(Calgary) An Alberta company specializing in carbon capture has signed a carbon credit flow agreement with the federal government, the first of its kind. The industry believes this example could encourage the private sector to invest in decarbonization projects.
The government announced on Wednesday that it had signed a first contract with Entropy, which has developed modular technology for carbon capture, use and storage.
Under the agreement, the Canada Growth Fund will directly invest $200 million in Entropy and provide it with a framework for releasing long-term carbon credits.
The Canada Growth Fund has agreed to purchase up to 185,000 tonnes of carbon credits from Entropy for a term of 15 years at an initial price of $86.50 per tonne.
The federal Liberal government promised, in its recent fall economic statement, to introduce a framework for carbon contracts for difference to give visibility to companies considering investments in emissions reduction technologies.
Carbon contracts for difference reduce risk for companies investing in clean technologies, by guaranteeing a carbon price threshold for a specified period.
That is, if the federal carbon price is reversed by a future government or does not increase as planned, setting up a contract for difference gives companies confidence that their costly investments in decarbonization technologies in will always be worth it.
“When you have a project that costs hundreds of millions, it takes about a decade to make it profitable,” said Entropy President and CEO Mike Belenkie in an interview. The carbon tax is therefore not an appropriate instrument to encourage this investment. »
He adds that implementing contracts for difference for carbon means Entropy no longer has to make its decarbonization bet solely on the assumption that the federal carbon price will continue to rise.
Wednesday’s announcement removes enough investment risk for Entropy to move forward with its proposal for a $49 million second phase of its carbon capture and storage project at Advantage Glacier. Energy in Alberta, he emphasizes.
“For us, this is the perfect solution,” reacts Mr. Belenkie. We have a 15 year direct debit guarantee…this is more than enough time for us to know that for the service we provide, we will be able to recoup our investment. »
Many environmental groups have argued that this type of agreement has long been the missing piece to encourage private sector investment in decarbonization.
Michael Bernstein, the chief executive of Clean Prosperity, says the concept is particularly important for carbon capture because it complements an already announced investment tax credit.
“There is no direct income from carbon capture for many of these companies,” he explains in an interview. Ultimately, profitability must be considered. »
“These companies need to know that if they are investing hundreds of millions of their own capital, there is an economic rationale for that. »
Mr. Bernstein believes that while Wednesday’s announcement was potentially extremely important, it would not immediately lead to a wave of investment confirmations. The first contract is specific to Entropy, and Mr. Bernstein believes there should be a more standardized version of a contract, which would be broadly applicable to other companies.
“We really encouraged the Growth Fund to take a more systematic approach […] so that companies know from the start what they could receive,” he says.
The New Pathways Alliance, a group including Canada’s largest oil sands companies, is pushing for the adoption of carbon contracts for difference. The Alliance is proposing to build a nearly $16.5 billion carbon capture and storage network in northern Alberta.
The group has not yet formally committed to launching the project.
New Pathways Alliance spokesperson Mark Cameron responded that the organization was working with the federal government to explore how carbon contracts for difference could be applicable to large-scale projects like the one proposed by its organization.
“It is encouraging to see Ottawa acting to help address the need to de-risk investments in emissions reduction projects, through tools such as carbon contracts for difference,” says Cameron.