Craig Golinowski is president of a Calgary-based private equity firm that rebranded itself a year and a half ago from a backer exclusively of small and mid-sized oil companies to an outfit seeking to fund carbon capture and storage projects. But the plan to offer his investors a piece of the energy transition has hit snags.
The company, Carbon Infrastructure Partners, is set up to marry natural gas production and decarbonization. Mr. Golinowski says the world cannot function today without fossil fuels, which are now in a supply crisis, so focusing on the emissions is the answer. Formerly called JOG Capital, the firm remains invested in traditional energy on behalf of its investors, but has yet to develop a carbon capture, utilization and storage (CCUS) project, largely because of uncertain policies related to guaranteeing carbon prices. He’s not giving up, though.
“We have been working on trying to build an emerging industry. It’s sort of evangelical or missionary work. I’m not sure I would do it again if I knew, but I do believe this fundamentally is the right thing to do,” Mr. Golinowski said in an interview.
The oil and gas industry sees CCUS – trapping carbon emissions and storing them underground – as the primary way it can contribute to meeting Canada’s target for getting to net zero by 2050. Most of the discussion is centred on large-scale projects in the oil sands and petrochemicals, from which carbon can flow long distances into a hub. This year the Alberta government selected six developers to build sequestration hubs.
But private equity players such as Carbon Infrastructure are best suited for funding smaller facilities at widely-distributed sites that can capture and store CO2 nearby. To move forward, those investors want certainty with carbon prices so developers can offer credits for offsetting emissions at a predictable price when facilities are completed.
The opportunity for such “entrepreneurial projects” is substantial – up to 17 megatonnes or 10 per cent of all Alberta emissions for 450 sites, said Jackie Forrest, executive director at ARC Energy Research Institute. “We think it makes more sense to store those locally, in hydrocarbon reservoirs that are right there. Without that opportunity we doubt it will be economic to capture many of those,” Ms. Forrest said.
Environmental activists deride carbon capture as a Band-Aid solution to the problem of carbon emissions, an excuse to keep producing fossil fuels when the world should be weaning itself off them. However, industry players point to Europe’s energy crisis, which promises massive cost increases for consumers this winter, and say the technology is the best and quickest way to cut emissions to deal with the climate crisis while offering the least economic disruption as more renewable sources are deployed.
There are positive signs on the policy front, but would-be developers say they need more certainty. Ottawa has offered an investment tax credit that covers 50 per cent of capital spending for capture costs after a lobbying effort that Mr. Golinowski and others participated in. That helps offset upfront costs, but does not guarantee revenues down the road. A main risk is that a future government scraps the program.
This summer, U.S. President Joe Biden upped the ante in carbon capture with the Inflation Reduction Act, which sweetened the U.S. tax credit to US$85 per tonne for CO2 captured, and maintained a 12-year credit period. That combo is expected to spawn a raft of new proposals.
Canadian developers need such certainty – that carbon prices will rise on the schedule the current government sets, or that there is a mechanism to make up the difference if they do not, Mr. Golinowski said. The idea of a carbon contract for differences in prices is being discussed. That would give banks the security they need to extend financing for CCUS projects. Also, if Canada does not offer similar terms as the United States, the risk is that capital bypasses Canadian developers.
The U.S. legislation “threads the needle very well” in terms of encouraging climate action and supporting a nascent industry, said James Millar, chief executive officer of the Regina-based International CCS Knowledge Centre. Ottawa should take the cue and move forward with a price guarantee for developers so it can move more quickly toward meeting its own greenhouse gas reduction targets, he said.
That feedback has been clear among market participants: Without that surety, projects will not proceed, Mr. Golinowski said. “If you don’t make something make sense with carbon capture, what actually makes sense is for me to disassemble my plant in Canada, move it across the border and just put it back together in the United States.”
One project has moved forward with participation from one of the world’s largest private equity firms, but the partners are currently shouldering the price risk. Entropy Inc. was established as a unit of Calgary-based Advantage Energy Ltd. to employ technology to capture carbon at an Advantage gas plant in Alberta, and contract out its services to other emitters.
This year, Entropy got a $300-million capital injection from Brookfield Asset Management’s climate impact fund, which is co-managed by Mark Carney and Connor Teskey, to scale up capacity to expand use of the technology. It has commissioned the first phase of a project that will capture 47,000 tonnes per year of CO2 equivalent at Advantage’s Glacier gas plant.
A high carbon price that could later disappear is far riskier for developers than a more modest but secure price, said Michael Belenkie, Entropy’s CEO. “It has the potential to be a bait-and-switch, where people throw billions of dollars into projects, and then after a regime change – there’s a new government in place or public opinion sways – the carbon tax goes away,” he said.
“We don’t think this is likely, but even a 10-per-cent chance of falling off of a ledge is too high of a chance to take.”