Canada proposes tax credit to encourage carbon capture investment


Canadian Prime Minister Justin Trudeau announced on Thursday the introduction of one of the country’s largest single industrial tax incentives to fund carbon capture projects, as part of his government’s effort to meet the climate objectives by offsetting emissions from energy sector.

In the federal budget released on Thursday, Ottawa proposed a refundable investment tax credit to encourage the country’s oil and gas corporations to speed up emission reduction.

According to the new scheme, from 2022 through 2030, the investment tax credit rates would be set at 60% for direct air capture equipment, 50% for all other carbon capture equipment, and 37.5% for transportation, storage, and usage. These rates will be halved from 2031 through 2040 in order to encourage corporations to take actions before 2030.

In recent months, the oil and gas sector has been urging the government to implement a credit of up to 75% to cover the costs associated with carbon capture, while provincial governments and business groups suggested that 50% would be sufficient to encourage investment.

During the first five years, the tax credit is estimated to cost 2.6 billion Canadian dollar (US$2.1 billion), with an annual cost of roughly CA$1.5 billion until 2030.

Carbon capture projects are designed to capture and store carbon dioxide emissions permanently before they are released into the atmosphere. Canadian government is relying in this technology to allow oil and gas companies to continue operating while still fulfilling the government’s 2030 emissions-reduction target.

However, tax credits for carbon capture technology have provoked some debates. While advocates view the scheme as a way to assure energy security and to build more renewable and clean energy sources, environmentalists see it as a fossil fuel subsidy that will prolong the transition to clean energy.

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