Inflation in Canada: Industry praises U.S. act

CALGARY –

Canadian oil and gas companies are singing from the same songbook ahead of the 2023 federal budget, and it’s called the Deflation Act.

The US legislation, which was signed into law by US President Joe Biden last August, has been debated again and again in recent weeks by industry leaders who support emission reduction projects.

Whether people like it or not, you’re really competing against an IRA,” Enbridge Inc. CEO Greg Ebel said last week during his company’s annual investor day. He mentioned that his company operates on both sides of the border and can choose whether: to invest his capital in the USA or Canada.

“And they (the Americans) have really put a lot of carrots on the table in terms of incentivizing people to invest there.”

The Inflation Reduction Act, or IRA, is the most ambitious piece of United States climate legislation ever. It offers about $375 billion in new and extended tax credits for everything from renewable electricity generation to hydrogen production to sustainable use of jet fuel to help the U.S. clean energy industry get off the ground.

The IRA has been widely praised for starting the global clean energy investment race. But here in Canada, some companies say the U.S. incentives are so attractive they can’t compete.

Last week, Calgary-based fuel producer Parkland Corp. announced it would not proceed with its plan to build a renewable diesel complex in Burnaby, B.C. advantage to producers south of the border.

The Pathways Alliance, an oil sands industry group, also argues that its proposed $16.5 billion carbon capture and storage transportation line project is currently at a competitive disadvantage to U.S. carbon capture projects.

While Prime Minister Justin Trudeau’s government has already announced an investment tax credit for carbon capture projects, the IRA offers a much stronger incentive for companies in the form of a guaranteed price of $85 per ton of injected carbon.

That difference would mean much faster deployment of carbon capture technology in the U.S., said Mike Belenky, CEO of Calgary-based Advantage Energy Ltd., which, through its subsidiary Entropy Inc., already has a commercial-scale carbon capture project. and works at its Glacier gas plant in northwestern Alberta.

“The investment tax credit subsidizes the upfront capital costs,” Belenky said, adding that because of the IRA, Entropy Inc. recently made the decision to focus its future carbon sequestration growth plans in the United States.

“The production tax credit, as the IRA is proposing, actually promotes negative carbon production,” Belenky said. “That means you have to be good at actually capturing carbon and achieving your goal.”

Dan Vojnilovich, a BC-based climate and energy policy consultant, says the companies have a point when they say the U.S. is offering more “carrots” for emissions-reduction projects right now.

But he added that Canada has a national carbon price, which the U.S. does not, as well as federal clean fuel regulations and an expected binding cap on emissions from the oil and gas sector.

“We have a lot more here on the pollution pricing and regulatory side,” Vojnilovich said, adding that he believes a carrot-and-stick combination is the best approach to meeting Canada’s climate goals.

“I understand why companies would prefer to have only carrots, but governments are not responsible for the interests of shareholders, they are responsible for the public interest.”

The federal government, for its part, has made it clear it intends to respond to the IRA and ensure Canada is not left behind. Finance Minister Chrystia Freeland’s autumn economic statement promised tax credits for sectors including renewable energy, green hydrogen and industrial zero-emission vehicles.

Freeland noted that more stimulus is on the way, saying that right now there is a “historic window” to invest in the industrial economy of the 21st century.

“To really take advantage of that opportunity at a time when the United States is trying very, very hard to seize that opportunity for itself, I recognize that the government will have to make some additional investments,” Freeland told reporters earlier this month.

The federal government has also signaled its intention to create a “carbon contracts for difference” mechanism that would give investors more confidence by essentially guaranteeing Canada’s federal carbon price.

That would ease industry and investor fears that a future federal government could freeze or cancel the carbon price, making investments in things like carbon capture and storage less risky, said Ian Gorsky, director of the Pembina Oil and Gas Institute, a clean energy analyst. tank.

He added that while there is no shortage of sectors and projects begging for funding, Canada’s challenge will be to decide which areas it wants to lead as the global energy transition unfolds.

“It’s important to realize that Canada is smaller than the United States, we’re a tenth of the economy,” Gorski said.

“We can’t compete in everything, so we have to be more strategic in the areas we choose to compete in.”

This report by The Canadian Press was first published on March 13, 2023.