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The Canadian federal government has adopted a multifaceted approach to Carbon Capture, Utilization, and Storage (CCUS) as part of its broader emissions reduction strategy, which includes sectoral policies, incentives, and research funding. A significant component of this approach is outlined in the Hydrogen Strategy for Canada (2020), which emphasizes hydrogen production as a pathway to decarbonize energy-intensive industries, with CCUS playing a crucial role in “blue hydrogen” (hydrogen produced from natural gas with carbon capture). This strategy is integral to Canada’s commitment to achieving net-zero emissions by 2050, promoting CCUS as an essential technology to support industrial decarbonization.
In alignment with its commitment to reducing greenhouse gas (GHG) emissions by 40-45% below 2005 levels by 2030, Canada’s 2030 Emissions Reduction Plan provides a roadmap for achieving emissions targets while fostering economic stability. The plan recognizes CCUS as a viable solution for high-emission industries, such as oil, gas, and manufacturing, where emissions are challenging to abate using conventional means. This approach is further reinforced by the Canadian Net-Zero Emissions Accountability Act, a legislative framework that mandates regular progress reports and accountability measures for Canada’s 2050 net-zero target. The Act ensures that CCUS policies remain integral to the country's long-term decarbonization strategy, providing clarity and stability for industry stakeholders and investors.
Federal financial support for CCUS has focused on incentivizing adoption in hard-to-abate sectors while excluding specific activities like Enhanced Oil Recovery (EOR) from eligibility for some incentives, marking a shift from past practices where EOR was often integrated with CCUS projects. This policy approach reflects a prioritization of permanent CO₂ sequestration over methods that involve subsequent CO₂ release. This distinction aims to enhance CCUS’s credibility as a climate strategy while directing funding towards projects with long-term environmental impact.
To further drive investment in CCUS, the Canadian government enacted two critical tax bills—Bill C-69 (Budget Implementation Act, 2024, No. 1) and Bill C-59 (Fall Economic Statement Implementation Act, 2023)—that collectively established the CCUS Investment Tax Credit (ITC). With royal assent on June 20 and 21, 2024, these bills formalize a refundable tax credit for qualified CCUS expenditures, providing financial predictability and stability for industry participants. The CCUS ITC includes provisions for:
The Canadian ITC calculation differs from the United States’ 45Q tax credit, which is based on the total amount of CO₂ sequestered. In contrast, Canada’s ITC bases eligibility on qualifying expenses, allowing for tailored project support based on unique costs associated with specific CCUS operations, rather than incentivizing volume alone. This approach encourages innovation across various applications of CCUS technology, including infrastructure and equipment investment.
This tax credit is designed to incentivize companies to invest in technologies that capture carbon, either directly from the atmosphere or from emissions sources, and securely store or use it in ways that benefit the environment. The legislation aims to encourage large-scale carbon management efforts while balancing economic interests and environmental priorities.
🔗 Read more: Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit (ITC)
The CCUS ITC provides refundable tax credits based on the costs incurred in developing and implementing carbon capture and storage projects. The credit applies to expenses directly associated with carbon capture, transportation, and storage. Eligible activities include the capture of carbon from industrial processes or directly from the air, as well as its secure storage in geological formations or use in specific applications, such as concrete production, that offer long-term environmental benefits. The credit is intended to accelerate Canada’s progress toward achieving its emissions targets by 2030 and beyond, particularly in emissions-intensive sectors.