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Federal Budget Promotes Clean Tech, Carbon Capture and Storage

Date

April 30, 2009

AUTHOR(s)

Seán C. O'Neill


Canada’s 2009 federal budget includes support for the clean technology industry and introduces measures intended to benefit developers of carbon capture and storage technology, an emerging area. The support includes not only early-stage funding for research and development, but also promises a modification of tax rules to enhance the financial attractiveness of projects once they become operational.

Carbon Capture and Storage: Another Perspective on Clean Technology

The federal government’s support for Carbon Capture and Storage (CCS) technology reflects the reality that "Clean Technology" can be approached from various perspectives. From a simplified perspective, there are two ways that humans can consume energy without adding to the amount of greenhouse gases (GHGs) in the atmosphere. They use energy resources that do not emit GHGs when they are consumed, hence the appeal of renewable energy resources such as hydro, wind and solar. Another way is to ensure that when non-renewable energy sources such as fossil fuels are used, the carbon dioxide (CO2) (one of the most common GHGs) that results from their combustion is not released into the atmosphere. One method of preventing the release of CO2 is to capture and store it underground. This is where CCS shows its potential to contribute to the Canadian government’s stated objective of reducing greenhouse gas emissions by 20 per cent from 2006 levels by 2020.

CCS typically involves transporting captured CO2 by pipeline to underground storage, possibly in the very sites from which fossil fuels were originally extracted. CO2GeoNet, a network of European scientists specialized in the study of CCS, views CCS as the creation of "a closed loop in the energy production system, whereby the carbon extracted from the ground originally in the form of gas, oil and coal is returned back again in the form of CO2."

According to a report released by the Nobel Prize-winning Intergovernmental Panel on Climate Change (IPCC), CCS could potentially reduce CO2 emissions by over 80 percent in a typical plant. However, CCS technology remains a new and developing area; the first carbon capture prototype was completed in 2007, and the first demonstration plant, located in the northeast German city of Spremberg, began operating in September 2008. CCS technology has yet to enter commercial use.

Federal R & D Support and Consultation on Tax Incentives

Canada’s 2009 federal budget provides $1 billion over five years to support the clean technology industry, with $150 million earmarked for research and $850 million for development and demonstration of proposed technologies. The government specifically mentioned CCS as an area of strategic importance in its budget documents, and it is clearly seeking to build on its years of involvement in this sector. Over the past decade Canada has hosted two pivotal IPCC workshops on CCS, and its previous budget included support both for full-scale CCS demonstration technology in Saskatchewan and for research on carbon storage in Nova Scotia.

The government also signalled its intention to reform tax rules with respect to the allowable depreciation on specific equipment used in CCS technology. Specifically, it plans to introduce accelerated capital cost allowance (CCA) on selected CCS equipment, which would both defer the payment of taxes due and make the technology more attractive to potential investors. The government will consult with industry stakeholders before identifying specific equipment that would be eligible for accelerated CCA.

The federal budget also provides $10 million to the Canadian Environmental Sustainability Indicators initiative, a program designed to track the country’s environmental progress by reporting on key indicators including air quality and GHG emissions.

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