The Carbon Capture Conundrum: Who’s Really Paying for Pathways?

The announcement last month of a deal to proceed with the carbon capture project known as Pathways, a partnership between the federal and Alberta governments and five major oilsands companies, has sparked renewed debate over the wisdom of investing in this initiative. At its core, the issue revolves around who will ultimately bear the costs of this project and whether it is fair to expect taxpayers to foot the bill for what amounts to a subsidy for an industry that is already extremely profitable.

The Pathways project’s evolution raises questions about its true motivations. Initially, the oil companies involved proposed capturing 22 million tonnes of carbon by 2030. This goal has since been scaled back to just six million tonnes per year by the mid-2030s, with an additional ten million tonnes of reductions sought by 2045.

The agreement reached last month includes a commitment from the federal government to provide investment tax credits of up to 50% on carbon capture equipment and 37.5% on associated equipment for transport and storage. The federal government has also pledged to offer further financing and support to cover operating costs for Pathways even after it is built, sparking criticism that this represents a sweetheart deal for the oilsands industry.

Janetta McKenzie, director of oil and gas at the Pembina Institute, notes that this public support package for the oilsands is part of a broader pattern. “This seems like ‘a very significant … public support package for the oilsands, which are an extremely profitable industry and probably not the type of industry or sector that Canadians would maybe look at and think needs a hand’,” she said.

Proponents argue that Pathways will provide a financial incentive for oil companies to reduce their emissions. However, experts point out that this is only half the story. The market for carbon credits in Alberta is trading at around $35 per tonne – far below the official carbon price of $95 per tonne. This makes it difficult for oil companies to recoup their costs through sales of carbon credits.

Eric Chi, a professor of economics at the University of Guelph, suggests that the government could address this issue by offering subsidies to keep carbon capture projects running or increasing requirements on companies to reduce their emissions. “If initially you were required to reduce CO2 emissions by 100 tonnes, but now if we raise the requirement to 200 tonnes, let’s say, then they will need to spend more money to buy these carbon credits,” he noted.

The Pathways project raises important questions about government support for industries struggling with environmental realities. Alex Pourbaix, former CEO of Cenovus, observed during a 2021 interview that “Pathways would need additional government support beyond just tax credits.” The fact that oil companies continue to demand more subsidies even as they reap record profits is a stark reminder of the power dynamics at play.

Ultimately, the Pathways project represents a classic case of market failure – one that has been compounded by ineffective policy solutions. Policymakers should take a hard look at the underlying economics and make tough choices about resource allocation. The public deserves better than to be asked to foot the bill for an industry that is already richly rewarded.