Statement by Julia Levin, Associate Director, National Climate
Ottawa | Traditional, unceded territory of the Algonquin Anishinaabeg People – New analysis released today from the Parliamentary Budget Office (PBO) demonstrates that the Government of Canada is still intent on providing massive subsidies to fossil fuel companies.
The PBO’s new analysis provides cost estimates for the carbon capture, utilization and storage (CCUS) investment tax credit (ITC) as well as the clean hydrogen ITC. The PBO estimates that these two tax credits will collectively provide over $11 billion to carbon capture and hydrogen projects by 2028.
Carbon capture and storage is a dangerous distraction being promoted by the oil and gas industry to prolong business as usual. Though the PBO was not able to release information on the specific projects, the majority of the projects that have been proposed to date are in the energy sector. Similarly, many of the hydrogen projects included in the analysis were for the production of hydrogen from fossil fuels.
These tax credits violate the Government of Canada’s own rules around ending fossil fuel subsidies, released last year. The new rules were supposed to ensure that government spending aligns with a 1.5 degree pathway and don’t hinder the transition to renewable energy. These tax credits fail on both fronts.
The new analysis shows that Minister Freeland’s CCUS tax credit is likely to cost $5.746 billion by 2028. That’s nearly $1 billion more than Finance Canada had estimated in Budget 2023. However, these tax credits are being designed without a ceiling. That means the final cost for Canadian taxpayers could end up being much, much greater. For example, the Pathways Alliance could claim at least $6 billion for their proposed $16.5 billion carbon capture hub – that’s just one project.
At COP28, countries promised to transition away from fossil fuels and triple renewable energy in the next six years. Canada needs massive investments to deliver on those really critical climate promises. Instead, Minister Freeland is doubling down on the dangerous distractions being promoted by oil and gas companies. Though a clean electricity tax credit is also in the works, its development has been much slower and the draft rules have yet to be released.
Minister Freeland and the Government of Canada must stop prioritizing massively expensive, risky, unnecessary and ineffective technofixes over reliable and proven climate solutions. Taxpayer money should go to climate solutions – like wind and solar power and energy storage. Not to the companies and activities which are fueling the climate crisis.
The PBO’s analysis costed the two tax credits until 2028. According to Budget 2023, the CCUS ITC could cost $9.1 billion by 2030 and possibly $16 billion by its expected phase-out date of 2041. The hydrogen tax credit could cost $17.7 billion by 2035. Whereas the CCUS ITC rules have been finalized, the draft hydrogen ITC rules are currently undergoing consultation. British Columbia, Saskatchewan and Alberta are the only jurisdictions currently eligible for the CCUS ITC.
The development of the CCUS ITC was opposed by over 400 of Canada’s leading experts.
The CCUS ITC is the largest, but not the only, federal program meant to support carbon capture. Last fall Natural Resources Canada released a list of 22 measures that the federal government has implemented to support the deployment of CCUS.
Oil and gas companies are not spending their own money on carbon capture, despite record breaking profits.
The International Energy Agency has called the oil and gas industry’s carbon capture plans a fantasy and warned governments against allowing companies to use these plans to justify business as usual. “Continuing with business-as-usual for oil & gas while hoping a vast deployment of carbon capture will cut the emissions is fantasy,” IEA executive director Fatih Birol said late November.
A new report out of Oxford University finds that heavy dependence on carbon capture to reach net zero would be “highly economically damaging”, costing at least $30 trillion more than a route based primarily on renewable energy, energy efficiency and electrification.
The issue of companies claiming credits for unverified tons of captured carbon is rampant in the United States, where a similar tax credit is in place. An investigation by the US Internal Revenue Service found that 87 per cent of the total credits claimed, amounting to nearly US $1 billion, were not in compliance with the Environmental Protection Agency.
ABOUT ENVIRONMENTAL DEFENCE (environmentaldefence.ca): Environmental Defence is a leading Canadian environmental advocacy organization that works with government, industry and individuals to defend clean water, a safe climate and healthy communities.
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