Oil Sands Producers Will Need Federal Support To Go Green

Canada’s oil industry, which operates one of the world’s most emission-intensive ways of pumping crude, has recently pledged to work to make the oil sands net-zero emission by 2050. But the industry says it cannot do it alone as billions of dollars of investments will be needed to decarbonize the oil sands operations. Canada’s federal government has a part to play in supporting net-zero oil sands, and it should pay most of the tab for making the industry ‘greener’, top executives at the major Canadian oil firms say.  

Federal government support, including with funds, for technologies to keep the oil sands’ license to operate in a world fearing imminent climate catastrophe may sound counterintuitive. However, crude, natural gas, and petroleum products are Canada’s single biggest export, and the sector is a major employer, especially in the province of Alberta.

So, Canada’s best bet of cutting emissions from oil sands and reaching its goal of a net-zero emissions economy by 2050 could be financing and supporting investment in technologies to cut the carbon footprint of its key economic engine.

Oil Industry Says Federal Govt Should Pay Up To Two-Thirds Of Costs

Canada will need as much as US$60 billion (C$75 billion) to make its oil sands operations net-zero emission businesses by 2050, the CEOs of Suncor and Cenovus saidlast month. The government would need to step up and likely fund up to two-thirds of that cost, Suncor CEO Mark Little and Cenovus Energy’s chief executive Alex Pourbaix told Bloomberg in an interview in July.

Cenovus Energy’s Pourbaix reiterated that assessment earlier this month, telling theFinancial Times that the federal government should pay up to 70 percent of the tab.   

Canada’s oil could become the world’s “cleanest” if the industry manages to develop solutions to slash the carbon intensity of operations, Pourbaix told FT.

Cenovus Energy became in June part of a net-zero collaboration initiative of the biggest oil sands producers in Canada aimed at achieving net-zero emissions from oil sands operations by 2050. The initiative includes companies that operate some 90 percent of Canada’s oil sands production—Canadian Natural Resources, Cenovus Energy, Imperial, MEG Energy, and Suncor Energy.

The initiative is ambitious and “will require significant investment on the part of both industry and government to advance the research and development of new and emerging technologies,” they said.

Decarbonizing the oil sands will cost tens of billions of dollars by 2050, but it will give a license to operate to an industry that would contribute roughly US$2.385 trillion (C$3 trillion) of gross domestic product, Cenovus Energy’s Pourbaix told FT.

Oil Is Key For Canada’s Economy  

The oil and gas sector continues to be an important part of Canada’s economy, and shutting down the industry in order to cut emissions is not an option for any politician, including Canada’s Prime Minister Justin Trudeau, because it would leave many people out of work and cripple Canada’s economy and exports.

In 2019, the last pre-pandemic year, 19 percent of Canada’s exports consisted of crude oil, natural gas, and petroleum products, which earned US$89.5 billion (C$112.6 billion)—Canada’s top export by value, the Canadian Association of Petroleum Producers (CAPP) said in a report on emissions reductions last month.

At the same time, Trudeau announced in April that Canada would enhance its emissions reduction target under the Paris Agreement and now aims to cut those emissions by 40-45 percent below 2005 levels by 2030. The country also doubled down on its commitment to reach net-zero emissions by 2050.

The federal government faces a difficult balancing act in the coming years, in which it will have to work to cut emissions while preserving a crucial industry.

Federal Tax Incentives For Carbon Capture Technology 

Canada is looking to support the development of technologies that could help it reduce carbon emissions. Carbon capture, utilization, and storage (CCUS) “is the only currently available technology with the potential to generate negative emissions,” the federal government said when it unveiled the 2021 Budget.

“Canada is a leader in CCUS, with domestic projects that currently captures 4 megatonnes of carbon every year, but we have the technical and geological capacity to capture and store much more,” the government said.

Budget 2021 proposes to introduce an investment tax credit for capital invested in CCUS projects, with the goal of reducing emissions by at least 15 megatons of CO2 annually. This measure will come into effect in 2022.

Direct air capture projects would also get investment tax credits, but the measure is not intended for Enhanced Oil Recovery (EOR) projects.

The oil industry, however, calls on the federal government to include EOR projects in the tax credit, saying that excluding those projects would be counterproductive to emission reductions. 

Canada’s Oil Sands Bet On CCUS

Meanwhile, Canada’s oil and gas industry, which has realized that it needs to slash emissions in order to remain competitive, is increasingly investing in emission-reduction technologies and projects.

Pipeline operators TC Energy and Pembina Pipeline Corporation partnered up in June to develop a carbon transportation and sequestration system, the Alberta Carbon Grid.

These plans are just the start of an upcoming massive allocation of capital to reduce emissions, officials in Alberta say.

Executives in the industry say that the net-zero goal would be reached with a lot of government support, including financing, while the sector is already a leader in clean technology investment.  

“The natural gas and oil industry provides about 75 per cent of all funding in Canada’s growing clean technology sector, making us the largest investor in the clean tech space. We are well-positioned to be a central pillar of the country’s economic recovery, and our work toward a cleaner-energy future can further differentiate Canadian oil and gas from our global competitors as demand rises in the years to come,” says CAPP’s President and CEO Tim McMillan.