Joe Oliver is disappointed!

A week ago Canada’s Minister of Natural Resources, Joe Oliver, extolled carbon capture and storage (CCS) as key to Canada’s meeting its targets for reduction of Greenhouse Gas emissions (GHG). Up to now, three Canadian companies with substantial holdings in the power generation fields were important contributors to CCS research and development.  These companies contributed a small percentage of the money being spent on CCS research, and they contributed business and technical guidance. Just as important, they were to participate in a test project utilizing CCS on coal-fired plants.

So it is not surprising that their joint decision to withdraw from a project to demonstrate the feasibility of CCS is a disappointment to Oliver.  Alberta, the other Government Partner in the project, said that it will review why the project “failed”, and will be working “very hard” to meet its carbon emission targets.

Spokespersons for these companies explained that it is more economic for them to pay the penalties for GHG emissions rather than reducing them through CCS. They pointed to the need for a realistic price on GHG emissions. The present price ($15 per ton) is too low to encourage industry to remain in the project. Industry commentators have suggested that the price might have to be as high as $70 per ton.

As we have said many times, governments are reluctant to tax or penalize energy used for the generation of electricity.  Governments recognize that companies paying the tax will undoubtedly pass this expense on to voters.  Voters would not like paying a charge specifically referable to the tax, or a price increase justified by the companies as based on their need to recover the tax.

Looking at the bright side of things, the withdrawal of the three participating companies from this important project may lead to a better emissions trading scheme or acceptance of a significant carbon tax.