canada’s fossil energy future · 2011. 9. 1. · foreword from the task force chair canada’s...

Final Draft from:The ecoENERGY Carbon Capture and Storage Task Force

January 9, 2008

The Way Forward onCarbon Capture and Storage

Canada’s FossilEnergy Future

Report to: The Minister of Alberta Energy The Minister of Natural Resources Canada

Table of Contents

Canada’s Fossil Energy Future

Table of Contents

Foreword from the Task Force Chair i

The ecoENERGY Carbon Capture and Storage Task Force ii

Abbreviations and Units iii

Canada’s Fossil Energy Future – Executive Summary iv

Addressing the Carbon Challenge 1

An Innovative Technology 4

TheComponents 4

IntegrationatScale 6

The Case for CCS 8

DomesticOpportunities 8 InternationalCompetitiveness 13 TheTaskatHand 15 TheNeedforPublicInvestment 18 TheTimetoActisNow 19

Task Force Recommendations 22

ImmediateAction#1 24 ImmediateAction#2 27 ImmediateAction#3 30 NextStep#1 31 NextStep#2 32 NextStep#3 35

Final Observations 37

Appendix I 39

Foreword from the Task Force Chair

Canada’s Fossil Energy Future Page i

Foreword from the Task Force Chair

TheTaskForceonCarbonCaptureandStoragewasestablishedbytheAlbertaandFederalGovernmentsinMarch,2007.Itsmandateistoprovideadviceonhowgovernmentandindustrycanworktogetherto facilitate and support the development of carbon capture and storage (CCS) opportunities inCanada.

CCS presents an opportunity for Canada to develop world-leading technology that can reducegreenhousegas (GHG)emissions rapidlyandonamassive scale. It isnot theonly solutionpossibleorneeded,butouranalysis indicatesthat itmustbepartofCanada’soverallplantoreduceGHGemissionsandensureourcontinuedeconomicprosperity.

For Canada’s energy economy to prosper in a carbon-constrained future, we must find a way to “break” the status-quo equation: economic growth = energy use = GHG emissions. Because of itspotentialtoreduceGHGemissionsonanindustrialscale,CCSisanimportantpartoftheanswer.

The long-term benefits of CCS in Canada are huge – Canada-wide potential for carbon dioxide (CO2)captureandstoragemaybeashighas600megatonnes/year,or roughly40percentofCanada’sprojected GHG emissions in 2050 – but we must get started. Other benefits of CCS include the development for export of advanced technology, the international respect and goodwill that will flow fromtakingtheleadonGHGemissionreductions,andanewsourceoflong-termeconomicgrowthand development. The potential for public benefits from CCS is large.

Successwillrequireasenseofurgencyandacommitmentbygovernmentandindustrytoworktogetherastheyhavedonesosuccessfullytoopenupnewandimportantdomestictechnologiesandmarketsatothercriticaljuncturesinourhistory.Inthisregard,CCSisonparwithothernationalinfrastructurebuildingprojectslikeSyncrude,Hibernia,andthenationalrailways.

IwanttothanktheTaskForcemembersaswellasourobserversandcontributorsfromboththeAlbertaand Federal Governments. They were tireless in their efforts and exemplified the kind of passion and commitmenttoexcellencethatsuccessdemands.Ialsowanttothankthemembersofournumerousworkingcommitteesfortheirenthusiasmandgenerosityoftimeandtalent.

OnbehalfoftheTaskForce,IwanttoextendaspecialthankyoutothemembersofoursmallbuthighlycapableanddedicatedSecretariat.Theydidtheworkofateamtwicetheirsize,meteverydeadlineandprovidedsuperbinsight,aswellastechnicalknowledge.

Finally,alargeexpressionofappreciationtoMinistersLunnandKnightfortheirexcellentguidanceandsupport, and to Deputy Ministers Doyle and McFadyen, as ex-officio members of our Task Force, for their unfailingavailabilityandvaluableinput.

TheTaskForcelooksforwardtoseeingitsrecommendationsimplemented,toCanadatakingaworld-leadingrole inthedevelopmentofCCStechnology,andtoournationbeingaworld leader inthereductionofGHGemissions.

Steve Snyder (Task Force Chair) President and Chief Executive Officer, TransAlta Corporation

The Task Force

Page ii Canada’s Fossil Energy Future

The ecoENERGY Carbon Capture and Storage Task Force

Task Force Members

Steve Snyder (Task Force Chair)

President and Chief Executive Officer, TransAlta Corporation

Ian Anderson

President,KinderMorganCanadaInc.

David Keith

Director,EnergyandEnvironmentalSystemsGroup,ISEEE,

UniversityofCalgary

Kathleen Sendall

SeniorVice-President,NorthAmericanNaturalGas,Petro-Canada

Patricia Youzwa

President and Chief Executive Officer, SaskPower

Task Force Secretariat

Joule Bergerson(TeamLeaderandCo-directorofResearch)

Shelley Lynes(OperationsManager)

John Van Ham(LeadWriterandCo-directorofResearch)

Other Participants

The Task Force wishes to acknowledge and thank everyone involved in the work over the past nine months.Many corporations, associations, individuals, and public interest groups participated and contributed throughtheirpresentations,feedback,andsubmissions.AspecialeffortwasmadebytheInstituteforSustainableEnergy,EnvironmentandEconomy(attheUniversityofCalgary)inpullingtogetherandhostingtheTaskForceSecretariat.

AnacknowledgementisdirectedtowardtheindividualswhodedicatedtimeandeffortthroughthethreeExpertWorking Groups (see Appendix I). Their research, analysis, and final suggestions helped the Task Force work through itsdiscussions,makedecisions,andsubstantiatethefactsinthisreport.

Aspecial thankyou isdirectedtoward the twogovernmentdepartmentswhocommissionedthework.NaturalResourcesCanadaandAlbertaEnergyinitiatedandresourcedtheTaskForceandtheyremainedengagedandextremelyactivethroughouttheprocess.

Note: This report is not an official government document. This is a Task Force report that may not necessarily reflect the views of theGovernmentofCanadaortheGovernmentofAlberta.

Abbreviations and Units

Canada’s Fossil Energy Future Page iii

Abbreviations and Units

CAPP CanadianAssociationofPetroleumProducers

CCS carboncaptureandstorage

CO2 carbondioxide

EOR enhancedoilrecovery

GHG greenhousegas

H2 hydrogen

H2S hydrogensulphide

ICO2N IntegratedCO2Network

IEA InternationalEnergyAgency

IPCC IntergovernmentalPanelonClimateChange

mboe millionbarrelsofoilequivalent

Mt megatonne

MW megawatt

NEB NationalEnergyBoard

NRCan NaturalResourcesCanada

NRTEE NationalRoundTableontheEnvironmentandtheEconomy

PTAC PetroleumTechnologyAllianceCanada

R&D researchanddevelopment

RFP requestforproposal

t tonne

tCO2 tonneofcarbondioxide

Tcf trillioncubicfeet

U.K. UnitedKingdom

U.S. UnitedStates

WCSB WesternCanadianSedimentaryBasin

Canada’s Fossil Energy Future Page iv

The challenge is to strike a balance between reducing GHG emissions and maintaining economic growth

Canada’s Fossil Energy Future -Executive Summary

The Challenge

Canada is experiencing a significant economic surge driven in large part by thenatural resources sectors, inparticularby the fossil fuel industries inWesternCanada.Combinedunderthebanneroffossilenergy,Canada’soil,naturalgas,andcoalresourcesmakethecountryoneoftheworld’smostattractiveenergycentresforcontinuinginvestmentanddevelopment.

This economic opportunity comes with challenges, such as requirements tomitigategreenhousegas(GHG)emissionsandmanagingtheimpactsofclimatechange.CanadianGHGemissionsareupmorethan25percentsince1990.Thereisgrowing public concern supported by consensus among the scientific community (theIntergovernmentalPanelonClimateChange)thatglobalemissionsgrowthwill soon drive atmospheric carbon dioxide (CO2) concentrations to levels notseenin10millionyears,bringingagrowingriskofrapidclimatechange.

Canadiangovernmentsarerespondingtothisconcern.Thefederalgovernmenthas announced a national objective to reduce emissions by 20 percent fromcurrent levelsby2020,and60 to70percentby2050.Nineoutof10Canadianprovinceshaveindicatedtheintenttoregulate;Albertaalreadyhasregulationsforlargeindustry.Someofthetargetsbeingproposedpresentagreatchallengetoacountrythatderives77percentofitstotalprimaryenergyfromfossilfuels,andmuchofitswealthfromtheproductionandexportoftheseprizedresources.

Canadaisnotaloneinfacingthisissue.Globalenergysupplyis80percentfossil-based,andduetogrowingenergydemands in rapidlyemergingcountries likeChinaitisforecasttobe82percentby2030.Meanwhile,manycountriesandtheUnitedNationsarecallingfordeepglobalGHGreductions.

ThechallengefacingeverynationishowtomakedeepGHGemissionreductionswhile continuing economic progress – a complex task given the direct linkages betweeneconomicgrowth,fossilenergyuse,andGHGemissions.ThemagnitudeofthischallengewasrecentlynotedintheEnergy PathwaysworkoftheCanadianAcademyofEngineering.Theynotetheneedfor“transformationalchange”,andthatthelevelofeffortrequired“willnotbemadethroughtheeffortsofindividualcompanies,norgovernmentsactingalone;itwillrequireacoordinatednationaleffort.”

Executive Summary

Canada’s Fossil Energy Future Page v

A Solution

Carbondioxidecaptureandstorage(CCS)isessentialifCanadaandtheworldaretoaddressthecarbonchallenge.CCSisaninnovativeprocesswherebyCO2emissionsfrom large industrial facilities are separated from the plant’s process or exhauststream and compressed and injected deep underground into secure geologicalformations.

Alongwithlarge-scalerenewablesandnuclearenergy,CCSisoneofalimitedsetof large-scaleoptions toenableanenergy-rich, low-carbon future.CCS isuniquein that it can be built on the technical and institutional base of the existing fossilenergyinfrastructure.Itcanbeimplementedquickly(withinadecade)usingexistingtechnologyastheworlddevelopsnext-generation,longer-termenergysolutions.

CCShasaroletoplayinbroaderGHGregulatoryframeworks(bothfederallyandprovincially)becauseoftheopportunityitpresents.ButthisrequiresundertakinganurgentsetofactionstodaytosupportCCSduringitsearlydevelopmentalstages.

The Reward

Themagnitudeoftherewardisclear.Canada-widepotentialforCO2captureandstorage may be as high as 600 megatonnes (Mt)/year, or roughly 40 percent ofCanada’sprojectedGHGemissionsin2050.

To get Canada moving towards realizing this potential, the Task Forcerecommendations challenge the country to achieve the following milestones by2015:

• Five Mt of annual GHG emission reductions from new large industrial CCSinstallations

• A first wave of industrial facilities capturing and storing CO2 (three to five operating projects)• GloballeadershipinCCStechnicalcapabilitiesandexpertise• First-mover advantage in CO2 crediting protocols, disposal rights and

dispositionlegislation,andlong-termliabilitysolutions• World-class institutions working on the commercial, legal, and regulatory

aspectsofCCS• Aframeworkforplanningwhat’snextforCCSinCanada

A significant prospect awaits Canada. Success depends on creating the conditions that support the first and subsequent waves of CCS investment while gaining the public’ssupportforCCSasanacceptablewaytomeetthecarbonchallenge.

CCS is an opportunity for the country and its industrial sectors to become worldleadersindemonstratingthatemissionreductions,fossilenergyuse,andeconomicgrowth can be achieved together. Achieving the five Mt/year by 2015 goal would virtuallyguaranteeCanadaaleadingglobalpositioninthisemergingcapability.

CCS is a viable wayto achieve significant domestic GHG reductions

Executive Summary

Page vi Canada’s Fossil Energy Future

Why CCS

CCS is a natural fit for Canada for many reasons.

CCS technology can enable Canada to build on its existing energy infrastructureanditsfossilenergyendowmentwhilemanagingtheassociatedGHGemissions.CCSis the only reduction option with the flexibility to either be retrofitted into the existing industrial fleet or be built into new and future facilities.

TheCCScomponenttechnologies(capture,transport,andstorage)allexisttodayat industrial scale. What is missing is the full integration and application of thesecomponents incommercial facilitiesata large-scale.Canadacanbeamongtheworld’s first to build a commercial power plant, bitumen upgrader, or some other fossilenergyfacilitywiththecapacityforcapturingandstoringtheassociatedCO2emissions.

Canada’s biggest advantage lies just underground. Stable sedimentary rockformations liketheWesternCanadianSedimentaryBasin(WCSB)are ideal forCO2storage. The reservoirs that securely held Canada’s vast oil and gas reserves forhundredsofmillionsofyearscanbeusedtostoreCO2,andthedeepsalineaquifersunderlyingtheserockunitsholdseveralmagnitudesmorestoragepotential.Theco-locationoflargeindustrialGHGsourceswiththisstorageopportunitymakestheWCSBaworld-classlocationforCCS.OtherstoragepotentialalsoexistsinAtlanticCanada,southernOntarioandjustsouthoftheCanadianborder.

Anotheropportunity in theWCSB is thepotential forenhancedoil recovery (EOR),wherebyCO2isinjectedintoexistingoilreservoirstoextractmoreresource.EORusingCO2injectionisalreadyagrowingcommercialactivityandanumberofopportunitiesexist for furtherEORdevelopment,whichhelpsunlocksomecommercialvalue forcapturingandinjectingCO2.

CCShasbroadapplicationwhereverfossilenergyisused.Itisoneoftheonlywaysto manage GHG emissions growth in coal-fired power generation and in the rapidly expandingoil sands sector.CCS isapotential solution for theseandother sectorsacross the nation, as the whole country uses oil, gas, or coal in refining, petrochemicals, manufacturing,cement,andsteel.

IfprovincessuchasAlbertaandSaskatchewanleadbybuildingandoperatingthefirst commercial-scale fossil energy facilities that incorporate CCS, they will pioneer Canada’seffortsasa leading internationalplayer inCCS. It is importanttoremaininternationally competitive as the technology evolves and as the market for CCSgrows outside of Canada – China, India and other emerging economies require a pathwaytocontinueeconomicdevelopmentwhilereducingemissions.

The technology exists. What’s needed

is the integration of the components in

commercial-scale industrial facilities

The co-location of CO2 sources and sinks

in the WCSB makes western Canada ideal

for CCS

CCS is a solution for Canada and the

world and public investment is

required today

Executive Summary

Canada’s Fossil Energy Future Page vii

Why Public Support ?

CollaborativeinvestmentsbetweengovernmentandindustryhavealonghistoryinCanada,withmanyexamplesofarrangementsthatopenedupnewandimportantdomesticmarkets:

• Syncrudeplayedapivotalroleinfurtheringoilsandsdevelopment• HiberniawascriticaltostartingAtlanticoilandgasactivities• Thenational railways,pipelines, transmissiongrids,andother infrastructurehave

eachconnectedCanadianmarketsatcriticaljuncturesinthecountry’shistory

Eachofthese“nation-building”initiativeswasandcontinuestobeintheinterestofCanadians.Eachbeganwithpublicandprivatesupportinordertospreadtherisksassociated with the first few projects and to enable action on activities that entailed anupfrontcapitalcostbutthatwereclearlyinthepublic’sbestinterest.

Canada possesses the technology, geology, and expertise to be a world leaderin thedevelopmentand implementationofCCS technology.Butaswithanynewenvironmental technology a financial gap exists between the cost of a plant with CCSandwhatwouldotherwisebebuilttoproducethesameindustrialoutputs.

IntheabsenceofprovenintegrationofCCStechnologiesatscale,regulatoryclarity,and market prices for carbon, among other uncertainties, it is a very difficult proposition forindividualprivatesectorplayerstocommitadditionalhundredsofmillionsofdollarsofinvestors’moneytoachieveapublicgood(suchasGHGemissionsreductions)forwhichitmaynotbecompensatedwithanadequate(orany)returnoninvestment.

This financial gap is what prevents the commercial application of CCS projects today.

Closing this gap and establishing CCS as a major component of Canada’s GHGreductionstrategyrequiresastrongcollaborativeeffortbyindustryandgovernment.

Why Now ?

Taking the lead in developing CCS solutions for Canadian industry requires urgentaction. Government must commit public financial support for CCS and industry must committobuildingandoperatingCCSprojectsimmediately.

Alllargeindustrialfacilitiesentaillongconstructionleadtimes,andtheyrequirehighlyspecific skill sets. Many of the skills required for CCS exist in the oil and gas and power generation sectors, but CCS-specific capabilities will only come through actual experience.Canadawill losetheopportunitytodeployCCSrapidly inresponsetofutureGHGemissionreductionpolicies if thecountrydelaystheconstructionofaninitialsetofcommercial-scaleCCSprojects.

In the meantime, capital investments in the fossil energy sectors continue to bemade. Electricity markets across the county, including coal-dependent Alberta,Saskatchewan,Ontario,NovaScotia,andNewBrunswick requirenewcapacity tosatisfyincreasingdemandandtoreplaceplantsthatarereachingretirement.Over

CCS-specific skills must accrue today by building on existing expertise in industry, government, and research institutes

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Page viii Canada’s Fossil Energy Future

$150 billion in capital spending has been announced for the oil sands alone. IfgovernmentfailstodemonstrateitsseriousnessregardingCCS,thesefacilitieswillbe built with conventional technology, thus making them costly to retrofit with CCS technologiesinthefuture.IfontheotherhandgovernmentprovidessupportandfundingforCCS,newfacilitiescanbedesignedtoaccommodateCCSandthusavoidthepotentialfortechnologylock-inandstrandedassets.

StartingonCCStodaywillinitiatealearning-by-doingphase,whichwillresultincostreductionsdueto improvedmaterialsandtechnologydesign,standardizationofapplications, system integrationandoptimization,andeconomiesof scale.Onlythrough implementing a first set of commercial-scale projects will the country start itswayalongthelearningcurvetosuccess.

CanadaisamongtheleadingcountriesworkingonCCS,butitisnottheonlyone.Australia, Norway, the United Kingdom (U.K.) and the United States (U.S.) are allforging ahead with public investment and commercial frameworks for the first few projectsandaredevelopingtheregulatoryenvironmentstonurtureCCS.OnlybyremainingpartofthisleadinggroupwillCanadastayrelevantandup-to-dateoninternationaldevelopments.

Success with CCS depends on a balanced approach to GHG policy. Domesticactiononclimatechangemustproceedatthesamepaceastheactionsbeingtaken by Canada’s major trading partners. If Canada acts too aggressivelyto reduce GHG emissions in the near term it risks putting its industrial base at acompetitive disadvantage. By the same token, however, if Canada moves tooslowlyitmayalsohurtitscompetitivenessastherestoftheworldturnstostandardsthatmakeGHG-intensiveenergy sources less viable. Thecompetitivenessof thedomesticfossilenergysectorhingesonusingCCStosatisfygrowingGHGreductionobligationswhilecontinuingtodevelopthesefossilenergyresources.

ThisiswhyCanadaneedstourgentlydeveloptheskillsandexpertiserequiredforCCS.InactionmayresultinadecliningroleforCanada’sfossilenergyindustryinthefuture.

Alternatively,byinvestingtodayCanadawillgainfromaleadingpositioninCCSdevelopment. More importantly, it enables the option to implement CCS morebroadly inthefuture if increasinglystringentcarbonconstraintsbecomearealitythrough international and domestic policy. An investment in CCS is critical tomanagingtheriskthatfuturecarbonconstraintsmayplaceonindustry.

The Recommendations

Industry will build and operate the CCS projects, which entails a significant amount of upfront investment risk, for which the main benefit is the potential for reducing thecostofcurrentandfutureGHGregulations.Anyindustrialfacilitywithalargecaptureopportunity(projectsthatcaptureontheorderofonemegatonneofCO2peryear)requiresatotalprojectinvestmentinthehundredsofmillionstobillionsofdollars.Beforeanydecisionsareevenmadeontheseprojects,industryinveststensofmillionsofdollarsonfront-endstudies.IndustryshouldcontinuetoplaythisroleinCCSdeploymentbutthiseffortshouldbecomplementedbypublicsupport.

Investing in CCS today allows

Canada to compete in a carbon-

constrained world

Learning-by-doing is essential and will

start by building and operating the

first commercial-scale projects

Executive Summary

Canada’s Fossil Energy Future Page ix

Industry and governments should work collaboratively to develop the financial and regulatoryconditionsneededtomoveCCSforward.Governmentsalreadyprovidesupportinmanyways,includingfundingforsomeofthefront-endstudies;theyalsoneed to share in the financing of actual CCS projects. Therefore the following are recommendations to Federal and Provincial governments for their roles in thesecollaborativeefforts.

Three immediate actions are recommended to get Canada on the pathway tosuccessfulCCSimplementation,andthreesubsequentactionsshouldbeundertakenas next steps. The first three require urgent attention as they are intended to address the two main barriers facing CCS today: the financial gap associated with CCS projectstoday,andcurrentgapsinregulatoryframeworks.Canadamustovercomethesehurdles,andinshortorder,tosucceedwithCCS.

Three Immediate Actions

Immediate Action #1 – Federal and Provincial governments should allocate $2 billion in new public funding to leverage the billions of dollars of industry investment in the first CCS projects; this funding should be distributed expeditiously through a competitive request for proposals process so that these phase-one projects are operational by 2015.

Funding the first set of three to five CCS projects will result in five Mt of annual CO2reductions from CCS, and will initiate the process for getting the country on thepathwaytowardsamade-in-Canadasolutionfor reducingemissionsandtowardsgloballeadershipinCCS.

Immediate Action #2 – Authorities responsible for oil and gas regulation should provide regulatory clarity to move the first CCS projects forward by: quickly confirming legislation and regulation related to pore-space ownership and disposition rights; clearly articulating the terms for the transfer of long-term liability from industry to government; and increasing the transparency of regulatory processes.

Confirming provincial jurisdiction over the ownership and disposition of pore space, and clearly articulating that industry will not face long-term liability obligationsassociatedwithCCSwillhelpcreatearegulatoryenvironmentthatisconduciveforCCS.Thetimerequiredtomaketheregulatorychangesshouldnotdelaydecisionsorapprovalsonthephase-oneCCSprojects.

Immediate Action #3 – Federal and Provincial governments should ensure as much opportunity for CCS projects under the GHG regulatory frameworks as for any other qualifying emission reduction option. This will require the creation of CCS-specific measurement and crediting protocols.

EnsuringaroleforCCSinmeetingemissionreductionsobligations,andensuringthatanyCO2credits fromCCSareno less tradableorvaluable thanothercredits,willhelpcreatesomepotentialcommercialvalueforCCSactivities.

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Page x Canada’s Fossil Energy Future

Three Next Steps

Next Step #1 - Industry and both government levels should form a collaborative framework including an advisory group over the next two years to coordinate discussion, to institutionalize learning, and to potentially carry out specific aspects of immediate actions 1, 2, and 3. This may evolve into a more formal organization as future needs are assessed.

A collaborative effort based on coordinating and institutionalizing the learninggained will foster CCS capabilities in Canadian industry, government, and non-governmentorganizations.

Next Step #2 – Federal and Provincial governments should provide stable financial incentives to help drive CCS activities beyond the phase-one projects. These may include the continuation of RFPs for phase-two projects, CO2 storage incentives, and/or the use of tax and royalty incentives.

Broad-based,phase-twosupport forCCS is requiredtodrivethecountrytowardsdeepfutureGHGreductions,potentiallyone-thirdtoone-halfofCanada’sprojectedGHGemissionsby2050.

Next Step #3 – Canadian-based research organizations and technology developers should focus research and demonstration efforts on CCS to achieve two goals: to drive down the cost of existing CCS technologies; and to enable the deployment of next generation CCS technology and processes – the Federal and Provincial governments should provide financial support for these activities.

Canadian-based researchoncost-effectiveandnextgeneration technologywillsupportbroaderapplicationofCCSinothersectorsandlocations,bothdomesticandinternational.

These recommendations are based on the premise that governments, whileremaining cognizant of the requirement for international competitiveness, willcontinueworkingtowardsclearerandmorecertainGHGemissionreductionspolicy,whichistheultimatedriverbehindCCS.OnlythroughbalancedGHGpolicywillthecountryachievethefundamentalobjectiveofallitsearly-stageinvestmentsinCCS,wind energy, and other emission reductions options – a lasting solution to the carbon challenge.

The Way Forward

ThetechnologicalcomponentsforCCSalreadyexistandcanbebuiltintoindustrialfacilities today. What is required is financial and regulatory support. A few fully integratedCCSprojectswilldemonstratetoindustryandthepublicthefeasibilityandsafetyofintegrationatscale.Theseprojectswillinitiatethelearning-by-doingcurvethat leads to cost reductions. The first projects will test the regulatory processes and

Executive Summary

Canada’s Fossil Energy Future Page xi

helppavethewayforfutureprojectsseekingapprovals.EachoftheseoutcomesisessentialifCCSistoplayitsroleinreducingemissions.

Canada has an opportunity to be the world’s first country to build a commercial-scalepowerplant,bitumenupgrader,or someother fossilenergy facilitywith thecapabilityofcapturingandstoringtheassociatedCO2.Industryandgovernmentsshould work collaboratively to develop the financial and regulatory conditions neededtomoveCCSforward.

For its part, industry will undertake a significant amount of investment risk by building and operating the first CCS projects. Industry should play this role, but its efforts should be complemented by a public investment in this critical technology andinfrastructure.Governmentsalreadyprovidesupportinmanyways,includingfundingfor some of the front-end studies; they also need to share in the financial investments toaccelerateCCSdevelopmentanddeployment.

TheTaskForceestimatesapublicinvestmentontheorder$2billionisneededtoclosethe funding gap on an initial set of projects, which will result in five Mt of annual CO2reductionsfromCCSby2015.ThisistheequivalentofeliminatingtheGHGemissionsfrom 1.4 million vehicles per year in Canada. Beyond the first projects (which should beoperationalby2015),theTaskForceenvisionstheneedforfurtherpublicsupporttohelpsustainCCSactivitiesthroughaninterimstageuntilthecarbonmarkethasmatured or other regulatory requirements are at the point where the financial gap facing CCS is sufficiently closed.

This is a significant initial public investment, but it is an important one because it will morequicklyenableCanadatomakeindustrial-scaleGHGreductions(usingCCS)whileremaininginternationallycompetitiveinacarbon-constrainedworld.

An investment in CCS will result in material GHG reductions from Canadian industry

Canada’s Fossil Energy Future Page �

1EnvironmentCanada.2007.Canada’s Greenhouse Gas Inventory.2IntergovernmentalPanelonClimateChange(IPCC).2007.Fourth Assessment Report – Working Group 1.3GovernmentofCanada.October,2007.Strong Leadership. A Better Canada.4Datafrom:StatisticsCanada.December2007.StatisticalTables:3800016,1280002,and1280009.

Historic GDP and Energy Intensity 4

Addressing the Carbon Challenge Canada is experiencing a significant economic surge driven in no small part by a waveof investment in thenatural resource sectors, inparticularby the fossil fuelindustries in Western Canada. This progress also presents a difficult challenge for the countryasitplanstoimplementgreenhousegas(GHG)emissionreductiontargetsandyetcarbondioxide(CO2)emissionscontinuetogrow.GHGemissionsareupmorethan25percenteconomy-widesince19901.

ThiscarbonchallengeisnotuniquetoCanada.Itisglobal.Thereisgrowingpublicconcern supported by consensus among the international scientific community that globalemissionsgrowthwill soondriveatmosphericCO2concentrations to levelsnotseenin10millionyears,resultinginanincreasingriskofrapidclimatechange2.

IndividualcountriesaredevelopingtheirownresponsestoreducingGHGemissions,and are working through the United Nations Framework Convention on ClimateChangetocoordinatedeepGHGemissionreductionsglobally.

Nineof10CanadianprovinceshaveindicatedtheintenttoregulateGHGs.Albertahas regulated targets for large industrial emitters (under its Specified Gas Emitters Regulation),anditiscurrentlydevelopingitspost-2012policy.

The federal government’s recent Speech from the Thronenotes national reduction objectives of 20 percent belowcurrent emissions levels by 2020 and 60 to 70 percentreductionsby20503.Aswell,thefederalgovernmentreleasedits Regulatory Framework for Industrial Air Emissions in 2007anditiscurrentlydevelopingtheGHGregulationsforindustryundertheCleanAirRegulatoryAgenda,withdraftregulationsexpectedinearly2008.

At the same time, industry has made great headway inreducingenergyintensity.ButwhenitcomestoabsoluteGHGemissions, thegrowth inCanadianGrossDomesticProduct(GDP) has outstripped the energy intensity improvementsmadeinrecentdecades(seeillustration).

Addressing the Carbon Challenge

Page 2 Canada’s Fossil Energy Future

TheissueisthatCanadianeconomicgrowthisinextricablylinkedtofossilfuelproductionanduse,andproductionanduseareinturnlinkedtoGHGemissions.Toaddressthecarbonchallenge,absoluteemissionreductionsarerequired.UntilthelinkbetweeneconomicgrowthandenergyuseorthelinkbetweenenergyuseandGHGemissionsisbroken(usingoptions like CCS) it will be difficult to meet Canada’s GHG reductionobjectives(seeillustration).

5Datafrom:Marland,G.Boden,T.A.andR.J.Andres.2007.Global, Regional, and National CO2 Emissions. In Trends: A Compendium of Data on Global Change.6CanadianAcademyofEngineering.Summer-Fall2007.Newsletter article on Energy Pathways Project.7NationalEnergyBoard(NEB).2007.Canada’s Energy Future: Reference case and scenarios to 2030.8“CapturableCO2”isthepotentialamountofCO2availableforcapture.

CCS provides the option to continue using fossil energy while also making material emission

reductions

The Carbon Challenge 5

MeetingCanada’saggressivetargetswillrequiresubstantialchangestotheexistingenergy systems that fuel transportation, electricity, space heating, and otheressentialenergyservices.Theissuemustbetackledonmanyfrontsusingallviableoptions including energy efficiency, renewable and nuclear energy, and low-emissionsfossilenergy.Themagnitudeofthischallengerequires“transformationalchange,”andthelevelofeffortrequired“willnotbemadethroughtheeffortsofindividualcompanies,norgovernmentsactingalone;itwillrequireacoordinatednationaleffort.6”

Canadahasagreatendowmentoffossilenergyresources.Itisalargepetroleumproducerandexporter.Theentirecountryreliesonfossilfuelsforbothpersonaluseandcommercialactivities. Nearly77percentofCanada’s totalprimaryenergydemand is supplied by fossil energy – oil, natural gas, and coal7.

Carbon dioxide capture and storage (CCS) is essential for Canada to continueto develop and use its valuable fossil resource and meet its emission reductionobligations. CCS is an innovative process whereby CO2 emissions from largeindustrial facilitiesare separated from theplant’sprocessorexhaust streamandinjecteddeepunderground into securegeological formations.CCScan reduceCO2emissionsfromexistingfacilitiesandinfrastructure;itistheonlyoptionthatcanbe retrofitted into the current industrial fleet. It can also be built into new and future facilities,tocurbtheimpactsoftherapidlygrowingoilsandsandelectricpowersectors.

The potential CCS holds for large industrial emissions is enormous. The Canada-widepotentialforcapturableCO2couldbeashighasone-thirdtoone-halfofthecountry’sprojectedGHGemissionsin20508.

TheecoENERGYCarbonCaptureandStorageTaskForce(theTaskForce)wasaskedtorecommendhowgovernmentsandindustrycanpartnertoinitiateandsustaindomesticCCSactivities.TheTaskForcedrewonexistingCanadianandinternational

Addressing the Carbon Challenge


9NaturalResourcesCanada(NRCan).2006.Canada’s CO2 Capture and Storage Technology Roadmap.

expertiseandpreviousworksuchasCanada’s CO2 Capture and Storage Technology Roadmap9todevelopitsproposals.Italsodrewfromtheresearchandanalysisofthreeworkinggroupsfocusedontechnology,economicandpolicy,andregulatoryandlegalissues.Theresultisasuiteofrecommendationsthatifimplementedwouldsignificantly reduce GHG emissions.

An underlying set of principles guided the Task Force through its workshops anddiscussions:

• ToenableCCSasatoolforachievingdeepcutsinactualGHGemissions• TounlockanycommercialopportunitiesthathelpfacilitateCCS• Toprovideregulatoryassuranceandaddressindustryandstakeholder

concerns• Topresentpotentialearlyopportunitiesandlonger-termoptionsforCCS• TosupportopportunitiesforCanadianleadershipintechnologyand

expertise• Tomaintaininternationalcompetitivenesswhilereducingemissions

CCSisanimportantopportunityforCanada,anditssuccesshingesoncreatingthebroad-based conditions to support the first and subsequent waves of CCS investment whilegainingpublicsupportforCCSasanacceptablewaytohelpmeetthecarbonchallenge.


An Innovative Technology CCSenablesthecontinueduseoffossilenergywhilemitigatingtheGHGemissionsassociated with these sources. CCS involves the capture of high-volume,concentrated streams of CO2 which are then compressed, transported, anddisposedofindeepundergroundgeologicalformations,likethosefromwhichoilandgasareproduced.

The Components

Therearenotechnologicalbarriersto implementingCCS;allofthecomponentsfor capture, compression, transportation, injection, and storage already exist atindustrial scale. What is missing is the full integration of these components in acommercialfacilitythesizeofatypicalpowerplantorbitumenupgradingfacility.

Capture and Compression

Four primary methods are used tocapture and concentrate CO2 fromindustrialprocessesandemissionsstreams:post-combustion,pre-combustion,oxy-fuelcombustion, and industrial separation.Canada’s CO2 Capture and Storage Technology Roadmap goes into detailoneachoftheseoptions11.

Adapted from Bachu�0

10 Bachu,S.EnergyandResourcesConservationBoard.11 NRCan.2006.Canada’s CO2 Capture and Storage Technology Roadmap.

The Concept behind CSS

Capture is a particularly difficult challenge for many sectors. For example, the oil andgassectorincludesanumberofdifferentfacilitiesthatmayeachhaveseveralemissionssourceswithvaryingquantitiesandconcentrationsofCO2.NotallemissionsstreamsarecurrentlyamenabletoCO2capture.ThelowertheCO2concentrationthemorecostlycaptureisbecauseoftheenergyrequiredtoseparateandpurifytheCO2forittobecompressedtoaliquidstatefortransportationbypipeline.

An Innovation Technology


Allof theseadditionalprocessesaddup toahighcostofCO2capturebecauseeachsteprequiresadditionalcapital investmentandenergyusewhenoperatingthefacility.

Canadacurrentlyhasnocommercial-scaleindustrialfacilitiesthatcaptureCO2.Thisisacriticalgapbecausecaptureandcompressionaccountfor70to90percentofthecostofafullyintegratedCCSproject12.Sincecaptureandcompression(com-bined) is the primary contributor to the financial gap facing CCS today it is a key areatoachievecostreductions.

Transportation

TrucksortanksareusedtodaytomovesmallCO2volumesforthefoodandbeverageindustries,butpipelinesaretheonlyoptionformoving largevolumesofCO2fromsourcetosink.SeveralcommercialCO2pipelinesoperateacrossNorthAmerica.A323-kilometreline runs from North Dakota to Saskatchewan, supplying CO2 to two enhancedoil recovery (EOR) projects – the Weyburn project and the Midale project. Smaller pipelinesmoveacidgas,amixtureofhydrogensulphide(H2S)andCO2,inthefoothillsof Alberta and British Columbia. A network of pipelines moves 30 Mt of naturallyoccurringCO2annuallyinthePermianbasin(intheU.S.).

TransportingCO2istheleastriskyaspectofCCS,bothtechnicallyandeconomically,anditisnotabarriertoCCSimplementationinCanada.

Injection and Storage

CO2canbedisposedofinarangeofgeologicalformations,suchasoperatingoiland gas fields, depleted reservoirs, and deep saline aquifers. InjectingCO2intoexistingreservoirscanincreasehydrocarbonrecovery.CO2isbeinginjected at 50 EOR facilities in the U.S. today. In Canada, the Weyburn EOR flood startedin2000andstoresroughlyoneMtofCO2annually.EORprojectssuchasthisonecanbedesignedsothatmuchoftheCO2remainsunderground(asstoredCO2)at the end of the EOR flood13.TappingthecommercialvalueofCO2forEORwillhelpin deploying the first phases of CCS projects.

However, the EOR market is relatively small compared to the total volume ofcapturableCO2inwesternCanada,sootherstorageoptionsareneeded.ThetotalsizeoftheEORmarketdependsonmanyfactors(includingthepriceofCO2andthepriceofoil)butpreliminaryestimatesindicatethat450Mtofcapacitymaybecurrentlyavailable14(thisequatestolessthan10Mt/yearofstoragefor50years).

12 IPCC.2005.CarbonDioxideCaptureandStorage13 TheamountofCO2thatisstoredundergroundcomesdowntoaneconomicdecision;thisisnota resultofanyleakageorseepagefromtheseprojects.14 Bachu,S.andJ.Shaw.2005.CO2 Storage in Oil and Gas Reservoirs in Western Canada.

EOR is one way to get some commercial value for storing CO2 – it’s critical to unlock as much commercial potential as possible during CCS’ early stages


Page � Canada’s Fossil Energy Future

Depleted oil and gas reservoirs have a proven record of storing fluids for hundreds of millions of years. Deep saline aquifers underlie the sedimentary basins acrossCanadaandholdevenmorestoragepotential.Thesearedeeppermeablerockformations saturated with extremely saline fluids that cannot be used as potable water.SomeEORprojectsaremovingahead,butno‘directstorage’projects(ineitherde-pletedreservoirsordeepsalineaquifers)existinCanadatoday.Itwillbeimportanttodemonstratelong-termstorageinarangeofgeologicalsettingsincludingdeepsalineaquifers.

Associated Risks

As with any other large-scale industrial activity, CCS entails some safety andenvironmentalrisks.NoneoftheserisksarenovelasmanyoftheactivitiesassociatedwithCCSarealreadywidelyused.Large-scaleCO2transportationbypipeline,forexample,hasbeeninoperationfordecadesinthePermianbasin.Similarly,thereisabroadbaseofexperiencewithlarge-scaledeepundergroundstorageordisposalincluding the disposal of toxic wastes and oilfield brine and the large-scale storage ofnaturalgas.

TheIntergovernmentalPanelonClimateChange(IPCC)statesthattheoperationalsafety risks of CCS are likely to be similar to or smaller than the risks of currentupstreamoilandgasoperations15.A relatedconcern is the long-termsecurityofstorageforwhichtheIPCCconcludesthatthefractionofCO2retainedinstorageis“…likelytoexceed99percentover1000years”16.ThistimescaleislongcomparedtotheretentionofemissionsintheatmosphereandsotheimpactofanypotentialseepageofstoredCO2(ontheclimateorpublicsafety)willbenegligible.

Integration at Scale

While the specific components of CCS (capture, transport, and storage) are beingdemonstrated incurrentapplications (suchasCO2monitoring in thecaseofWeyburn),whathasnotbeendoneisthecombinationofthesepiecesinfully-integrated,commercial-scaleindustrialfacilities.A typical 600 megawatt (MW) coal-fired power plant built in western Canada emits roughly3.8MtofCO2annually,whether it issupercriticalpulverizedcoalorintegrated coal gasification combined cycle. Greater than 90 percent of this CO2is technically amenable to capture17. A large fleet of coal-fired plants operate acrossCanada today,manyofwhichareclose to retirement18. Thecommercialuse of these facilities could be extended by retrofitting them with post-combustion processes,thusenablingmanymegatonnesofdomesticcaptureopportunity.

15 IPCC.2005.Carbon Dioxide Capture and Storage.16 Ibid17 IPCC.2005.Carbon Capture and Storage.18 NRCan.2005.Canada’s Clean Coal Technology Roadmap.



Abitumenupgradingfacilityusingsteammethanereformingtogenerate200millionstandardcubicfeetperdayofhydrogen(H2)andwithanupgradingcapacityof100,000barrelsofbitumenperdayemitsroughly1.3Mtperyear(ofwhich,greaterthan 80 percent is capturable). A similar sized plant using gasification produces twiceasmuchCO2(withgreaterthan90percentcapturable).Theseexamplesarerepresentativeofthelarge-scaleCO2reductionopportunitiesaffordedbyCCSasaGHGemissionmitigationoption.

The technological components for CCS already exist and can be built into newfacilities today – what is required is financial and regulatory support. A few fully integratedprojectswilldemonstrateto industryandthepublic thefeasibilityandsafety of integration at scale. These projects will also initiate learning-by-doingwhich leads to cost reductions. The first projects will test the regulatory processes andhelppavethewayforfutureprojectsthatseekregulatoryapproval.Eachofthese outcomes is essential if CCS is to play a significant role in reducing emissions.

Canada could be the world’s first country to build a commercial-scale power plant, bitumenupgrader,orsomeotherfossilenergyfacilitywiththe intentofcapturingandstoringtheassociatedCO2.Atthesametime,thecountryshouldcontinuetoworkthroughinternationalforumsliketheCarbonSequestrationLeadershipForumand the International Energy Agency GHG Research and Development (R&D)Programme,asnosinglecompanyornationcantackleCCSinisolation.Canadacan and should provide leadership in specific technical areas and through these fosterinternationalrelations.

The technology exists, what’s needed is the integration of components in commercial-scale industrial facilities


19 Ontarioisphasingoutcoalby2014.Theoriginalplanwas2009,butalternativeshavenotyetbeen developed.20 EnergyInformationAdministration.2007.ElectricityMarketModule.Report#:DOR/EIA-0554(2007). andInternationalEnergyAgency(IEA).2006.World Energy Outlook.

Power and oil and gas provide the

largest potential for significant capture

and storage

The Case for CCSDomestic Opportunities

AnumberofviableGHGmitigationoptionsarenecessarytomeetthefederal20percent GHG emission reductions objective by 2020, including energy efficiency, renewableandnuclearenergy,andfossilenergywithCCS.Eachchoiceinvolvesimportanttradeoffsbetweencostandenvironmentalorhealthandsafetyrisks.CCScanstarttodelivermeaningfulemissionreductionsby2015fromawiderangeof industrial sectors. One opportunity is coal-fired power generation. Coal is central tothecurrentNorthAmericanelectricityfuelmix;ithasaprominentroleinAlberta,Saskatchewan,Ontario19,NovaScotia,andNewBrunswick,andit isexpectedtocontinuetobepartofthemix,especiallyinwesternCanada,whichhasabundant,low-costcoalresources.Low-emission, coal-fired power generation is possible with CCS. In fact, CCS is the only viable option for making significant CO2 emission reductions from coal-fired power.Opportunitiesforpost-combustion,pre-combustion,oroxy-fuelcombustiontechnology exist in new coal-fired facilities. Retrofit options are available for existing plantsbasedonpost-combustiontechnology.

AccordingtostudiesbytheU.S.DepartmentofEnergyandtheInternationalEnergyAgency(IEA),thecapitalcostofnewelectricalcapacityishighnomatterwhichenergyoption(nuclear,wind,orcoalwithCCS)isselectedandwheretheprojectis built20. These studies indicate that although the cost of power generation withCCSishighcomparedtotheexistingbaseload,thiscostisactuallywellwithintherangeofothercurrentbaseloadoptionssuchasnuclear.Itisimportanttonotethatallcapital-intensiveprojectscostmoretodaybecauseofrecentcostescalations,whichareprimarilyduetohigherpricesforlabourandmaterials.

In the case of coal-fired power with CCS, additional costs could be passed along to the consumer, but this means a significant increase in power prices. And depending on the availability of energy resources in different regions it could result in significant pricedisparitiesbetweenprovinces.

OtherrolesforCO2captureexistinoilandgas,butthecaseforoilsandscomeswithbothopportunitiesandchallenges.TheoilsandsarethefastestgrowingsectorfordomesticGHGemissionsandsotherearerealopportunitiesforreductions.However,oil sands operations are very diverse (both geographically and technically) and

The Case for CSS


onlyasmallportionoftheCO2streamsarecurrentlyamenableforCCSduetoboththe size of emissions streams and the concentrations. The problem is that lower-concentrationor smalleremission streamsaremorecostly tocapturebecauseoftheadditionalunitcapitalandoperatingcosts (includingenergyuse)associatedwith the capture, separation, and purification processes.

The earliest oil sands opportunities are the bitumen upgrading facilities that usesteam methane reforming or gasification technology and which produce higher-concentrationCO2streams.PolygenerationisapromisingtechnologyintheoilsandsanditisverywellsuitedforCCS.

Natural gas processing is another early opportunity as acid gas (a mixture of H2SandCO2)iscurrentlyseparatedfromsourgasandre-injectedintodeepgeologicalformations. Existing acid gas projects in Alberta and British Columbia are goodanaloguesforbothCO2captureandstorageprocesses.AlotcanbelearnedaboutCCSthroughtheexperienceofoperatingtheseprojects.

ManyCanadianindustries,includingoilandgas,competeininternationalmarkets,oftenwithinternationalcompetitorsthatdonotfacethesamecostsassociatedwiththeirCO2emissions.But the issue ismuchbroader than justCO2. In fact,avarietyof policies and regulations continue to increase the fiscal burden being placed on domesticsectorswhiletheinternationalmarketremainsunchanged.Facedwiththisdifficult competitive challenge, domestic firms have no way of recovering the further increases incostassociatedwithCCS.For thesecompanies to remain inbusinesstheymustrecovertheircostofproduction,includingareturnoninvestmentthatisatleastashighastheircostofcapital.

Unlikeelectricity,currentlynoeconomically-viablealternativesexisttofullyoffsettheproductsandservicesprovidedbytoday’spetroleumresources.Whilealternativessuch as biomass will likely play an increasing role in the future (for example, inethanolandbio-dieselproduction)asthetechnologymatures,petroleumresourcesare expected to dominate Canada’s energy supply needs for the next severaldecades.

Further applications for CCS exist in the petrochemical, fertilizer, manufacturing,steel,andcementsectors.A fewearlyprojects in the fossilenergyorotherGHG-intensive sectors followed by a period of broader support could eventually benefit many important Canadian sectors. One particularly novel concept is to co-fire or co-feedbiomassalongwithfossilenergyinputs(suchascoalorotherheavyfuels)inconventionalenergysystems inorder to further reduceGHGemissions. This isaparticularlyinterestingconceptforCanadaconsideringthesizeofdomesticbiomassresources.

The Case for CSS

Page �0 Canada’s Fossil Energy Future

Fossilfuelsoccupytheircurrentmarketpositionforverygoodreason.Theyaretheglobalstandardforlow-cost,convenient,highenergy-densitysupplyagainstwhichall other options are compared. Fossil fuels are used in power plants, industrialprocesses, and all forms of transport, space heating, and cooling. Fossil energysupplies 80 percent of today’s global energy needs (in Canada this number is77percent),andtheyareforecasttosupply82percentby203021.

If this forecast is realized, then CCS can become a significant contributor to fossil energy-related GHG reductions. It is currently the only option to retrofit emission reductionscapabilitiesintoexistingenergyinfrastructureandsystems.Forfossilfueldependenteconomies,likeAlbertaandSaskatchewan,CCSisamust-have.Forthatmatter,largequantitiesofcoal,oil,andnaturalgasareusedinindustryandhomesacrossCanada.ExistingenergysystemsformthefoundationalinfrastructureofCanada’seconomyandthewell-beingofitscitizens.Theseenergysystemstookmorethanhalfacenturyandhundredsofbillionsofdollarstoconstruct(nearly$500billioninthelast10yearsalone)22.TheseenergysystemsarethebasisofCanada’slow-costenergyadvantage.Theyareimportantassetsthatshouldbebuiltupon.

ThisiswhyCCSisessentialtoCanada.

World Class Fossil Energy Potential

Canadaisrecognizedasoneofafewgloballocationswithlarge,secureenergysupplies.Thecountry’senergyendowmentrangesfromconventionalsourceslikeuranium,hydro,wind,andbiomass,toemergingalternativessuchasocean-wave,geothermal,andsolar.However,mostofthedomesticandinternationalinterestinCanadaasanenergysupplyiscenteredonitsfossilenergybaseofoil,naturalgas,andcoal.

At180billionbarrelsofrecoverablereserves(170ofwhichareoilsands),CanadaissecondonlytoSaudiArabiainnationaloilreserves.23TheoilsandsregionsoftheWCSBhave1.6to2.5trillionbarrelsinplace24.

CurrentremainingestablishedCanadiannaturalgasreservessitat58trillioncubicfeet(Tcf)25,withultimateconventionalpotentialof370Tcf26.Beyondthisis2,500Tcfofunconventionalgas-in-placeincoalbeds,tight-gasandshale-gasdeposits;gashydrateshostbetween1,500and29,000Tcf27.

21 Ibid22 Totalcapitalexpendituresfortheenergysectors.StatisticsCanada.2007.StatisticalTable Numbers0029-0005,029-0007,0029-0008,0029-0009,and0029-0012.23 CanadianAssociationofPetroleumProducers(CAPP).2006.Oil Sands.24 Ibid25 CAPP.October,2007.Industry Facts and Information webpage.26 PetroleumTechnologyAllianceCanada(PTAC).2006.Unconventional Gas Technology Roadmap.27 Ibid.

The Case for CSS

Canada’s Fossil Energy Future Page ��

28 SinghalandFytas.1999.Reclamation of surface coal and oil sands mines in Western Canada.29 WorldEnergyCouncil.2004.Survey of Energy Resources.30 NEB.2007.Canada’s Energy Future: Reference case and scenarios to 2030.31 TheWCSBcutsacrossseveraljurisdictions:BritishColumbia,Alberta,Saskatchewan, Manitoba,andtheNorthwestTerritories.ItalsostretchesintotheUnitedStates.

Canadahas320billiontonnes(t)28ofcoal-in-place,ofwhich8.7billiontonnesareclassified as reserves at current market prices29. 79 billion tonnes are consideredcoalresource30,withmorethanhalfofthisamountinthesub-bituminousandlignitecoals of western Canada, which are used for power generation in Alberta and

OIL*

GAS**

COAL

Reserves (mboe) In Place (mboe)

��0,000�0,000��,000

2,000,000��0,000

�,200,000

Fossil Energy Reserves and Potential

mboe:millionbarrelsofoilequivalent* Includesconventionalandunconventionalsources**Includesconventionalandunconventionalsources (excepttogashydrates)

Saskatchewan.These reserves and in-place numbers are converted intomillions of barrels of oil equivalent (mboe) in the table toillustratehowtheycomparetooneanother.Thefollowingare a few examples of what these numbers mean inrelation to domestic energy consumption: Canadian oilsandsreserves(the180,000mboe)containenoughenergytodrive2billionpassengercarsovera lifetimeof200,000kilometres; natural gas reserves are sufficient to heat all Canadianhouseholds for75years;andcoal reservesareenoughtoprovideelectricityforCanadianhomesfor100years.Thepointisthateachofthesereservesislargeandthe total potential of all in-place resources is at least anorderofmagnitudelargerineachcase.Combinedunderthesinglebanneroffossilenergy,Canada’soil,naturalgasandcoal resources place the country firmly on the map of world class energy locations. Theseassetspresentexcellentexportopportunitiesandtheyalsoprovideanimportantdomestic competitive advantage – the country’s low cost of energy makes domestic industries (like refining, smelting, and manufacturing) internationally competitive. Itwouldbecostlytoforegotheeconomicopportunity lockedawayinthesefossilenergyresourceswhenasolutionforcontrollingtheGHGemissionsiscloseathand.CCSpresentsanopportunityforcarbonmanagementfromthelargestGHGpointsourcesacrossthecountry.

World Class Storage Potential

Thegeologicalformationscontainingtheseenergyresourcesareasolutiontothecarbonchallenge.ThereservoirsthatsecurelyheldoilandgasforhundredsofmillionyearscanbeusedtostoreCO2,andthedeepsalineaquifersunderlyingtheserockformationsholdseveralmagnitudesmorestoragepotential.

TheWesternCanadianSedimentaryBasin(WCSB),aunitofsedimentaryrockspanningwesternCanada31,isconsideredaworld-classopportunityforproving,testing,and

The Case for CSS


The Opportunity in Western Canadian Sedimentary Basin

implementing the requisite components of CCS on a large scale. SuperimposingthecapturelocationsinwesternCanadaontothisstoragepotentialgivesaclearpictureoftheopportunity(seeillustration).

Aspreviouslynoted,preliminaryestimatesindicatethat450Mtofstoragecapacitymay be currently available in oil fields that are amenable to EOR. Roughly an order ofmagnitudemorestoragepotentialexists inmatureoilandgasreservoirs.Byfarthe largest storage potential, on the order one million megatonnes, exists in thedeepsalineaquifersthatunderlietheWCSBrockformationsandothersedimentarybasins across Canada. These deep rock formations are highly permeable, theyare saturated with extremely saline and therefore unusable fluids, and they are not connectedtogroundwatersourcesorothervaluableminerals.Salineaquifersofferthe greatest potential for CO2 storage capacity and can easily accommodatemanydecadesandevencenturiesofstorage.Forperspective,thelargeindustrialemittersinwesternCanadaemitted128MtofCO2in200533.TheWCSB,withitsmixofsourceandsinkoptions,isoneofbestopportunitiesintheworldtoprovethatthefull-cycleintegrationofCCScanbedonecost-effectivelyandsecurely.OtherstoragepotentialalsoexistsinAtlanticCanada,southernOntarioandjustsouthoftheCanadianborder.

32 Bachu,S.andS.Stewart.2002.Geological sequestration of anthropogenic carbon dioxide in the Western Canada Sedimentary Basin.33 EnvironmentCanada.2007.Canada’s Greenhouse Gas Inventory.

AdaptedfromBachuandStewart32

The Case for CSS


Canadian Leadership Position

Canada has made a significant effort to lead in the advancement of CCS, but more needstobedonetocontinuetomovethetechnologyforward.

TheWeyburn-MidaleCO2ProjectisthemostprominentofCanada’sprojectactivitiesin CCS. It is the world’s first CO2 measuring, monitoring and verification project, and it operatesonthesitesoftheWeyburnandMidaleEORprojectsinSaskatchewan.Thisprojectisinternationallyrecognizedasaground-breakingactivityforitsstorageandmonitoringactivitiesrelatedtoCCS.Futureprojectscanbuildfromthisexpertisebydemonstratingthefull integrationofCCSaswellasaspectssuchasdirectstorageintosalineaquifers.

AlloftheopportunitiesandinitiativesintheWCSBputCanadainauniqueposition.Withdedicatedfundingandpolicysupport,thecountrycouldleadindevelopinglow-emissions energy systems, and help to drive down the cost while proving thetechnologyandprovidingassurancethatCCSisbothtechnicallyfeasibleandsafe.Failingtodosowillresultinlostopportunities,includingthelossofexistingCanadianexpertiseinCCS.

HereinliespartoftheappealofdeployingCCSinCanada.Arealopportunityexistsfor leading the development of technical expertise, regulatory approaches, andproductsandservicesthatareinternationallymarketabletoplaceslikeChina(whichconstructedtheequivalentofanew1000MWcoalplantperweeklastyear)34andotherrapidlydevelopingeconomies.

Thetaskathandistrans-boundary,cross-jurisdictional,andittouchesmanysectors.Theresponsemustcomefromgovernmentsandindustry.CanadamustviewCCSdevelopmentasanationalresponsibilitythatshouldstartinthewest,whereCCSisamust-haveiftheregionistosustainitseconomicgrowthwhilealsoreducingemissionsfrom its largest industrial facilities.AsCCSmatures, itsapplicationcanbeappliedacrossthecountryandaroundtheglobe.

International CompetitivenessCCSactivitiesarerampinguparoundtheworld.InOctober2007theU.K.announceda competitive process to support a domestic, post-combustion, coal-fired power plant. The U.S. announced Illinois as the location for the FutureGen project inDecember2007.Twomoreoutcomesareexpectedveryshortly:anAustraliandraftregulatoryframeworkforCCS;andaEuropeanUnionDirectiveoncarboncaptureandstorage.

Many of these regions are moving quickly to implement GHG policies includinginstrumentslikeemissionstrading.Canadamustremainaheadofthecurveandbuilddomestic capacities in CCS so that its fossil energy sectors remain internationally

34 TheChinaSustainableEnergyProgram.Nov,2007.Program: Electric Utilities.

The Case for CSS

Page �� Canada’s Fossil Energy Future

Canada

U.S.

U.K.

France

Norway

Australia

Belgium

Germany

Algeria

Prominent International Activities

competitivewhentheseinstrumentstakehold.ThecountrywillfacealongupwardlearningcurveifitsimplywaitsforGHGpolicytodriveemissionreductions.Atthesame time, other countries will have moved ahead and will have firmly placed themselvesinacompetitivepositionbydevelopingCCS.

OtherreasonstoundertakedomesticprojectsaretheuniqueCanadian‘wrinkles’related to CCS – issues that may not be addressed by other countries. For example, Canada is the only country that has a commercial oil sands industry, whichhas its own challenges for CCS considering the issues related to variable CO2

concentrationsindifferentemissionsstreamsandthegeographiclocationofmostoilsandsoperations.Toaddtothecomplexity,theoilsandsarethefastestgrowingsourceof industrialGHGemissions inCanada.Canadaalsoneeds solutions fordomestic coal-fired generation. Once technology for this application is developed itcouldbetransferredtootherplacesthatalsorelyonsub-bituminousandlignitecoal(suchasChinaandIndia).Inshort,Canadaneedsdomesticprojectstodealwithdomesticissues,butmanyofthesolutionsmaybeapplicableelsewhere.

TheillustrationprovidesasnapshotofseveralactiveandproposedCCSprojectsaroundtheworld.Inadditiontothese,manycountriesareconductingR&DandworkingonpolicyandregulatoryframeworksforCCS.

ItisimportantthatCanadaremainsconnectedtotheseandotherinternationalCCSinitiatives.Togainfromtheworkbeingdoneelsewhere,thecountryneedstobeagoodpartnerandshouldersomeoftheworkloadbyundertakingsomedomesticprojects.

The Case for CSS


The Task at Hand

ManyfossilenergycompaniesarelookingatCCSinthecontextofthecomplianceoptionsavailabletomeettheircurrentandfutureGHGreductionobligations,buttwo important barriers stand in the way of them implementing CCS – the financial gap facing theseprojects is simply toohigh to takeonaloneand the regulatoryframeworks are not yet adequately defined.

Somecompaniesarelookingtoalternativeenergyoptions,butasalreadynoted,allmitigationoptions(includingCCS)arehighcostandinfactfallwithinthesamerangeofhighcosts. Intoday’sbusinessenvironment,characterizedbyagrowingdomesticeconomy,tighteninglabourmarkets,andhighcapitalcosts,everyoptioniscostly.

The Financial Gap Facing CCS

One of the most significant impediments to the commercial development of CCS is the financial gap facing the first projects. This is the gap between what it would costtodevelopaprojectwithCCSversusthecostofdevelopingaprojectwiththesameindustrialoutputs(suchaselectricityorH2)butwithoutcapturingandstoringtheCO2.

As with all large scale industrial facilities, the initial capital cost would be significant for the first industrial CCS installations. The financial gap associated with most commercial-scaleCCSprojects(oneswithonemegatonneormoreofCO2emissionreductionsperyear)isontheorderofhundredsofmillionsofdollars.

In thecaseofoilandgasanyadditionalcostassociatedwithCCSwould simplyreducethecompetitivenessofCanadianproduction,duetotheglobalnaturalofoilmarkets.Anyadditionalcostssimplyresultinashiftinproductiontootherlocationsratherthanthereductionofdomesticemissions.Electricitysystemstendtoworkonthebasisofdispatchingthenextavailable leastcostplant.Therefore,highercostplants,suchasonesequippedwithCCS,wouldbethelasttodispatch.Neitheroftheseexamplesareintendedoutcomes,buttheyarewhatwouldoccurifindustrywereexpectedtoshoulderthetotalcostofdeployingCCS.

PartofthegapforanysingleprojectcanbeoffsetsomewhatbythesaleofCO2forEORorbyreducingthecompliancecostsassociatedwithcurrentandfutureGHGregulations. However, the magnitude of these two drivers is not currently sufficient to overcome the financial gap facing most CCS projects today. This is because the public benefit associated with CCS is not yet appropriately valued. While the total benefit is difficult to quantify – it includes socio-economic benefits such as the ability to extract the economic value of fossil energy resources and strategic benefits such asglobal leadership inCCSandtheoption to implementCCSquickly if stringentglobal GHG reduction requirements do materialize – these are likely to be orders of magnitude greater than the financial gap facing the first CCS installations. These benefits are not reflected in the current marketplace.

The Case for CSS


The first set of three to five commercial industrial-scale CCS projects will be critical to the future success of CCS in Canada. To start construction of these projectstoday requires a public investment to close the financial gap, which the Task Force estimatestobeontheorderof$2billion.

ThisamountisbasedoncostestimatesrelatedtoseveralCCSprojectsthateachfacea gap of hundreds of millions of dollars. While significant, such an investment spread across a portfolio of projects is estimated to result in five Mt of annual reductions from CCS by 2015. This is the equivalent of eliminating the GHG emissions from1.4millionvehiclesperyear inCanada.Suchan investmentwillpositionCanadato reap the benefits of GHG emission reductions using CCS over a wide range of industrialemissionsourcesandfromlocationsacrossthecountry.

For its part, industry will invest large amounts of capital in the first industrial projects with CCS – the Task Force estimates that the $2 billion in public investment will leverage an industry investment of roughly $2 to $4 billion. Industry will also bearmuchoftheriskoftheselargecapitalprojects,includinganyunforeseenimpactsorcoststheymighthaveonthebasefacilities,aswellastheuncertaintyrelatedtoEORdemandandCO2creditmarkets.

Government and industry might decide to trade-off different forms of risk fordifferentupfrontcapitalcontributionsforanyindividualprojectthroughtheactualnegotiated contracts for the first CCS facilities.

Many factors will influence the financial gap of these projects in the next few years, includinglearning-by-doing(bothfromearlyprojectsinCanadaandinternationally),cost escalations, increasing GHG compliance obligations, and variance in EORrevenues. However, the Task Force expects that over time the financial gap for new projects will decrease as a result of capital and operating cost reductions, andpotentiallyhighercostsassociatedwithcarbonmitigation.

The Potential CCS Effect

ItisimpossibletoforecasttheprecisecontributionCCSwillmakeinthefuture.Manyfactors will influence the success of CCS but many have noted that CCS could contributesubstantiallytoGHGemissionreductionsinCanadainthelonger-term.

Previousstudieshaveproduceda rangeofpotentialvalues, from100to400Mt/year. Theassumptions for theseestimatesvary. TheNationalRound Tableon theEnvironmentandtheEconomy(NRTEE)originallyestimatedthatby2050,190MtCO2/yearcouldbepotentiallycaptured,butthisanalysisonlyconsideredoilsandsinstallations

The Case for CSS


and western coal-fired power facilities35.AmorerecentNRTEEreporthasincreasedtheupperboundestimateto400Mt/year36.TheIntegratedCO2Network(ICO2N)estimatesapotentialof100Mt/year37.

The table provides examples of the sectors where CCS could have a significant impact.FromtheseexamplestheCanada-widepotentialforcapturableCO2maybeashighas600Mt/year,whichrepresentsroughly40percentofCanada’sprojectedGHGemissionsin2050.NotethatthistableisnotapredictionofwhatwillhappenineachsectorbutwhatcouldhappenandthereforeprovidesanupperboundonthepotentialforCCSinCanada.Theactualcontributionisexpectedtobelessasitisveryunlikelythatalloftheseopportunitieswillhappenatonce.

35 NationalRoundTableontheEnvironmentandtheEconomy(NRTEE).2006.Advice on a Long-Term Strategy on Energy and Climate Change.36 NRTEE.2008.Getting to 2050:Canada’s Transition to a Low-emission Future.37 IntegratedCO2Network.2007.Carbon Capture and Storage.38 Datafrom:EnvironmentCanada.2007.National Inventory Report 1990 – 2005.

The Potential CSS Effect 38

The Case for CSS


The Need for Public Investment

Whatisneededisastrongcollaborativeeffortbetweenindustryandgovernmentto help initiate a first phase of CCS projects and set the country on the pathway towardsreducingemissionsfromapotentiallylargenumberofindustrialfacilities.

This type of early-stage public support is familiar territory for Canada – it is an approachthathasworkedinthepast.Syncrudebeganasajointventurebetweenindustryandgovernment.Hiberniawasacritical investment that initiatedanoilandgasindustryinAtlanticCanada.InfrastructureliketheTransCanadaPipeline,Canadian transmission grids, and both national railways required joint effortsbetweenseveralgovernmentjurisdictionsandtheprivatesector.

Eachofthese“nation-building”initiativeswasandcontinuestobeintheinterestofCanadians.Eachbeganwithpublicandprivatesupportinordertospreadtherisksassociated with the first few projects and to enable action on activities that were inthepublic’sbestinterest.Canadapossessesthetechnology,geology,andexpertisetobeaworld leaderinthedevelopmentand implementationofCCS.Doingso is inthepublic’sbestinterestbecause itenablestheoptiontocontinuetodevelopandusevaluablefossilenergyresourceswhilemanagingtheassociatedGHGemissions.Thiswillbeextremelyimportanttothecountryifstringentcarbonconstraintsbecomearealitythroughinternationalanddomesticpolicy.Inaddition,thisinvestmentwillresultinactualemissionreductionswhichwillinturnreducetheriskofthepotentialimpactsofclimatechangeonCanada.The Task Force believes that the net benefits befit a public investment on the order of $2 billion. This financial gap is what currently prevents the commercial application of a series of first-phase CCS projects today, as it is simply not possible for private sectorplayerstocommitadditionalhundredsofmillionsofinvestors’moneyonanactivity (emissions reductions) that is essentially a public good and that doesn’tgenerateareturnoninvestment.ContinuedfundingandsupportwillberequiredtosustainCCSdevelopmentanddeploymentduringlongertimeframes.Asstatedpreviously,foritspartindustrywillbetakingonanumberofotherrisksofbuildingand operating the first CCS projects and it will also invest in these projects.The$2billionistheup-frontcapitalrequiredtosetCCSonasuccessfulpathwayinCanada.Asmuchaspossible,thisfundingshouldbeinadditiontoanycurrentfundingsources(suchastheTechnologyFund)thatarebeingsetasideforGHGemission reduction projects.,There needs to be alignment among these fundingsources; however, the rules for allocating CCS-specific funding should be tailored to fit the processes described by the “Task Force Recommendations”.

The Case for CSS


This public investment is on the order of what is currently being provided to otherimportant, low-emissionsenergyoptions.TheCanadianecoENERGYforRenewablePowerProgramhasabudgetof$1.5billion for renewableenergyprojects39.Manyprovincesprovidefurthersupporttorenewablesthroughportfoliostandards(rangingfrom5to10percentacrossCanada)andbygivingrenewablepowerpriorityintheplantdispatchorder;bothoftheseregulatoryrequirementsallowrenewableenergytocompetewithtraditionalpowersourcesbytransferringtheiradditionalcostsontotheconsumer.

ItisimportanttonotethatCCSisnotlikeothermitigationoptionssuchaswindwherethe funds are spread across a large number of facilities. Instead, near-term CCSfundingwillbeallocated in large“lumpy”sumsbecausescale isessential forCCS.Onlybyundertakinglarge,fully-integratedprojectswillthelearning-by-doingbeginto drive down the technical and financial risks of CCS while formalizing the regulatory processes.

While the proposed amount is a significant public investment, it is an important one becauseitwillensureCanadianleadershipinCCSdevelopment.Moreimportantly,it allows Canada the option to make significant GHG reductions while remaining internationallycompetitiveinacarbon-constrainedworld.

Early supporthelpsprovideaplatform fromwhichCCScandevelop,by reducingthe overall risks associate with a new activity and thereby encouraging quickerdevelopment, which will ultimately result in the achievement of both governmentandindustryobjectives.

The Time to Act is Now

The world is on a difficult course if it is to quickly stabilize GHG emissions followed by atrajectory towardsubstantial reductionsby2050.Canadahasobjectives tohelpachieve this goal, including the national objective of reducing GHG emissions by20percentby2020,andby60to70percentin2050.

CCS has the potential to contribute significantly to these objectives, but realizing this potential requires getting started today. The target of five Mt/year by 2015 is ambitious butwithoutastartofthismagnitudethecountrywillstruggletogetonthetrajectorytowards hundreds of megatonnes of reductions. Government must commit financial support forCCSand industrymustcommit tobuildingandoperatingCCSprojectsimmediately.

A recent poll lends support to the idea of public financial support for CCS40.InanIpsos-reidpoll,31percentofCanadians indicatedtheirawarenessofCCS,which

39 GovernmentofCanada.December2007. http://www.ecoaction.gc.ca/ecoenergy-ecoenergie/power-electricite/index-eng.cfm.40 Ipsos-Reid.November2007.Public Views on Carbon Capture and Storage.

The importance of CCS to Canada warrants an initial public investment of $2 billion

The Case for CSS

Page 20 Canada’s Fossil Energy Future

is up from 11 percent in a 2005 study41. Nearly two in three Canadians polled(64 percent) noted openness to the idea of government financial support for CCS. It seemsthatwhileCCS isa relativelynewtechnologytomanyCanadians, theygenerally support the idea of public financial support for the technology. Canadians aregrowingtoexpectactiononclimatechangeandtheyseemwillingtosupportCCSifitcandeliverGHGemissionreductions.However,thecontinuationoffuturepublicsupportwilllikelydependverymuchonwhatCanadianslearnaboutCCSasthetechnologybecomesbetterknown42.Asisthecasewithmostnewtechnologiesorprocesses,communicatingwiththepublicon the merits and difficulties with CCS will be important to its overall success.

Alllargeindustrialfacilitiesentaillongconstructionleadtimes,andtheyrequirehighlyspecific skill sets. Many of the skills required for CCS exist in the oil and gas and power generation sectors, but CCS-specific capabilities will only come through actual experience.CanadawilllosetheopportunitytodeployCCSrapidlyinresponsetofutureGHGemissionreductionpoliciesifthecountrydelaystheconstructionofaninitialsetofcommercial-scaleCCSprojects.

Canadamustbuildonthebasicskillsinherenttoexistingsectors,anditmustretainand build upon its base of CCS-specific expertise, so that industry, government, and researchinstituteshavethecapacitytomanagetheconstructionandoperationoflarge-scaleCCS implementations.Canadais inasituationwhere itcanno longerdelayandthenexpecttobuildCCScapacityrapidlyinresponsetoGHGemissionreductionpolicy.ThecountrydoesnotcurrentlyhavethecapacityforbroadCCSdeployment.

In the meantime, capital investments in the fossil energy sectors continue to bemade.

Electricity markets across the county require new capacity in order to satisfy theincreaseintotalelectricitydemandandtomatchthescheduleforreplacingbaseload facilities that have reached their operational lifespan. As noted earlier, theaverage age of Canada’s coal-fired fleet is 25 plus years. This is a particular problem inpowerconstrainedregionssuchasAlberta,Saskatchewan,andOntario.

More than$150billion incapital spendinghasbeenannounced for theoil sandsalone.ThisisthefastestgrowingsectoroftheCanadianeconomyandaccordinglythe associated GHG emissions are also growing quickest. If the government failsto demonstrate its seriousness regarding CCS, these facilities will be built withconventional technology and it will be costly to retrofit them with CCS technologies in the future. If thegovernmentdoesprovide immediate supportand funding forCCS,manyofthenewfacilitiescanbedesignedtoincludeCCSintheirplansandthusavoidthepotentialfortechnologylock-inandstrandedassetsinthefuture.

41 Sharpe,J.2005.Public Attitudes Toward Geological Disposal of Carbon Dioxide in Canada.42 Ipsos-Reid.November2007.Public Views on Carbon Capture and Storage.

The Case for CSS

Canada’s Fossil Energy Future Page 2�

Learning-by-doing is essential and will start by building and operating the first commercial-scale projects

StartingonCCStodaywillinitiatealearning-by-doingphasewhichwillresultincostreductionsduetoimprovedmaterialsandtechnologydesign,standardizationofapplications,systemintegrationandoptimization,andeconomiesofscale.Onlythrough implementing a first set of commercial-scale, fossil energy facilities will the countrystartitswayalongthelearningcurvetosuccess.Canadaisamongthe leadingcountriesworkingonCCS.Australia,Norway,theU.K.,andtheU.S.areall forgingaheadwithpublic investmentandcommercialframeworks for the first few projects and with developing the regulatory environmentstonurtureCCS.Canadacanremainpartofthis leadinggroupbyshoulderingsomeofthe loadanddevelopingdomesticprojectsandregulatoryframeworkstohelpadvanceCCS.Canadamustbeinstepwithotherleaderstostayrelevantandup-to-dateoninternationaldevelopmentsandtogainfromthelearningtakingplaceelsewhere.

SuccesswithCCSdependsonabalancedapproachtoGHGpolicy.Domesticactiononclimatechangemustproceedatapacethat issimilartotheactionsbeing taken by Canada’s major trading partners, but it is difficult to predict what exactlythispacewillbe.IfCanadamovestooaggressivelytoreduceGHGemissionsintheneartermitrisksputtingits industrialbaseatacompetitivedisadvantage.By thesametoken,however, if thecountrymoves tooslowly itmayalsohurt itscompetitiveness as the rest of the world turns to lower-emissions standards thatmakeGHG-intensiveenergysources(liketheoilsandsandotherheavyfuels)lessviable.ThecompetitivenessofthedomesticfossilenergysectorhingesonusingCCS to satisfy growing GHG reduction obligations while continuing to developtheseenergyresources.ThisiswhyCanadaneedstourgentlydeveloptheskillsandexpertiserequiredtodevelopandimplementCCS.InactionmayresultinadecliningroleforCanada’sfossilenergyindustryinthefuture.

ByinvestingtodayCanadawillgainfromaleadingpositioninCCSdevelopment.Moreimportant,itenablestheoptiontoimplementCCSinthefutureasincreasinglystringentcarbonconstraintsbecomeareality. It isparticularly importanttonotethatwhateverhappensintheU.S.willimpactCanadaduetotheintimatetradelinksbetweenthetwocountries.AninvestmentinCCSiscriticaltomanagingtheriskthatfuturecarbonconstraintsmayplaceonindustry.

Investing in CCS today allows Canada to compete in a carbon-constrained world

Canada’s Fossil Energy Future Page 22

Task Force Recommendations Canadian action on climate change requires a balanced approach ofreducing emissions while maintaining industrial competitiveness. This is achallenging task,but it is required ifCanada’s fossilenergy sectorsare toremain competitive if and when greater carbon constraints emerge. Inthe absence of CCS, any rapid increase in GHG obligations could havea devastating effect on the Canadian economy. But through the earlyapplicationanddevelopmentofCCSCanadaactuallyfacesanopportunityto be a technological leader and to develop relevant expertise that isvaluabletobothdomesticandinternationalmarkets.

Movingforwardinthiswayrequirescollaborationandjointeffortsbetweenindustry and government, with the first priority being the deployment of a first phaseoffully-integratedCCSapplicationsinanumberofcommercial-scaleindustrialfacilities,suchaspowerplants,bitumenupgraders,orotherfossilenergyfacilities.

Industrywill investhundredsofmillionstobillions ineachofthesefacilities,and it will build and operate these projects. In addition, prior to makinganyprojectdecisions,industryproponentswillinvestinpre-feasibilitystudieswhichcostmillionsofdollars,frontendengineeringdesignswhichcosttensofmillions,andanumberofotherup-frontcostactivities.Eachoftheserolesisimportantandindustryshouldcontinuetoleadintheseactivities.

However, something more than industry leadership is required. Industryand governments should collaborate to ensure that appropriate financial arrangementsandregulatoryframeworksareinplacetofosterandnurtureCCS deployment. Governments already provide support in many ways,includingfundingforsomeofthefront-endstudies.Buttheyalsoneedtoshare in the financial risks associated with CCS implementations. Therefore thefollowingarerecommendationstoFederalandProvincialgovernmentsfortheirrolesinthesecollaborativeefforts.

The first set of recommended actions below require immediate attention as theyare intendedtoaddress the twomainbarriers facingCCS today:the financial gap associated with CCS projects today and current gaps in regulatoryframeworks.Canadamustovercomethesehurdles(andinshortorder)ifitistosucceedwithCCS.

Task Force Recommendation


Three Immediate Actions

• Immediate Action #1 – Federal and Provincial governments should allocate$2 billion in new public funding to leverage the billions of dollars of industryinvestment in the first CCS projects. This funding should be distributed expeditiouslythroughacompetitiverequestforproposalsprocesssothatthesephase-oneprojectsareoperationalby2015.

• Immediate Action #2 –Authoritiesresponsibleforoilandgasregulationshouldprovide regulatory clarity to move the first CCS projects forward by: quickly confirming legislation and regulation related to pore-space ownership and disposition rights; clearly articulating the terms for the transfer of long-termliability from industry to government; and increasing the transparency ofregulatoryprocesses.

• Immediate Action #3 –FederalandProvincialgovernmentsshouldensureasmuchopportunityforCCSprojectsundertheGHGregulatoryframeworksasforanyotherqualifyingemissionreductionoption.Thiswillrequirethecreationof CCS-specific measurement and crediting protocols.

Three Next Steps• Next Step #1–Industryandbothgovernmentlevelsshouldformacollaborative

frameworkincludinganadvisorygroupoverthenexttwoyearstocoordinatediscussion, to institutionalize learning, and to potentially carry out specific aspectsofimmediateactions1,2,and3;thismayevolveintoamoreformalorganizationasfutureneedsareassessed.

• Next Step #2 – Federal and Provincial governments should provide stablefinancial incentives to help drive CCS activities beyond the phase-one projects. ThesemayincludethecontinuationofRFPsforphase-twoprojects,CO2storageincentives,and/ortheuseoftaxandroyaltyincentives.

• Next Step #3 – Canadian-based research organizations and technologydevelopers should focus research and demonstration efforts on CCS toachievetwogoals:todrivedownthecostofexistingCCStechnologies;andtoenablethedeploymentofnextgenerationCCStechnologyandprocesses.The Federal and Provincial governments should provide financial support for theseactivities.

Task Force Recommendations

Page 2� Canada’s Fossil Energy Future

Milestones for 2015 and Beyond

By following these recommendations the country can achieve the followingmilestonesby2015:

• FiveMtofannualGHGemissionreductionsfromlargeindustrialfacilities• A first wave of industrial facilities capturing and storing CO2 (Three to five operating projects)• GloballeadershipinCCStechnicalcapabilitiesandexpertise• First-mover advantage in CO2 crediting protocols, disposal rights and

dispositionlegislation,andlong-termliabilitysolutions• World-class CCS institutions addressing commercial, legal, and regulatory

requirements• Aframeworkforplanningwhat’snextforCCSinCanada

ThesemilestoneswillhelpmoveCCS towardbecomingan integralpartof theindustrial fleet, which in the long-term will result in significant emission reductions fromavarietyof sectorsandacrossmany regionsof thecountry. The rewardis thepotential tocaptureasmuchasone-third toone-halfofCanada’s totalprojectedemissionsfor2050.

Further Details

Through annual budget announcements, governments should provide publicfunding for CCS in proportion to the financial gap required to achieve five Mt of annualreductionsby2015.TheTaskForceestimatesthisgaptobeontheorderof$2billion.

CCS is a large-scale technology and incentives must to be sufficientlyconcentratedintolargesingleprojectsonthemegatonne-per-yearscale.Thisrequires a large financial contribution for each successful project. It is recommended thatarequestforproposals(RFP)processbeusedasamechanismbywhichthefunding can be allocated in the most efficient manner.

TheRFPprocessitselfmustbetransparent,withclearlystatedgoalsandobjectives,termsofreference,andimplementationprocedures. Precedentsalreadyexist,the most recent and relevant being the U.K. CCS competition announced inOctober43.

43 DepartmentforBusinessEnterprise&RegulatoryReform.2007.Competition for a Carbon Dioxide Capture and Storage Demonstration Project.

Immediate Action #1

Federal and Provincial governments should allocate $2 billion in new public funding to leverage the billions of dollars of industry investment in the first CCS projects. This funding should be distributed expeditiously through a competitive request for proposals process so that these phase-one projects are operational by 2015.



TheRFPprocesscouldbemanagedinternallybygovernmentdepartments,orbyathird-party,independentorganization.Howeveritisstructured,asmallindependentgroupofCCSexpertscouldadvisethedecision-makingbody.

Given the need for rapid action, the Task Force suggests the use of a two-stepprocess:apre-proposalstep;andafullproposalstage.Thepre-proposalstepcanbeexecutedquickly. Itwillprovidegovernmentswithharddataabouttherangeof projects that might go forward, enabling adjustments to the design of the fullproposalprocessinresponsetothesuiteofpre-proposalsandtocommentsprovidedbystakeholders.Dependingonthedepthofresponsesduringthepre-proposalstepgovernments may consider whether a single RFP or multiple rounds are preferredduringthefullproposalstage.Aprocesswithmultiplecallsforproposalsallowsforastagedprocess,wherebyanearlyroundcouldbecalledratherquicklyfollowedbysubsequentrounds.Asingleprocessmayresultinmorebidstochoosefrom,whereasmultiple-RFPscouldbesetuptohelpnarrowthebidsintosomewhatmorediscreteandcomparablesetsofproject-types.Whetheroneorseveralbiddingroundsareundertaken,theentireRFPprocessshouldbecompletedwithin18-months.

Regardlessoftheprocessthefollowingaresomepotentialoutcomesofthephase-oneRFP(s):

• A total portfolio that adds up to five Mt/year of CO2reductionsby2015• Minimumprojectthresholdsofapproximately½Mt/yearofCO2reductions - WithatleastoneprojectgreaterthanoneMt/yearofCO2reductions - Withatleastoneprojectbeingdirectstorage(suchas,inadeepsaline

aquifer)• Theselectionoffully-integratedprojects(whichincludecapture,transport,and

storage)• At least one retrofit project, and at least one new-build project • Atleastoneelectricpowerapplication,atleastoneoilsandsapplication,and

atleastone‘other’application(somethingotherthanelectricityandoilsands)

$2 billion is what is required to cover the incremental financial cost of integrating CCS intolargeindustrialinstallations,butitmaybethatgovernmentsandindustrymutuallyagree to other arrangements when it comes to the final contract agreements. For example,governmentmaydecidetotakeonsomeofthetechnicalandprojectriskinexchangeforasmallerupfrontcapitalinvestment.ItisimportanttonotethateachcontractthatresultsfromtheRFPprocesswillbedifferentfromoneanotheraseachwillbetheresultofanegotiationprocess.

WhilethisinitialinvestmentisappropriatetogetCCSstartedmorepublicsupportwillbe required to carry CCS through the subsequent phases of implementation (seeNext Step #2). Just making the first investment, without any plans for future public support,willnotbeenoughtodriveCCStoitsfullpotential.



The Rationale

Althoughitisanticipatedthatonaworld-widebasisthepriceofcarbonwillrisewithtime, it will not be sufficient in the near-term to offset the financial gap for phase-oneCCSprojects.Insomecases,partofthegapcanbeclosedthroughthesaleofCO2forEOR,and,dependingontheeligibilityofCCSforemissionreductionscredits,fromtheuseofCCS tomeetcompliance requirements. However,only inaverylimitedsetofnear-termcaseswillthesemeasurescompletelyclosethegap.

Initial public and private investments are essential to start large-scale CCSdeploymentinCanada.Asisthecasewithotheremissionreductionsoptions,suchas biomass or wind, these projects simply will not proceed in the current marketwhichisbeingdrivenbycarbonpricesinthe$15to$20pertonnerange.

Manyoptionsexistforfundingallocation:targetedRFPs,directstorageincentives,andtaxandroyaltyincentives.RFP(s)arerecommendedforphase-oneinvestmentsbecausetheprocess:

• Is one in which companies can choose to bid based on their own assessedfinancial gap and risk tolerance

• Allows financial certainty for government – the total pot of funding is pre-determined

• Results in valuable cost and opportunity information to governments – the pre-proposalstepenableslearningforbothindustryandgovernment

• Permits the incorporation of metrics other than just cost, such as technicalinnovation

• Allows for the allocation of funding to several projects – it results in an investment portfolio

UndertakingaRFPprocesswillresultinanumberofvaluableobjectives:

• Provethatmegatonne-scaleemissionreductionprojectsarepossiblewithCCS - Confirm the components (capture, transport, and storage) can

beintegrated - Verifyavarietyofgeologicalmediathatworkforstorage• Testtheexistingrulestoensuretheappropriatenessofregulatoryprocesses• Initiatelearning-by-doingtodrivedowncostandidentifytheunknownsabout

CCS• Spurinnovationandtechnologybreakthroughs• Ensurethatknowledgeandtechnologytransferstootherproponents• SupportleadershipinimportantCanadianindustrialsectors



ChampionsFederalandProvincialgovernmentsshouldallocatepublicfundingforphase-oneCCSprojects,andtheyshouldset-upandoverseetheRFPprocess.

Governments should develop RFP(s) through cooperation between the Federalgovernment and Provincial partners, where the provincial partners are thoseregionswiththegreatestpotentialforCCS(theprovinceswithlargeindustrialGHGsourcesandgeologicalstorageopportunities).

Milestones and Outcomes

• Q1-2008 – announce total annual funding support for RFP(s)• Q2-2008 – announce terms of reference for RFP process and call for pre-

proposals• Between Q4-2008 and Q2-2009 – announce all successful RFP bids (phase-one

projects)• 2015 – all funded phase-one projects on stream

Further Details

Regulatory frameworks for CCS should be built from existing legislation andregulationsandundertheexistingauthoritiesthatcurrentlygovernoilandgasandotherindustrialactivities.ManyoftheregulatoryrequirementsforCCSarealreadyinherenttoexistingframeworksandauthorities.However, a number of important gaps do exist in the current frameworks andin particular the following two issues must be resolved as quickly as possible.Legislatures and the relevant regulatory agencies must: first, review and amend existing ownership, disposition, and surface rights legislation to accommodateCO2storagerights;andsecond,articulateliabilityobligationsforallstagesofCCSprojects.Otherimportantregulatoryaspectscanbeaddressedsubsequently,forinstancethecreationofdirectivesorguidelinesforCO2storage44.

Immediate Action #2

Authorities responsible for oil and gas regulation should provide regulatory clarity to move the first CCS projects forward by: quickly confirming legislation and regulation related to pore-space ownership and disposition rights; clearly articulating the terms for the transfer of long-term liability from industry to government; and increasing the transparency of regulatory processes.

44 AlbertaEnergyandUtilitiesBoardDirectivesandSaskatchewanMinistryofEnergyandResources Guidelines are official regulatory documents which lay out the requirements or processes to be implementedandfollowedbylicenseesorotherapprovalholders.



Appropriate amendments to regulations governing pore space ownership anddispositionshouldtakeplaceinjurisdictionsthatareconsideringCCS,mostnotablyin Alberta, Saskatchewan, and British Columbia. Appropriate authorities shouldreviewandamendasrequired:

• Relevant oil and gas and water legislation to confirm the ownership of pore spacetobeusedforCO2disposal

• RelevantoilandgasandrelatedlegislationschemestocreateadispositionschemeforCO2disposalrights

• Relevant legislation to deal with potential conflicts with other disposition holders

• Surfacerightsregimestoensurethatstoragesiteoperatorshaveaccessrightsfortheirsurfaceinfrastructure

LiabilityobligationspresentarisktoCCSprojectdevelopers.DuringtheoperationalandmonitoringstagesCCSprojectsshouldbesubjecttotheusualliabilityrulesthatgovernoilandgasoperations.Governmentsmayrequirethepostingofabond,aletterofcredit,orsomeotherinsuranceorguaranteewhichwouldbehelduntilthemonitoring stage is complete and an official abandonment certificate is issued. To support early projects regulators or government agencies should clarify thatliabilitywilltransfertorelevantgovernmentjurisdictionsonceaprojectmovestothepost-abandonmentphase.Resolvingthisissueisimportantprimarilybecausethe liability timeframes forCCSprojectsextendfarbeyondother typical liabilitytimeframesthatcompaniesareheldtotoday.

Liability Obligations

Once the issues of pore space ownership and liability transfer have beenaddressed, regulators should work towards completing the final set of regulatory requirementsincludinganynecessarydirectivesorguidelines.Intime,ifcommonpipelines or storage facilities become a priority, then so too will the need forrelevantstandards.



The Rationale

CurrentregulatoryframeworksareanexcellentplatformtobuildfrombutinadequaciesinseveralareasindicatetheneedforareviewandwherenecessaryamendmentstosupportCCS.Thegapsinexistingregulatoryframeworksrelatetothreekeyareas:• Ownershipofsubsurfaceporespaceandthemanagementofdispositionofthose

rightsforthepurposeofCO2storage• Articulation and assignment of responsibility for the different liability types

(operational,local,andclimate)andforthespanoftimeframesassociatedwithstorage

• Specification of requirements to cover the operation of CO2 storage projects,throughissuingdirectivesorguidesthatincludebutarenotlimitedtositeselection,monitoring, measurement and verification, and other operational aspects of CCS

Regulatory gaps regarding pore space rights and disposition as well as liability areconsideredtobemostimportantandurgenttomoveearlyCCSprojectsforward.

Theregulatoryagencieswillrequiretimetocompletethiswork,anditisnotpracticaltoexpectthistobeaccomplishedbeforeanyprojectscanproceed.Inaddition,theexperiencegained fromearlyprojectswillbehelpful to informthedevelopmentofmany of these new regulations. Regulatory agencies should provide approvals ona‘one-time’basistoallowthephase-oneprojectstomoveahead;thentheyshouldusethesubsequent learningtowritetherulesforbroaderapplicationof futureCCSprojects.

Champions Provincialauthorities(andwhereappropriatefederalregulatoryagencies)responsibleforoilandgasdevelopmentshouldchampiontheseregulatorydevelopments.Policymakersattheprovincialandfederal levelshoulddirecttheir regulatoryagenciestoundertaketheseefforts.

Industry organizations, such as the Canadian Association of Petroleum Producers(CAPP)andtheSmallExplorersandProducersAssociationofCanadacouldbehelpfulinprovidinginputandfeedbacktoproposedamendmentstooilandgasregulations.


• Q2-2008 – finalize ownership rights and disposition schemes for CO2storage• Q3-2008 – resolve liability obligations for all stages of a storage project• Q4-2009 – advance other regulatory aspects, such as directives or guidelines • Q4-2009 – identify next set of regulatory requirements for future advancements



Further Details

TheTaskForcerecommendsthatCCSshouldberecognizedformallyasaneligibleactivity for generating offset credits, for meeting a regulated entity’s internalGHGreductionobligation,orforboth.EOR-basedreductionsshouldbetreatednodifferentlythanthosefromotherstorageactivitiessuchasdirectstorageintodeepsalineaquifers.

Federalandprovincialgovernmentsshouldmakebesteffortstocoordinateandstandardize their measurement and crediting efforts. An equal level of rigourshouldapplywhenvalidatingreductions,whetherforreductionobligationsorforoffsetprojects.Somejurisdictionsarealreadyleadingtheway,suchasAlberta’seffortsonCCSmeasurementandcreditingprotocols.Finally,theCanadiangovernmentshouldlobbyinternationallyfortherecognitionofCCSasavalidemissionreductionsoption.

The Rationale

The current federal Regulatory Framework for Industrial Air Emissions scarcelymentionsCCSdespitethefactitisanoptionwithbroadapplication.EnsuringaroleforCCSinmeetingemissionreductionsobligations,andmakingcertainthatanycredits fromCCSareno less tradableorvaluable thanothers,willhelp toreduceCCSprojectrisk.

EOR projects will have a smaller financial gap than direct storage projects, and anyemissionreductionscreditsfortheCO2thatispermanentlystored(aspartoftheseprojects)willfurthersupportearlyCCSdeployment.

Standardized accounting methods are needed to ensure the consistentcalculationofemissionsandemissionreductionsforcreditingpurposes.Althoughnot simple to do, a standard approach is needed because of the potentialfinancial value of the credits.

EvenwithadomesticroleforCCSthisactivitystillneedstoberecognizedasanacceptableemission reductionsoptionby the internationalcommunity ifCCS-basedcreditsaretohaveanyinternationalvalue.

Immediate Action #3

Federal and Provincial governments should ensure as much opportunity for CCS projects under the GHG regulatory frameworks as for any other qualifying emission reduction option. This will require the creation of CCS-specific measurement and crediting protocols.



Champions

FederalandProvincialenvironmentdepartmentsare responsible forcreatingandimplementing GHG regulatory frameworks, including specifics such as eligibility criteriaandmeasurementandcreditingprotocols.Milestones and Outcomes

• Q2-2008 – qualify CCS (including EOR-based CCS) as an eligible GHG reductionoption

• Q4-2008 – publish CCS measurement and crediting protocols sufficient for complianceinalljurisdictions

Further Details

Overthenexttwo-yearsindustryandgovernmentshouldworktogethertocoordinatethe learning from the first RFP process, as well as any regulatory advances, and learningfromdomesticandinternationalresearchprojects.Anadvisorygroupthatprovidesacentralizedmeetingplaceforindustryandgovernmenttodialogueandworktogetherwillbeextremelyhelpfuloverthecomingyears.Thearrangementsforthisgroupshouldbeinplacebymid-2008soitcanbegindeliveringadviceand/orrecommendationsonthenextstepsforCCSby2010.Thisgroupcouldalsobeanenabler of specific tasks under immediate actions #1 through #3.

Dependingonwhatisrequired,thisgroupmayevolveintoalarger,newentity(post-2010) – an independent, third-party organization, perhaps an agency or some other stand-alone governance structure that may be empowered to undertake suchactivitiesas:

• ProvideadvicetogovernmentsonpolicymechanismstosupportCCS• OfferadviceonregulatoryframeworksforCCS• Manageincentivemechanismsforphase-twoCCSprojectsand/orcommon

infrastructurecomponents• ProvideaclearinghouseofinformationonCCSactivitiesinCanadaand

abroad• DevelopdomesticandinternationalalliancesonCCSinitiatives• CommunicatewithkeystakeholdersandthepubliconCCS

Next Step #1

Industry and both government levels should form a collaborative framework including an advisory group over the next two years to coordinate discussion, to institutionalize learning, and to potentially carry out specific aspects of immediate actions 1, 2, and 3; this may evolve into a more formal organization as future needs are assessed.



The RationaleCCS is currently in the early, developmental stages and the learning over thenext two-years should leave industry and governments betterequipped toplanfor phase-two CCS projects and/or any common physical infrastructure needs(such as pipelines or multi-user storage facilities). All CCS proponents will benefit fromaformalcollaborativeeffortdedicatedtothedevelopmentofdomesticCCScapacities.

Canada has a successful record of starting with ideas and organically growingthem into largercapacities,organizations,and industrialactivities.Syncrudewasnotedearlierforitsroleinlarge-scaleoilsandsdevelopment.HiberniawascriticaltostartingAtlanticoilandgasactivities.Thenationalrailways,pipelines,transmissiongrids,andotherinfrastructurehaveeachconnectedCanadianmarketsatcriticaljuncturesinthecountry’shistory.

Each of these nation-building exercises began with formal government-industrycollaboration.Alloftheseinitiativesrequirednewentitieswhichofferedtransitionalrolesandstructurestolaunchtherespectivebusinessormarket,andallwerephased-out or privatized when their original goals and objectives were firmly established.

Champions

Industryandbothlevelsofgovernmentareresponsibleforthisrecommendation.Each should provide funding to jointly initiate these collaborative efforts and tocreatetheadvisorygroup.


• Q2-2008 – create the advisory group • Q4-2009 – advise on or recommend phase-two projects and/or infrastructure • Q4-2009 – advise on or recommend governance structures to carry CCS

forward

Next Step #2

Federal and Provincial governments should provide stable financial incentives to help drive CCS activities beyond the phase-one projects. These may include the continuation of RFPs for phase-two projects, CO2 storage incentives, and/or the use of tax and royalty incentives.



Further Details

Financial support for CCS is still likely to be required into the medium termin proportion to the financial gap at that time and the pace of optimal CCS implementation. The phase-one projects will help define the technology requirementsandtheactualcosttoconstructprojects.Inthemeantimetherewillbe better definition of a world ‘carbon price’ and the competitive landscape for Canadianindustry.ThesefactorsmayhelpdevelopanunderstandingofthetotalsizeandtypeofincentivestoinitiatefurtherCCSdeployment.

While breaking ground on the first domestic projects, governments and industry should implement financial mechanisms to spur the next wave of CCS projects and evaluate the case for and timing of the first common infrastructure (multi-user storage facilities or pipelines). While large-scale common infrastructure is not thefocusoftheimmediateactions#1through#3,theTaskForcerecognizesthelonger-termopportunityforsuchinfrastructuretomanagethepotentialvolumeofCO2tobetransportedintheWCSBinthe2020to2025timeframe.

Thefollowingalternativesshouldbeconsideredaspotentialoptionsforphase-twoincentives:

• Continuation of the RFP process – at this point, an RFP structure will be in place, companieswillbefamiliarwiththeprocess,andtheremaybestrongconsensustocontinuewithRFPsastheprimaryfundingmechanismforCCSprojects.Ifso,the experience gained through the first RFP(s) will help streamline subsequent processes.

• CO2 storage incentives – depending on the lessons learned during the first RFP(s)

(suchasactualconstructioncostsandindustry’sabilitytopayandyetremaincompetitive)carefulconsiderationshouldbegiventodirectincentivesforCO2

storage. Learning from the first RFP(s) will help when setting the original levels of CO2storageincentives.

SuchanincentiveshouldbeallocatedonthebasisofdollarspertonneofCO2emissionsavoided45.OneratecouldbeusedfordirectstorageandanotherforEOR.Ineithercase,theincentiveswoulddeclineovertimeorasthecumulativeamountofstorageincreases.

• Government loans or equity positions in projects – if, by the medium-term, there

isan increasedunderstandingofthemeritsofcertainprojectssuchassharedinfrastructureandofapreferredownershipandoperatingstructure,theremaybe a case for government loans or equity positions in some projects. Loanpaybackorequityliquidationmechanismscouldbetiedtocriterialikethefutureprice of carbon or the size of the financial gap for CCS implementation.

45 “Emissionsavoided”isn’tthesameas“emissionsstored”.Avoidedreferstothedifferenceinemissions betweenafacilitywithandonewithoutCCS.StoredreferstothetotalamountofCO2stored underground.



• Tax and royalty incentives – while it is unlikely that any combination of tax and royalty initiatives will be sufficient to close the economic gap facing a CCS project, there may be a role for these incentives to help narrow the financial gap in time. Tax and royalty measures help even the playing field for emission reductions projects, and send the signal that government considers theseprojectstobeimportant.

Examplesof taxand royalty incentivesconsideredby theTaskForce include:capital cost allowances; royalty credits; and property tax relief for CCSprojects.

The Rationale

ItisofparamountimportancethattheincentivesputintoplaceforCCSintheshort-medium-and long-term reflect the importance of Canadian industry remaining competitiveontheworldstage.BurdeningCanadianindustrywithadditionalcoststhatarebeyondthosebornebyitsinternationalcompetitorsisnotanappropriateresponsetothecarbonchallenge.

With the first, and each subsequent phase of projects, the Task Force expects that technology will improve, costs will decrease, and there will be better definition of the prevailing and future cost of emissions. The financial gap is expected to narrowanddirectgovernmentfundingmayalsodecreasecorrespondingly.TheultimategoalshouldbeasituationinwhichCCSprojectsnolongerrequirepublicfinancial support. However, government may play a role in the future ownership ofsharedinfrastructure.TheSwanHillsfacilityinAlbertaisagoodexampleofhowgovernmentsmightbeinvolvedinmulti-userfacilities.

ThereforetheTaskForcerecommendsthatanumberofoptionsbeconsideredforthesecondphaseofCCSprojects,eithersinglyorincombinationwitheachother.ContinuingtoacceleratethepaceofbringingprojectsonlinewillbeessentialformeetingCanada’scarbonchallenge.

Champions

Federal and Provincial departments responsible for resource development, inconcert with their counterparts in finance, are responsible for the evolution and implementation of the proposed financial incentives. Governments may decide tocentralizetheseactivitiesunderasingleentitythatadministerstheseandotheractivities(suchastheentitydescribedunderNextStep#1).

Milestones and Outcomes• Q4-2009 – assimilate key learning from phase-one projects• Q4-2009 – determine incentive programs for phase-two projects • Q1-2010 – define phase-two projects requirements



Further Details

TheCCScomponenttechnologies(forcapture,transport,andstorage)arenotthefundamentalbarriersfacingCCS.Rather,itisthefullintegrationofthesecomponents,at the scale of a commercial industrial facility, and the financial gap associated with such a project, that are the barriers. Continual technological advancementis particularly important in bringing down the cost of capture (the most costlycomponentofatypicalintegratedproject).

Canadian research dollars are often allocated by technology type and dividedalongthedifferentstagesoftheinnovationchain(withdifferentsourcesoffundingforbasicR&D,appliedR&D,demonstrationprojects,andsoon).Ashighlightedinanotherrecentstudy,thisapproachmayleadtosubstandardresultsduetothelackofcoordinationand integrationofeffortsanddue to the fundinggaps thatmayresultincertainstagesoftheinnovationchain46.ForCCS, it isessentialtocoordinateresearchfundingwithafocusoncomponentintegrationandsupportthroughallofthecriticaljuncturesoftheinnovationchain.Inparticular,CCSdemonstrationprojectsarerequired,whichisachallengebecauseofthesizeandscaleofthese.

Research institutes and technology developers should collaborate on CCS-specific research, and governments should coordinate funding for these research effortstoensurethatanyopportunitiesfor integrationaremaximizedandthatlearningissharedacrossindustryandtheresearchcommunity.

Withthisapproachinmind,thefollowingareafewareasthatrequiremorefocusedresearch:

• Power – with a focus on development and cost reductions for post-combustion, pre-combustion,andoxyfuel-combustion inbothcurrentandnextgenerationapplications

• Oil sands – with a focus on next generation gasification-based technology and processes

• Petrochemicals – with a focus on centralized post-combustion absorbers or amine regeneratorstodriveeconomiesofscaleandtechnologyadvancements

Next Step #3

Canadian-based research organizations and technology developers should focus research and demonstration efforts on CCS to achieve two goals: to drive down the cost of existing CCS technologies; and to enable the deployment of next generation CCS technology and processes. The Federal and Provincial governments should provide financial support for these activities.

46 NationalAdvisoryPanelonSustainableEnergyScienceandTechnology.2006.Powerful Connections.



• Advanced material technology – specifically corrosion resistant alloys for infrastructure, is important formanaging theeffectsofH2Sandsulphurdioxide(SO2) in theCO2stream(inthepresenceofwater)

WhileapplicationsexisttodayfortheinjectionandmonitoringofCO2inEORoperations,more study and research is necessary on CO2 performance and behavior in othergeologicalformations.DetailedmatchingofCO2sourceswithpotentialdirectstorageand EOR opportunities in places like the WCSB will help advance domestic CCSactivities.

The Rationale

In the early stages of technology development, improvements to cost andperformancearefundamental.Thisisparticularlyimportantwhenthetechnologyisnotyetcommerciallyviable,andthatiswhyappropriateresearchinstitutesmustfocustheirefforts on CCS – to get the technology over the pre-commercial cost barrier and on the waytobroadimplementation.

TodaythereissomecommercialapplicationforCCSinconjunctionwithEORprojects,but the totalpotentialof theseprojects isnotenough toaccommodate thevolumeofCO2 that is required to make significant emission reductions in Canada. While some privatecapitalwillsurfacefortechnologyadvancement,thelackofclearcommercialdriver forCCSmeans thatother funding is required.CCS isa technologyofnationalimportanceandsoexistingresearchfundingandnewsourcesofpublicfundingshouldbeusedtosupportitsadvancement.

Champions

Federal, Provincial, and other research institutes (such as universities, colleges, andtechnical institutes) should lead in re-prioritizing their research efforts to include aprominentroleforCCS.

TheFederalandProvincialgovernmentsshouldcoordinatefundingforCCStechnologyadvancement.Private-sectorfundingandsupportshouldbeprovidedforresearchinrelationtoindustrialapplicationsorcommercial-scaledemonstrationprojects.


• Q4-2009 – coordinate research activities and identify phase-two projects to fund • Q4-2010 – allocate funding for phase-two research projects• Continual – allocate funding for research efforts on next generation CCS technology• Continual – disseminate learning and experience from research projects


Final ObservationsCCS isvital toCanada’s future,and it isamust-haveforwesternCanadawhichrelies on fossil energy for commercial and personal activities. These fossil energyresourcesputCanadaonthemapofglobalenergycentres,buttoextracttheirfullvaluerequiresaplantomanagetheassociatedGHGemissions.

By 2050, CCS may be contributing significantly to achieving the country’s GHG emission reduction objectives – the domestic potential for capturable CO2maybeashighasone-thirdtoone-halfofthecountry’sprojectedGHGemissionsin2050.

CCScanbeimplementedtoday,asalloftherequiredcomponentsalreadyexist.Thenext step is to build the first few fossil energy facilities that integrate the components (capture,transport,andstorage)atthecommercial-scale,toinitiatethelearning-by-doing phase and to begin the first phase of CCS deployment.

CCSenablesthebuildingofGHGreductioncapabilitiesintotheexistingfoundationalenergy infrastructure that Canadians rely on for economic prosperity and well-being.Itssuccessisparticularlyimportantinregionswithlargeindustrialemissions.Itisfortunate that many of these locations also hold the answer to the problem – stable sedimentaryrockformations,idealforCO2storage.Theco-locationofCO2sourcesandsinksinwesternCanadaandtheresidentCCSexpertisemaketheregiononeofthetopgloballocationsforCCS.ThispresentsanopportunityforCanadatodevelopCCSathome(throughitsfossilenergysectors)andthenmarketthetechnologyandtheexpertisetotheworld.

ThisisaprospectforCanadianleadershipbutindustryandgovernmentsmustbeginworking today to create the commercial arrangements and lay the regulatorygroundwork to first accomplish the target of five Mt/year by 2015 followed by continuedsupportforCCSdeploymentinthefuture.

ThisledtheTaskForcetorecommendthefollowingimmediaterolesforgovernmenttoundertake(before2010):

• Tender immediate public financial support for the first few commercial-scale projects

• AmendexistinglegislationandregulationstoenableCCSprojectstomoveahead

• ProvideaclearroleforCCSinmeetingacompany’semissionreductionobligations

Final Observations


Inaddition,theTaskForcerecommendedthreenextstepstohelplaythegroundworkforcontinuingtocarryCCSforward.

While CCS offers a significant prospect in Canada, its success relies on creating the broad-based conditions that support the first and subsequent waves of investment; andmeanwhile,gainingthepublic’ssupportforCCSasanacceptablewaytomeetthecarbonchallenge.

CCSisanopportunityforthecountrytobecomeaworld leader indemonstratingthat emission reductions, industrial advancement, and economic growth can beachieved together. Achieving the five Mt of annual capacity by 2015 would virtually guaranteesuchaleadingpositionforCanadainthisemergingcapability.


Appendix I – Working Group Members ThefollowingisalistofWorkingGroupMembers,allofwhomcontributedthroughouttheworkinggroupactivities.WhilethediscussionsoftheTaskForcewereinformedby input from the working groups, the final Task Force report does not necessarily reflect the views of individual Working Group Members.

Technical Working Group

IanAnderson(Co-Chair)KathySendall(Co-Chair)BillReynen(Co-Chair)StefanBachuBillGunterEddyIsaacsKouroshZanganehPhilip Shum (ex-officio)

Economic and Policy Working Group

DavidKeith(Co-Chair)JimDinning(Co-Chair)AllanAmeyStephenKaufmanKarlJohannsonNickSchultzAdam Hendriks (ex-officio)Sandra Locke (ex-officio)Regulatory and Legal Working Group

PatriciaYouzwa(Co-Chair)MalcolmWilson(Co-Chair)KenBrownAndyRidgeNigelBankesAnne-Marie Thompson (ex-officio)Colin Pate (ex-officio)

canada’s fossil energy future · 2011. 9. 1. · foreword from the task force chair canada’s...

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