HAS CCS IN CANADA REACHED A TIPPING POINT?

Tamar Hallerman
GHG Monitor
5/10/13

Canada’s carbon capture and storage industry has experienced a tectonic shift over the last year, emerging in mid-2013 with three large-scale demonstration projects moving forward and under construction. But while the country has rapidly moved ahead as arguably the world’s leader in the technology space, some observers have pointed out that the country has few regulatory or policy incentives in place to transition the CCS industry beyond its first-generation demonstration phase, leaving Canada’s status as a technology innovator in jeopardy. “We’re definitely at a turning point here in Canada,” Chris Severson-Baker, managing director of the Pembina Institute, said in an interview. “The initial effort that was put in is actually producing some real-world results. But at the same time, it’s not at all clear what’s going to happen next—there’s no clarity in terms of our climate policy in Canada or how it will drive CCS.”

The federal and provincial governments of Alberta, Saskatchewan and British Columbia have funneled more than $1.8 billion into CCS RD&D work over the last five years, according to figures from the federal Natural Resources Canada. The fruits of those investments have never been more visible than in the last calendar year, when a pair of oil sands-linked capture projects in Alberta moved into the construction phase. A third project in Saskatchewan, SaskPower’s Boundary Dam, continued to move forward with retrofit work and made progress toward start-up. “From our perspective, we’re already leading the charge on CCS, and I don’t see that slowing down anytime soon,” said Rob Bioletti, director of CCS Policy and Development at Alberta Energy.

Project Pioneer, Swan Hills Fall Away

But beyond those three projects advancing this year, two ventures have also notably fallen away in Alberta due to political and economic uncertainties. TransAlta Corp. abandoned plans for its $1.4 billion post-combustion retrofit, Project Pioneer, last spring. The utility cited a lack of demand for the project’s CO2, as well as political instability surrounding a federal cap-and-trade scheme, for its decision. Meanwhile, the provincial government cancelled its $285 million funding agreement for the Swan Hills coal gasification project in February after project developer Swan Hills Synfuels said the project’s synthetic gas would be uneconomic given the recent low gas prices.

CCS observers, though, shrugged off those two cancellations, saying some project failures are par for the course. “For western Canada, I think what you’re seeing is the natural evolution of projects—some will proceed as the right conditions are there for them, and some won’t if the opposite is the case,” said Len Heckel, business opportunity manager for Heavy Oil Development at Shell Canada. “It’s not unusual, especially for an emerging area, for that to be the case. I don’t see some projects falling away as an indication that CCS is not going to proceed in Canada.”

Regulatory and Policy Gaps Remain

While having some projects fall away appears to be generally expected, the federal and provincial governments have done little to establish a comprehensive climate change policy that could provide enough of a long-term incentive for industry to invest in a costly technology like CCS, sowing seeds of uncertainty among investors and large emitters. While policymakers flirted with the idea of a cap-and-trade scheme in 2009, they never enacted such a system, instead vowing carbon regulation via a sector-by-sector approach. However, those efforts have been relatively slow moving forward.

The federal government did, however, finalize national carbon pollution standards for new and end-of-life coal units last fall. Those emissions performance standards require units to emit less than 926 lbs of CO2 per MWh, roughly the emissions intensity of an unmitigated natural gas combined cycle, by retiring, switching to gas or upgrading to CCS. “That’s what we’re reacting to with Boundary Dam,” Mike Monea, president of CCS Initiatives at SaskPower, said of the utility’s flagship CCS project. But others emphasized that the rulemaking can only do so much given the cheap price of natural gas and the large fleet of existing coal units that are not near the end of their economic lives. “That coal regulation in and of itself isn’t going to drive CCS in other parts of the coal power sector,” Severson-Baker said.

Further magnifying the policy uncertainty is the fact that the federal and provincial governments have no plans moving forward for allocating any new public funding for CCS, still key for the fledging industry. Substantial government funding previously earmarked to Swan Hills and Project Pioneer also appears unlikely to be reallocated to other CCS RD&D work. Meanwhile, the chances of a national carbon policy being enacted appear slim. While Alberta currently has a carbon price of $15 in place, it is not nearly high enough to incentivize businesses to invest in CCS technology, environmental groups have warned. The Pembina Institute estimates that there needs to be a carbon price of at least $95 to incentivize oil sands developers to install CCS technologies on their upgraders.

Should Governments Do More?

Observers indicated that the federal and provincial governments need to do more on the political and regulatory fronts to spur the technology’s development if it cannot dole out any more public money for RD&D. “The federal and provincial governments need to figure out what they’re going to do about climate change,” Severson-Baker said. “Until they do that it’s going to be really difficult for the government to get behind any for the CCS projects. They risk squandering the goodwill that they’ve earned from actually creating some good projects.”

Monea said that for now, at least, potential CCS project operators must “create their own value for carbon,” which Boundary Dam is doing by selling off its captured CO2 for nearby enhanced oil recovery operations. “We know that there are no programs in Canada right now for another plant or technology to be developed to clean up emissions. We just don’t see anything coming from our federal government,” he said.

Alberta Gov’t Formulating Regulatory Regime

The Alberta government has, though, made progress over the last year on finalizing a regulatory framework to help incentivize CCS development. That framework includes defining pore space ownership and long-term liability for CO2 storage projects post-closure. “We know that with CCS being a relatively novel suite of technology, we realized that we had to look at more of the nuts and bolts and the details of the regulatory system,” Bioletti said. “Going forward, we feel like we’re really making the system in Alberta the most comprehensive system explicitly for CCS.” However, that regime has yet to be fully approved and is not likely be implemented until next year.

Observers and industry officials expressed hope that Alberta, in particular, could have a lasting interest in CCS as it continues to exploit its carbon-heavy oil sands internationally. Highlighted by the intensifying debate surrounding the Keystone XL pipeline in the United States, provincial officials are quickly recognizing the need to clean up the fuel source in order to win what is essentially a public relations battle surrounding the oil sands, sources said. “Certainly in Alberta, because the Quest and the Alberta Carbon Trunk Line Project are directly linked to oil sands operations, we really see that as a benefit for us to be able to reduce the emissions intensity from oil sands operations,” Bioletti said. “That in turn will allow us to tell the world that the oil sands are a relatively clean fuel, to put away a lot of the misconceptions that are out when it comes to the oil sands.”

Heckel emphasized that oil sands development could offer a lasting niche market for CCS in western Canada. “There’s no doubt in my mind that as a province that has a significant oil sands, Alberta would provide extra incentives for projects that could provide greenhouse gas reductions,” he said. The oil sands could also function as a “backstop for the economics of CCS projects, which are always challenging,” Heckel added.

‘Moving Ahead as Planned’

In the meantime, the three projects that represent Canada’s wave of first-generation demonstration projects are moving along with construction, according to project officials. A trio of oil and gas companies led by Royal Dutch Shell made international headlines last fall when they made a final investment decision on the $1.35 billion Quest project. That project, which is retrofitting capture technology on to Shell’s existing Scotford oil sands upgrader near Edmonton, is slated for operations in late 2015 and began construction work late last year. In recent months, Shell has drilled all of the project’s injection and deep monitoring wells and has proceeded with early foundation work, according to Heckel. Offsite modularization work also kicked off earlier this spring, he added. Work also continues on Enhance Energy’s Alberta Carbon Trunk Line, a pipeline infrastructure project that aims to connect several CO2 sources in Alberta’s ‘Industrial Heartland’ to depleted oil fields about 150 miles south. One of the oil sands-capture projects that will be linked to the pipeline, North West Redwater Partnership’s Sturgeon Refinery began construction late last year.

Work is furthest along at Boundary Dam Saskatchewan. The $1.24 billion retrofit project is expected to become the world’s first power plant with CO2 capture when it comes online next spring. In the meantime, SaskPower is continuing peak construction as it finishes up retrofit work on its 110 MW Unit 3, Monea said this week. The power island has been shut down and dismantled, and the turbine will soon be positioned into place, he added. Hot testing is expected later this fall, according to Monea.

Overall, Bioletti said the Alberta government is pleased with the CCS industry’s development over the last year. “From the Alberta government’s perspective, we have absolute confidence that CCS is progressing in the way that we would like it to progress,” he said. “Certainly with the cancellation of the funding agreements for Pioneer and Swan Hills, we feel that it’s more of a macroeconomic issue that really a lot of people couldn’t have predicted. We understand that it’s not great that these projects aren’t going ahead, but it’s not really something that we feel is a failure or anything that we could have really prevented.”