{"id":60180,"date":"2023-07-11T10:59:51","date_gmt":"2023-07-11T17:59:51","guid":{"rendered":"https:\/\/energi.media\/?p=60180"},"modified":"2023-07-11T10:59:51","modified_gmt":"2023-07-11T17:59:51","slug":"cash-flow-modeling-shows-carbon-capture-and-storage-can-help-meet-climate-goals","status":"publish","type":"post","link":"https:\/\/energi.media\/news\/cash-flow-modeling-shows-carbon-capture-and-storage-can-help-meet-climate-goals\/","title":{"rendered":"Cash-flow modeling shows carbon capture and storage can help meet climate goals"},"content":{"rendered":"<p><em>This article was published by <a href=\"https:\/\/policyoptions.irpp.org\/magazines\/july-2023\/carbon-capture-goals\/?fbclid=IwAR32YqHNfmA0KqCBiAB2SNQ6XYV8MRy1Faz_WcFgYe6OI4K0EcYGjroIh0g\" target=\"_blank\" rel=\"noopener\">Policy Options<\/a> on July 10, 2023.<\/em><\/p>\n<p>by\u00a0<a href=\"https:\/\/policyoptions.irpp.org\/?post_type=authors&amp;p=107611\">Scott MacDougall, <\/a>\u00a0<a href=\"https:\/\/policyoptions.irpp.org\/authors\/jonathan-arnold\/\">Jonathan Arnold, <\/a>\u00a0<a href=\"https:\/\/policyoptions.irpp.org\/authors\/janetta-mckenzie\/\">Janetta McKenzie<\/a><\/p>\n<p><em>This is the third article in a series of three on Canada\u2019s climate objectives and the oil and gas sector. The first article can be found\u00a0<a href=\"https:\/\/policyoptions.irpp.org\/magazines\/july-2023\/oil-gas-climate-taxonomy\/\">here<\/a>, the\u00a0<a href=\"https:\/\/policyoptions.irpp.org\/magazines\/july-2023\/subsidies-oil-gas\/\">second here.<\/a>\u00a0<\/em><\/p>\n<p>Companies responsible for 95 per cent of oilsands production in Canada have committed to achieving net-zero upstream emissions by mid-century.<\/p>\n<p>Achieving this ambitious goal requires timely and unprecedented investments. It will also be essential to comply with the federal government\u2019s\u00a0<a href=\"https:\/\/www.canada.ca\/en\/services\/environment\/weather\/climatechange\/climate-plan\/oil-gas-emissions-cap.html\">forthcoming cap<\/a>\u00a0on oil and gas emissions and to stay competitive in the global low-carbon transition.<\/p>\n<p>Looking across the options that oilsands producers have to reduce their emissions, carbon capture and storage (CCS) could have the\u00a0<a href=\"https:\/\/www.cer-rec.gc.ca\/en\/data-analysis\/canada-energy-future\/2023\/canada-energy-futures-2023.pdf\">biggest impact<\/a>. Despite its potential, however, the economic case for CCS is still unclear. Publicly available information is limited and shows a wide range of costs to deploy the technology.<\/p>\n<p>Meanwhile, the largest oilsands operators are requesting an\u00a0<a href=\"https:\/\/www.thestar.com\/business\/opinion\/2023\/02\/04\/albertas-oilpatch-is-making-record-billions-so-why-should-we-pay-for-their-carbon-capture-plant.html\">additional $11 billion<\/a>\u00a0from governments to help pay for CCS projects.<\/p>\n<p>To shed light on how existing regulations and proposed financial incentives affect the economics of oilsands CCS projects, we developed a cash-flow model (using publicly available information) to examine the viability of retrofitting two hypothetical oilsands facilities with CCS.<\/p>\n<p>(For the purposes of our analysis, we leave aside questions about whether CCS technology can be deployed at scale and assume it can and should be scaled.)<\/p>\n<p>The upshot? Our modeling shows that these projects are economically viable after factoring in Canada\u2019s suite of climate regulations and incentives, including the rising carbon price. In fact, our modeling shows private investment in oilsands CCS projects could yield substantial returns for the companies.<\/p>\n<p>These findings raise big questions about the role of government policy, particularly at a time when the oilsands industry is asking for billions of dollars in additional taxpayer funds.<\/p>\n<p>For starters, our results show why further public subsidies, beyond what have been announced, are not necessary to make these projects economic.<\/p>\n<p>They also highlight the need to design public incentives with mechanisms that prevent excessive profits from supporting projects that would ultimately make it harder and more expensive to reduce emissions.<\/p>\n<p>In addition, the results show why it\u2019s critical to finalize keystone policies to get oilsands CCS projects off the ground and to provide policy certainty. Not all CCS projects will get the same incentives, project costs vary and critical incentives from federal and provincial carbon pricing systems are not easy to bank on in the long term.<\/p>\n<p>Proposed\u00a0<a href=\"https:\/\/climateinstitute.ca\/what-are-contracts-for-difference\/#:~:text=Contracts%20for%20difference%20are%20an,lowering%20fiscal%20costs%20for%20governments.\">contracts for differences<\/a>\u00a0that would help underwrite the carbon-pricing risk, as well as proposed investment tax credits, have been slow to be developed and are not yet final.<\/p>\n<p>As federal and provincial governments continue to weigh the economics and tradeoffs at play, we offer three major takeaways from our results (our in-depth technical supplement is forthcoming on the Pembina Institute website).<\/p>\n<h3><strong>1.\u00a0<\/strong><strong>Deploying CCS on oilsands facilities can improve the industry\u2019s carbon competitiveness but does not eliminate transition risk<\/strong><\/h3>\n<p>Scaling up CCS could significantly cut emissions and improve an oilsands facility\u2019s carbon competitiveness.<\/p>\n<p>A\u00a0<a href=\"https:\/\/www.cer-rec.gc.ca\/en\/data-analysis\/canada-energy-future\/2023\/canada-energy-futures-2023.pdf\">new analysis<\/a>\u00a0by the Canada Energy Regulator (CER) shows that as the transition to a global low-carbon economy accelerates, oil demand is expected to decline significantly. In that shrinking market, oil producers with the lowest costs and carbon intensities will be more competitive and will have a lower risk of their facilities becoming stranded.<\/p>\n<p>The chart below shows carbon intensity and production costs for existing Canadian oilsands facilities and how they compare with international crudes.<\/p>\n<p>Some Canadian facilities perform only a little worse than global averages, while some are much worse. Over time, as oil demand declines, cost pressures and the requirements to reduce emissions could increase stranded-asset risk for facilities with higher break-even prices and higher carbon intensities.<\/p>\n<figure id=\"attachment_60182\" aria-describedby=\"caption-attachment-60182\" style=\"width: 1000px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-60182\" src=\"https:\/\/energi.media\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-11-at-10.11.59-AM-1.png\" alt=\"\" width=\"1000\" height=\"809\" srcset=\"https:\/\/energi.media\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-11-at-10.11.59-AM-1.png 1000w, https:\/\/energi.media\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-11-at-10.11.59-AM-1-300x243.png 300w, https:\/\/energi.media\/wp-content\/uploads\/2023\/07\/Screenshot-2023-07-11-at-10.11.59-AM-1-768x621.png 768w\" sizes=\"auto, (max-width: 1000px) 100vw, 1000px\" \/><figcaption id=\"caption-attachment-60182\" class=\"wp-caption-text\">To see an animated version of this graph <a href=\"https:\/\/policyoptions.irpp.org\/magazines\/july-2023\/carbon-capture-goals\/?fbclid=IwAR32YqHNfmA0KqCBiAB2SNQ6XYV8MRy1Faz_WcFgYe6OI4K0EcYGjroIh0g\" target=\"_blank\" rel=\"noopener\">click here<\/a>.<\/figcaption><\/figure>\n<p>The figure above shows the impact of adding one megatonne per year of CCS to an oilsands in-situ and to an integrated mine facility.<\/p>\n<p>At the in-situ facility, CCS could allow it to beat the global average crude oil emissions intensity, cutting emissions by 40 per cent. An oilsands mining facility, on the other hand, would need to invest in several CCS projects to achieve global average emissions intensity.<\/p>\n<p>Importantly, both projects could generate net earnings from installing CCS, equivalent to about $2 per barrel, improving a project\u2019s cost competitiveness.<\/p>\n<p>These improvements would not, however, eliminate the transition risk facing oilsands facilities. Achieving the Paris Agreement goal requires a steep drop in the emissions generated from upstream oil production over time (about 90 per cent from 2023 levels, according to the CER analysis), so benchmarking against current averages will not be good enough.<\/p>\n<p>Moreover, installing CCS might not be worth it at facilities with limited remaining reserves, or very high carbon and cost intensities, because it may not be feasible or justifiable to make them competitive in the medium to longer term.<\/p>\n<p>Even for competitive projects, stranded asset risk is not static. Those with longer economic lifespans and lower risk today will eventually face a high longer-term risk of becoming stranded as global oil demand declines.<\/p>\n<h3><strong>2.\u00a0<\/strong><strong>Governments should follow through with announced policy measures swiftly, so installing CCS on existing oilsands facilities is economically viable before 2030<\/strong><\/h3>\n<p>A key indicator for whether any decarbonization project is economically viable is how its cost compares to Canada\u2019s rising federally set carbon price, which applies to large industrial emitters. If the cost to reduce (or eliminate) emissions from a facility is cheaper than paying a carbon price on these same emissions, businesses have an incentive to build the decarbonization project.<\/p>\n<p>Our modeling shows that both types of CCS projects are economically viable against this measure.<\/p>\n","protected":false},"excerpt":{"rendered":"<div class=\"mh-excerpt\"><p>This article was published by Policy Options on July 10, 2023. by\u00a0Scott MacDougall, \u00a0Jonathan Arnold, \u00a0Janetta McKenzie This is the third article in a series of three on Canada\u2019s climate objectives and the oil and <a class=\"mh-excerpt-more\" href=\"https:\/\/energi.media\/news\/cash-flow-modeling-shows-carbon-capture-and-storage-can-help-meet-climate-goals\/\" title=\"Cash-flow modeling shows carbon capture and storage can help meet climate goals\">[Read more]<\/a><\/p>\n<\/div>","protected":false},"author":6,"featured_media":60188,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"give_campaign_id":0,"footnotes":""},"categories":[1],"tags":[2499,1947,80,14,75],"class_list":{"0":"post-60180","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-news","8":"tag-carbon-intensity","9":"tag-ccs","10":"tag-environment","11":"tag-featured","12":"tag-oil-sands"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.5 - 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