On 9 October 2024, the Treasury Board of Canada Secretariat announced the Government of Canada’s commitment to purchasing CAD 10 million in carbon removal services between now and 2030. Carbon dioxide removal (CDR) methods can be categorized into technology-based approaches, such as direct air capture (DAC) or bioenergy with carbon capture and storage (BECCS), as well as nature-based strategies like reforestation, afforestation, wetland restoration, and soil carbon sequestration.
This announcement is part of Canada’s commitment to achieve net-zero emissions in government operations by 2050 through the Greening Government Strategy. The strategy commits the government to cutting operational emissions as close to zero as possible and offsetting the remaining emissions with an equivalent amount of carbon dioxide removal.
Alongside this announcement, the Government of Canada announced its intention to work closely with the public and private sectors on the development and use of carbon dioxide removal technologies.
This comes following the passing of the Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit (ITC) on 20 June 2024. Carbon dioxide removal projects from direct ambient air are eligible for a tax credit of 60% until 2030, cutting in half to 30% for 2031 to 2040.
A similar production tax credit (PTC) has been in place in the U.S. since 2008 but was significantly extended and enhanced by President Biden in the Inflation Reduction Act of 2022. This increased the rates and modified eligibility criteria to encourage greater investment. DAC facilities can get a base rate of USD 36 per ton of CO2 captured and sequestered or USD 26 per ton of CO2 injected for enhanced oil recovery or utilized. These rates are multiplied by five if the facility meets prevailing wage and apprenticeship requirements, raising to USD 180 and USD 130 respectively.
Industrial stakeholders have criticized Canada's ITC approach, claiming that the PTC approach is simpler and easier to build into project economics. However, the U.S. incentive faces the threat of elimination if Donald Trump is re-elected next month, given his administration’s prior approach to climate policies.
Additionally, as the market for carbon removal services evolves, Carbon Contracts for Differences (CCFDs) may provide a mechanism for securing future carbon removal credits, adding another layer of financial stability for investors. This has been seen through several carbon contracts committed to by the Canada Growth Fund (CGF) for different CCUS projects.
This also has implications for increased opportunities in the voluntary carbon market. Contact us to explore opportunities to monetize your CDR project.
ClearBlue will continue to monitor the progress of CDR technologies and projects in North America and provide updates to clients.