Canadian industry singing praises of Inflation Reduction Act as federal budget nears

CALGARY – Canadian oil and gas corporations are singing from the identical songbook within the lead-up to the 2023 federal budget, and its title is the Inflation Reduction Act.

The U.S. laws, signed into law by U.S. President Joe Biden in August of last yr, has been brought up time and again in recent weeks by industry leaders jockeying for support for emissions reductions projects.

Whether folks prefer it or not, you’re really competing against the IRA,“ said Enbridge Inc. CEO Greg Ebel during his company’s annual investor day last week. He noted that his company has operations on each side of the border and may select whether to speculate its capital within the U.S. or Canada.

“They usually (the Americans) have really put a variety of carrots on the table by way of promoting people to speculate there.”

The Inflation Reduction Act, or IRA, is the USA’ most ambitious piece of climate laws ever. It offers about $375 billion in latest and prolonged tax credits — for all the pieces from renewable electricity generation to hydrogen production to sustainable jet fuel usage — to assist the U.S. clean energy industry get off the bottom.

The IRA has been widely praised for kick-starting the worldwide clean energy investment race. But here in Canada, some corporations have said the U.S. incentives are so attractive that it’s not possible to compete.

Last week, Calgary-based fuel producer Parkland Corp. announced it can not be going ahead with its plan to construct a standalone renewable diesel complex at its refinery in Burnaby, B.C., partly because the corporate believes the incentives offered by the IRA give a bonus to producers south of the border.

The Pathways Alliance, an oilsands industry group, has also argued that its proposed $16.5-billion carbon capture and storage transportation line project is currently at a competitive drawback to U.S. carbon capture projects.

While Prime Minister Justin Trudeau’s government has already announced the creation of an investment tax credit for carbon capture projects, the IRA offers a much stronger incentive for corporations in the shape of a guaranteed US$85 price for every tonne of injected carbon.

That difference will mean a much faster deployment of carbon capture technology within the U.S., said Mike Belenkie, CEO of Calgary-based Advantage Energy Ltd, which — through its subsidiary Entropy Inc. — already has a commercial-scale carbon capture project up and running at its Glacier gas plant in northwest Alberta.

“An investment tax credit subsidizes upfront capital spending,” Belenkie said, adding that due to the IRA, Entropy Inc. recently made the choice to focus all of its future carbon capture growth plans within the U.S.

“A production tax credit, just like the IRA offers, actually incentivizes the production of negative carbon,” Belenkie said. “It means you’ve to be good at actually capturing the carbon and accomplishing your goal.”

Dan Woynillowicz, a B.C.-based climate and energy policy consultant, said corporations have a degree once they say the U.S. is immediately offering more “carrots” for emissions reduction projects.

But he added Canada has a national price on carbon, which the U.S. doesn’t, in addition to a federal clean fuel regulation and an expected mandated cap on emissions from the oil and gas sector.

“We’ve got quite a bit more on the pollution pricing and regulatory side here,“ Woynillowicz said, adding he believes a mixture of carrots and sticks is the most effective approach in terms of reaching Canada’s climate goals.

“I understand why corporations would favor to only have carrots, but governments will not be accountable for the shareholder’s interest, they’re accountable for the general public interest.”

The federal government, for its part, has made clear that it intends to answer the IRA and ensure Canada isn’t left behind. Finance Minister Chrystia Freeland’s fall economic statement pledged the creation of tax credits for areas including renewable power, green hydrogen, and industrial zero-emission vehicles.

Freeland has indicated more incentives are on the best way, saying there’s a “historic window” immediately to speculate in what can be the economic economy of the twenty first century.

“To essentially benefit from that chance at a time when the U.S. is driving very, very hard to seize that chance for itself, I recognize that the federal government can have to make some additional investments,” Freeland told reporters earlier this month.

The federal government has also indicated its intent to ascertain a “carbon contracts for difference” mechanism, which might give investors more confidence by essentially guaranteeing the federal Canadian carbon price.

That may ease industry and investor fears that a future federal government could freeze or cancel the carbon price, making investments in things like carbon capture and storage less dangerous, said Jan Gorski, oil and gas director with the Pembina Institute, a clean energy think-tank.

He added that while there’s no shortage of sectors and projects pleading for funding, the challenge for Canada can be deciding which areas it wants to steer in as the worldwide energy transition unfolds.

“It’s necessary to acknowledge that Canada is smaller than the U.S. We’re a tenth of the economy,“ Gorski said.

“We will’t compete on all the pieces, so we have to be more strategic on the areas we elect to compete into.”

This report by The Canadian Press was first published March 13, 2023.