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Pioneer’s collapse hits Canada’s CCS hopes

Canada’s hopes for large-scale carbon capture and sequestration (CCS) are in tatters following the collapse of a taxpayer-backed multi-billion dollar project

The Pioneer CCS facility would have been the first large-scale implementation of CCS at a coal-fired power plant and was expected to account for 20% of Alberta’s emissions reductions by 2015.

Even though two-thirds of the C$1.4 billion ($1.41bn) cost would have been borne by local and federal governments, plant owner TransAlta Corporation said the economics of CCS do not justify the expense in the absence of a national carbon trading market. It also complained there was no way to capture the value of emissions reductions credits.

Although front-end engineering and design (FEED) determined the technology works and capital costs are in line with expectations, the company said revenue from carbon sales and the price of emissions reductions are “insufficient” to allow the project to proceed.

“While we are disappointed that project Pioneer will not go ahead, we now know the technology works and we still believe there is a future for CCS,” said TransAlta chief executive Dawn Farrell.

With C$780 million of taxpayer dollars behind it, Pioneer was meant to be a showcase of Canada’s determination to reduce carbon emissions from energy production. Even the Australia-based Global CCS Institute granted C$5m toward the project, as a sign of international cooperation.

But moral and financial support was not enough to keep the project alive. Ironically, TransAlta was the most aggressive proponent in securing crucial government funding when Pioneer was announced in October 2009, even though critics said it was a giveaway of taxpayer dollars.

They based their claim on the fact that TransAlta is already the largest emitter of greenhouse gases (GHG) in Canada, according to the federal government’s latest UN Panel on Climate Change submission. That document identified four of TransAlta’s coal plants as being among the country’s 10 largest sources of GHG emissions in 2011, a point that the company does not dispute.

For almost a decade, TransAlta has been painfully aware of the need to reduce its emissions. As far back as 2008, then-chief executive Steve Snyder urged support for policies to develop CCS.

When it was announced in 2009, Pioneer was a rare show of cooperation between government and industry, and a symbol of faith that technology could solve Canada’s emissions problem. As recently as March, the partners were touting Pioneer as a feat of industrial ingenuity and resolve to reduce GHGs while it applied for formal regulatory approvals.

The plan was to capture one megatonne (mt) of carbon dioxide (CO2) per year from the Keephills 3 generating plant using flu-gas amine separation and sequester it in deep rock formations two kilometres ms underground. From there, it was to be piped for use in enhanced oil recovery. The 495-megawatt Keephills plant came on line in September last year at a cost of C$1.98bn, and is already one of Canada’s largest sources of CO2.

To add insult to injury, TransAlta now says it is cheaper to pay Alberta’s $15/tonne surcharge on large emitters than proceed with CCS, despite hundreds of millions of dollars of direct subsidy.

It’s a crushing blow for Canada, which hoped CCS would help deflect criticism of its growing oil-sands emissions. And it’s also a major disappointment for the taxpayers of Alberta, who are shouldering the lion’s share of the financial burden.

Despite the setback, GHG reduction continues to take on a growing political urgency for efforts to assuage concerns over oil sands development. Canada has pointed to its CCS investments to confront issues such as the EU’s proposed fuel quality directive and the US rejection of the Keystone XL pipeline, and a sign it is committed to reducing its carbon footprint.

Even in the oil-producing region of Alberta, there is recognition that environmental performance is key to opening new export markets, especially for oil sands.

Recognising that the international community is watching, the government has attempted to articulate a proactive policy or risk C$100-billion worth of new oil-sands expansions, but the recent developments suggest it still isn’t enough.

Alberta is the only jurisdiction in North America that penalises large industrial emitters, at $15/tonne, for exceeding mandated emissions targets, and pools the money into a special technology fund to advance CCS research. In addition, Alberta has set aside $2bn to directly fund CCS capital projects, a major commitment of taxpayer dollars at a time when the public accounts are more than $5bn in arrears and projected to stay that way through 2013.

The idea of using tax dollars to pay for emissions reduction emerged as an election issue from critics who complain the government is essentially subsidising industry at taxpayer’s expense. Another large recipient of this largesse has been Shell Canada, which received $865m for its C$1.3bn Quest CO2 project near Edmonton. About C$745m is coming directly from Alberta.

Despite opposition vows to shut down what it sees as corporate welfare, newly re-elected premier Alison Redford has said she will continue doling out public dollars for CCS even as she scrapes to find cash for hospitals and schools.

Nonetheless, concerns are growing that Alberta lacks an alternative if CCS technology runs aground. Unfortunately, technology is not the problem; a patchwork of national policies, or the lack of them, is to blame. Each province has its own emissions reduction strategy and none of them are in step with Ottawa.

The federal government says it is waiting on the US to come up with harmonised targets, but further delays diminishes the steps that have already been taken by provinces like Alberta to find a commercial market for CO2.

It seems even those efforts, including penalising emitters, are not enough to convince even the worst polluters to get on board.

It also demonstrates the limits to which governments can reasonably see themselves as “partners” with industry. It’s not up to the public to shoulder the financial risk of commercialising new technology, but rather it is up to government to regulate it. Government insiders have privately expressed relief that taxpayers will get their money back, but it’s a moot point when GHG reduction is voluntary.

If charging $15/tonne is not enough economic incentive to reduce CO2, then the cost of non-compliance needs to be considerably higher. And given that industry hasn’t taken the carrot, a more practical approach to public policy is to use the stick by doubling, or tripling carbon levies. Would Pioneer have proven commercially viable if it was required to pay $150/t instead of $15/t?

This may be the only way to drive home the message that GHG reduction is not optional, it is mandatory.

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