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Craig Golinowski, Managing Partner, Carbon Infrastructure Partners
This may be an unpopular statement, but someone needs to stand up and scream from the rooftops: we cannot get to 2050 net zero goals in Canada without oil and gas. Period. To avoid falling into an inescapable trap (Europe as a case study) we must face this stark reality.
Twenty-eight years is simply not enough time to deploy enough capital to build reliable alternative energy sources by 2050, even if we could get people to accept nuclear, and even if we could harness that much capital. Moreover, as the war in Ukraine demonstrates, naively ignoring energy security will create a direct threat to our national security and our ability to defend democracy globally.
However, we cannot continue using oil and gas over the long term without carbon capture, utilization, and storage (CCUS).
Canada’s new Investment Tax Credit (ITC) should be helpful in stimulating CCUS but will not be competitive with the recently increased US Q45 tax credit values for “regular” reservoir sequestration and for Direct Air Capture (DAC). To make our current ITC proposal work, in the absence of increasing its value, we need certainty about the price of carbon. The projection that Canada’s carbon tax will reach $170 per ton is the additional incentive required. However, with prospects of a future federal government killing the carbon tax, the market is unable to underwrite this political risk. So, the solution is a Carbon Contracts for the Difference (CCIF), which would be individual contracts created by the federal or provincial governments guaranteeing the price of carbon for each CCUS project. It is encouraging that Minister Guilbeault is talking about this strategy now in positive terms.
Contrary to the argument that the only answer is to do away with fossil fuels, doing so will have serious unacceptable, unintended consequences. Germany’s sudden demand for coal, which will spike GHG emissions, and add leverage to Russia’s ability to prosecute its war, was a reaction to the unreliability of Germany’s alternative energy sources and the shutdown of its nuclear power fleet. Precipitously killing fossil fuel use will also create an energy crisis (and may already have done so) which will revert millions of people into poverty, thwart millions more from getting out of poverty, cripple world food production, and create a humanitarian crisis that will rival the climate change humanitarian crisis we want to avoid. Neither is acceptable. In fact, with a certain irony, this is a point upon which both sides can agree.
Impeding progress in climate action has been the unrelenting criticism of so many potential solutions: nuclear is too dangerous; renewables create a reliance on China and unreliable energy, ethanol uses corn and is tantamount to burning food, hydro kills habitat, and CCUS is just a subsidy to oil and gas. Well, if CCUS is a subsidy to oil and gas, it is also a subsidy to the cement industry, the chemical industry, agriculture, transportation, electricity production, and almost any feature of our modern economies.
If nuclear and any other number of alternatives are excluded, then we are left largely with the unreliability of solar and wind, supplemented by massive behavioral changes, which will result in conflict and political instability. Moreover, the argument that technology will solve the problem is fraught. We have the technology already, including nuclear and CCUS, and how difficult have they been to implement? Waiting for technology to solve the problem is like watching the forest fires approach your house and deciding to do nothing because it is probably going to rain.
Alberta has introduced the Hub model of capture systems, and it is a good idea. It should be supplemented with a distributed model that includes enhanced oil and gas recovery for CO2 storage. Enhanced oil and gas recovery will harness the power and motivation of elevated energy prices and small- and medium-sized businesses which represent the very mainstay and engine of Alberta’s economy. Alberta must step up and provide a framework that matches the Federal ITC and incentives so that existing oil and gas reservoirs play a supplemental role in storing CO2 and reducing CO2 transportation costs generally. Small and mid-sized oil & gas producers can utilize CO2 to deliver additional royalties and investment into communities that would benefit from long-term, sustainable energy projects. Alberta needs to be competitive with the United States which updated the 45Q CCS incentive for enhanced oil recovery to US$60/ton.
Those intensely concerned, as we all must be, about climate change have to this point won the PR war. The energy industry argued for far too long that climate change was not real or that people were not causing it, or that the science is “iffy” which left a void for environmentalists and others to fill. It is imperative that the oil industry and government leaders are unequivocally accepting the problem of climate change alongside energy security and affordability. That is now starting to be the case, which explains why the business case for climate action with CCUS as a major weapon is starting to gain traction. It now needs to be supplemented with “carbon contracts for the difference”, project by project from the Federal government and action by the Government of Alberta to include incentives for CO2 storage through enhanced oil & gas recovery.
Craig Golinowski, Managing Partner, Carbon Infrastructure Partners
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