By DEVIN LACEY, MBA, PMP, Senior Business Analyst, GLJ
The scale of challenge is unprecedented in that the world economy set to double in the next 20 years, while we need to cut our emissions by more than half in that time and become net-zero by mid-century.
Implementing this enormous shift will require substantial new investments in low-carbon technologies and efficiencies. Global CO2 concentration in our atmosphere hit an all time high in 2018 despite having record renewable generation capacity installed globally, suggesting that renewables are a part of the solution, but not the complete solution. Climate change repeatedly demonstrates that at a macro system level from a societal point of view, achieving deep decarbonization would be extremely difficult and costly without alternative, mature decarbonization technologies such as Carbon Capture Utilization and Storage (CCUS).
The global CCUS project pipeline has grown from 75 million tonnes a year (Mtpa) at year-end 2020 to 111 Mtpa as of September 2021, up 48%, according to the Global CCS Institute. Despite this recent growth, limiting global warming to 2° C will require installed global CCUS capacity to increase to over 5,600 Mtpa by 2050 (IEA), suggesting ample opportunity for further CCUS development in Canada.
The Alberta Carbon Trunk Line (ACTL), an integrated large-scale CCUS system, commenced commercial operation in 2020 and has the capacity to safely transport 14.6 Mt of CO2 per year from industrial facilities to geological storage. Current costs for Canada’s CCUS projects are significantly lower than those achieved from the initial CCUS facilities like Boundary Dam (2014). Combined with lower costs, greater capture efficiencies and the price of carbon increasing yearly to C$170/tCO2e in 2030, potential stakeholders are optimistic that more of these projects will be built.
Recently, in response to Alberta’s first request for full project proposals (RFPP) for developing and operating carbon sequestration hubs in the province, the Alberta government selected six project proposals with sequestration hubs outlined for the following areas:
• Meadowbrook Hub Project – North of Edmonton (Bison Low Carbon Ventures Inc., Enerflex Ltd., PrairieSky Royalty Ltd. and IRC Enterprises Inc.)
• The Open Access Wabamun Carbon Hub – West of Edmonton (Enbridge Inc., First Nation Capital Investment Partnership, Capital Power, Lehigh Cement and Lac Ste. Anne Metis Community)
• The Origins Project – South of Edmonton (Enhance Energy Inc.)
• Alberta Carbon Grid™ – Northeast of Edmonton (Pembina Pipeline Corporation and TC Energy)
• Atlas Carbon Sequestration Hub (or Atlas Hub) – East of Edmonton (Shell Canada Limited, ATCO Energy Solutions Ltd., and Suncor Energy Inc.)
• Wolf Midstream Hub – East of Edmonton (Wolf Midstream, First Nation Capital Investment Partnership, Whitecap Resources Inc. and Heart Lake First Nation)
CCUS involves multiple aspects that need to be synchronized for the successful removal or capture of CO2. One of the important aspects when evaluating these projects is the economic assessment of a carbon storage hub model to understand its feasibility and lucrativeness. Since the hub developments are meant to provide an open access utility for regional emitters to tie into once they have integrated carbon capture into their facilities, the key revenue driver is the fee that a hub operator may charge for off-taking and permanently disposing the CO2 on their behalf. As one can intuitively assume, the fee that a hub operator may charge must be aligned with the carbon credit that the emitter can gain for abating their existing CO2 emissions. As a high-level example, if the cost to install and operate their CO2 capture technology equates to C$40/tCO2 and the current carbon credit value is $50/tCO2, then the fee for the captured CO2 to then be transported and injected subsurface must be less that $10/tCO2 for the system to operate economically.
The recently announced Investment Tax Credit for Carbon Capture, Utilization and Storage (ITC) in the 2022 Federal Budget provides an important mechanism for supporting an economic balance in CCUS systems. The tax incentive program allows registered operators to receive significant refundable tax credits toward the capital investment of their CCUS investments, such as:
• 37.5% of capital costs covered for investment in equipment for transportation, storage and use;
• 50% for investment in equipment to capture CO2 in all CCUS projects; and
• 60% in direct air capture projects
GLJ’s early evaluations that incorporate the ITC funding into the economic assessment of carbon storage hubs (37.5% ITC is the classification for hub models) results in an improved internal rate of return (IRR) on the projects of nearly 50% when compared to the existing funding assumptions applied. The existing funding assumptions were in the range of C$5MM as per potential high-end awards in the Emissions Reduction Alberta (ERA) Carbon Capture Kickstarter Funding.
The ITC program is available to CCUS projects to the extent that they permanently store captured CO2 through eligible uses, where eligible uses include dedicated geological storage or storage of CO2 in concrete. An important factor in the program is that CO2 for use in Enhanced Oil Recovery (EOR) is not included as a valid use case. It was also legislated that to encourage industry to move quickly to lower emissions, these rates will be reduced by 50% for the period of 2031 through 2040.
Scovan and GLJ are both active members of CHOA. Both companies work jointly on supporting evolving technology for the heavy oil sector.
Originally published in Scovan’s IGNITE Vol. 4
