Should taxpayers be forced to foot the bill for the oil and gas sector’s carbon capture plans?

If you follow Canadian climate politics, you might be feeling a sense of déjà vu. This year is kicking off much the way 2016 did, with a new federal minister of environment and climate change getting to work developing and brokering a climate change plan to deliver on ambitious new targets. Less than a month into the new year and Minister Steven Guilbeault and his colleagues are wrestling with two big questions:

1. How will the government deliver on its promise to require pollution reductions from the oil and gas sector, and what scale of reductions will this deliver by 2030?
2. What is the role of carbon capture, use and storage (CCUS), and how should the government encourage it?

In the last election, the Liberals campaigned on capping and reducing oil and gas emissions, a pledge that Prime Minister Justin Trudeau reiterated on the global stage following re-election. The federal government’s emission reduction plan, required under the Climate Change Accountability Act, is due by March 29 and will provide at least a ballpark estimate or range of expected reductions from the oil and gas sector out to 2030. Then the really hard work starts: moving swiftly to develop and implement robust — and constitutional — policies to get the job done.

The conventional approach is to offer a mix of carrots and sticks. But when it comes to delivering pollution reductions from the oil and gas sector, an aggressive push from the oil and gas lobby has the government focused on carrots. The industry’s request? A federal tax credit that would see Canadian taxpayers shoulder 75 per cent of the sector’s carbon capture costs.

The federal government signaled in its 2021 budget that it was considering such a tax credit, and Natural Resources Minister Jonathan Wilkinson recently suggested the measure will likely be included in the 2022 budget, expected this April.

This led more than 400 experts to sign a letter urging the federal government “to not introduce the proposed investment tax credit for CCUS,” offering a range of arguments and evidence about the risks associated with CCUS and problems with a similar American tax credit.

In response, Clean Prosperity’s Michael Bernstein and clean energy policy consultant Ed Whittingham wrote a rebuttal in Canada’s National Observercountering that numerous expert assessments include an essential role for CCUS and concluding, “Put simply: Canada and the world need carbon capture in the toolkit to address climate change and meet international climate obligations.”

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Both the academics and Bernstein and Whittingham raise valid concerns. We need to transition away from burning fossil fuels, which means winding down their production. But we are going to need CCUS to reduce emissions from existing oil and gas operations as they wind down, to address emissions from cement, chemicals and steel production, and to store CO2 removed from the atmosphere. As Bernstein and Whittingham write, “We are going to need all the tools in our toolkit, including carbon capture.”

But here we are debating the merits of whether or how to deliver the oil patch to their carrot, with little discussion about the stick that needs to go with it.

If the federal Liberals learned anything from the “grand bargain” that required them to buy a pipeline to secure a national climate plan, it should be that the oil patch can be a fickle dance partner.

Rewind to the spring of 2019. The federal government was steadily holding up its part of the bargain: delivering cabinet approval to the TMX pipeline it had purchased and advancing the project, even in the face of significant opposition. Meanwhile, oil patch leaders and lobbyists were meeting privately with the Conservative Party of Canada “to map out strategy for ousting Justin Trudeau’s Liberals in a sign of growing collaboration between the Alberta-based sector and its political backers.”

Given this experience, why would the federal Liberals consider offering the oil patch its wished-for CCUS tax credit “carrot” before it has delivered its promised pollution reduction “stick?”

The federal government has options. It could deliver the CCUS tax credit as planned in the spring federal budget, but withhold eligibility for the oil and gas sector until a policy is complete to cap and cut its pollution, and rigorous criteria are in place to minimize the risk of stranded assets. Or it could hit pause on the tax credit altogether, and consider other policy approaches to achieve the same outcome.

Capping and cutting oil and gas pollution, the role of CCUS, and the offer of government support are fundamentally intertwined. How aggressive the pollution cuts can be is a function of how generous the support is. Learning from the past, it’s clear the stick and carrot ought to be a package deal.