Why a tax credit in the Ottawa-Alberta energy deal is being called both a 'game changer' and 'betrayal'

On Monday, Canada’s oil and gas drillers gathered at the Hyatt Regency hotel in downtown Calgary, coming off what’s been a down year. But the mood was cautiously optimistic.

Things could be looking up, in the drillers’ eyes. The recent energy agreement reached between Alberta and Ottawa? A “game changer,” said an industry head. 

Another game changer? Enhanced oil recovery, or EOR. 

Many may be unfamiliar with the term, which refers to technology that captures carbon dioxide from industrial emitters before injecting it underground in order to squeeze extra oil out of reservoirs. The carbon dioxide is then trapped underground.

“I mean, EOR is a game changer for the conventional business,” said Mark Scholz, president of the Canadian Association of Energy Contractors.

“It places Canada, finally, in a much better, competitive situation, vis-a-vis the United States,” he said, referring to a tax credit that already exists south of the border tied to EOR.

Ottawa previously unveiled an investment tax credit that would reimburse carbon capture projects but didn’t include enhanced oil recovery in that initiative. 

That decision was frustrating for some in the industry, who argue the technology can be part of a strategy to combat climate change and could include some spillover benefits. 

But it pleased some environmental advocates, who said such a credit effectively acts as an “inefficient fossil fuel subsidy," promoting more fossil fuel production and leading to an increase in emissions.

“To have tax credits for the capital costs of developing carbon capture — that in itself is a subsidy because it provides a financial advantage,” said Aly Hyder Ali, program manager of oil and gas with Environmental Defence, told CBC News.

Now, enhanced oil recovery has new energy.

Last week’s memorandum of understanding between Alberta and Ottawa states that Canada will extend tax credits and other policy supports to encourage large-scale carbon capture, storage and utilization projects, including those related to the Pathways Plus project and EOR “in order to provide the certainty needed to attract large additional sources of domestic and foreign capital.”

“We were always puzzled; we were always concerned that EOR was removed from the conversation,” Scholz said.

“This is good for the environment. This is good for our members’ customers, who are going to be able to extract more product out of the ground, which means that, in turn, that additional revenue can be plowed back into the ground.”