Sask. government, Opposition disappointed enhanced oil recovery excluded from federal tax credit

The Saskatchewan government wants a federal tax credit for carbon capture and storage to apply to enhanced oil recovery projects, which see companies collect CO2 emissions and pump the gases into oilfields to boost production. (Larry MacDougal/Canadian Press - image credit)
The Saskatchewan government wants a federal tax credit for carbon capture and storage to apply to enhanced oil recovery projects, which see companies collect CO2 emissions and pump the gases into oilfields to boost production. (Larry MacDougal/Canadian Press - image credit)

The Saskatchewan government and the Official Opposition say they are disappointed a federal tax credit for carbon capture and storage announced in last week's federal budget doesn't apply to projects that use a process referred to as enhanced oil recovery.

Premier Scott Moe said the Liberal government's budget "misses the mark" when it comes to projects that use that process.

The government is spending $2.6 billion over five years on the refundable tax credit for businesses to cover costs for what's commonly referred to as CCUS — carbon capture, utilization and storage (or sequestration).

In 2026 and beyond, the tax credit is expected to cost $1.5 billion annually.

The credit will be available for projects that permanently store captured carbon dioxide "through an eligible use," the budget says.

"Eligible CO2 uses include dedicated geological storage and storage of CO2 in concrete, but does not include enhanced oil recovery."

Enhanced oil recovery is a process that sees companies collect CO2 emissions and pump the gases into oilfields to boost production.

The federal government is pledging to cover 60 per cent of equipment for projects that use direct air capture — which filters existing carbon dioxide out of the air — and 50 per cent if the emissions come from an industrial facility. The tax credit also covers 37.5 per cent of other eligible equipment used for transport and storing the carbon dioxide.

CBC
CBC

Saskatchewan Energy Minister Bronwyn Eyre says if the federal government wants to boost domestic oil production, it should support enhanced oil recovery and include its use in the credit.

"If you can use the CO2 … especially if you're talking about increasing production and while meeting climate goals, then it really makes sense because of the climate footprint, the environmental footprint of enhanced oil recovery," she said in an interview with CBC News.

Eyre said it is "short-sighted" of the federal government to support the development of carbon capture technology but "shut off the idea CO2 could be used for something."

The Saskatchewan Party government supports the federal government offering the credit to cover the infrastructure costs of carbon capture and storage, Eyre said.

"Saskatchewan has been doing [enhanced oil recovery] for decades. It increases the sustainability of a well. Why wouldn't one try to do that instead of drilling a new one?"

But it appears the door is closed on the prospect of a federal credit for enhanced oil recovery as a carbon capture approach, she said.

"One has to remain hopeful that maybe some of the connections and interconnections will become apparent as some of the infrastructure … [is] established," said Eyre.

Agreement from NDP

The finance critic for Saskatchewan's Opposition party agrees that the federal government should apply the credit to enhanced oil recovery.

"We don't think it makes sense for the federal government to exclude carbon capture as it applies to enhanced oil recovery in the credit that they've brought forward," said the NDP's Trent Wotherspoon.

CBC
CBC

It's important to reduce emissions and the industry is playing a role in that, he said, which the federal government should recognize.

"This is certainly an area where we can stand united as a legislature, stand together in making that call on Ottawa to not exclude … enhanced oil recovery."

Federal Minister of Natural Resources Jonathan Wilkinson says the point of the tax credit is to reduce emissions, not support a system to produce more oil.

Carbon capture and storage is "a tool to reduce emissions from not just the oil and gas space, but fertilizer, steel, and cement," he told CBC News in an interview Thursday.

Kyle Bakx/CBC
Kyle Bakx/CBC

In consultations with the province, it was clear that enhanced oil recovery would not be part of the credit, Wilkinson said.

"It's not about enhancing production," he said, pointing to the example of a U.S. tax credit called 45Q, which does apply to enhanced oil recovery projects.

Eyre says the federal government should have offered a credit similar to that.

Wilkson disagrees.

"What they found … is that it has resulted in increases in production associated with the tax credit," he said. "That's not why we're introducing the tax credit."

Rather, the federal government is "subsidizing carbon capture and sequestration for the purpose of reducing emissions and to meet our climate goal," he said.

Climate 'shouldn't be a political issue': minister

Last week, Premier Moe said in a speech in Prince Albert that he wasn't bothered by criticism that Saskatchewan has the highest per capita carbon emissions in the country.

"A lot of folks will come to me and say, 'Hey, you guys have the highest carbon emissions per capita.' I don't care,'" said Moe during the speech.

"We have the highest exports per capita in Canada as well. We make the cleanest products and then we send it to over 150 countries around the world."

On Monday, Moe defended the comments, accusing those who focus on per capita emissions of "trying to … score cheap political points."

Wilkinson said Thursday that reducing emissions is a responsibility of the federal government and the provinces.

"Climate change is a science issue.… It honestly shouldn't be a political issue," he said.

"We have to make reductions in absolute emissions in every country around the world.… Not just Saskatchewan, but Canada is one of the highest on a per capita basis around the world," said Wilkinson.

"What we need to do is ensure that we are working together to make those reductions in a manner that's actually going to create jobs and economic opportunity going forward in every region of this country."