both large and small—without linking them to equity or debt investments as initially proposed.
The contracts work through two main mechanisms: offtake agreements, where the Fund buys carbon credits to help a credit holder protect future revenue, or through contracts for difference (CfD), where the government guarantees a fixed price for carbon credits over a long period. With CfD, if carbon credit prices fall below the set price, the government pays the difference; if they rise above, the company pays out.
The Canada Growth Fund signed its first carbon contract in December, 2023, committing to buy up to 185,000 tonnes per year of carbon credits for 15 years at an initial price of C$86.50 per tonne from Entropy, Inc., an Alberta based carbon capture and storage (CCS) company. The contract was paired with a $200-million direct investment in Entropy’s Glacier gas plant to install CCS technology.
Since then, two more contracts have been signed, one contract with an Alberta waste-to-energy facility, and another with Markham Energy, a district energy utility in Ontario building the world’s largest wastewater energy transfer system.
Those projects followed an engagement process that, as of June, 2024, included more than 550 meetings that produced a project pipeline of more than 100 opportunities. The Fund reported at that time that it had closed five projects and committed $1.3 billion across its target sectors.
But according to Clean Prosperity, that progress is too slow to match the urgent roll-out of low-carbon projects needed to address the climate crisis. Part of the reason is that investors still see too much risk in engaging with carbon contracts—back in June, the Canadian Press reported that they were being held up as industry and government disagreed over the price that the contracts should commit to, with CCS developers saying that offsetting risks associated with their technology demanded a higher price.
But energy experts at the Winnipeg-based International Institute for Sustainable Development have called on the Fund to stop backing CCS projects that have not been proven to work at scale, and which even CCS developers say are not on track to meet their own carbon reduction targets.
To reduce risks and make the contracts more attractive to investors, Clean Prosperity suggests the Fund become more ambitious by:
• Making contracts broadly available “to all industrial emitters that are regulated by Canada’s industrial carbon pricing systems,” in order to maximize the number of low-carbon projects;
• Speeding up implementation of its CfD program to get projects off the ground as soon as possible;
• Focusing on contracts tied to carbon credit prices, since future prices are often a concern for the investors that can determine a final investment decision
• Setting create clear, up-front criteria for program eligibility so that industry and investors can better anticipate whether their projects will qualify.
The Fund has laid out a three-pronged strategy to accelerate wider engagement now that it has closed some initial deals. The Fund says it aims to deploy more carbon contracts with larger projects that carry lower costs and risks, while expanding its scope to include “first-of-a-kind” projects with higher risk as a means of advancing decarbonization in new industries and regions. The strategy also calls for standardized instruments to deploy contracts more widely and efficiently.
