Quest carbon capture (CCS) Canada

Q&A: Will CO₂ capture help Canada mobilise a clean hydrogen economy?

By Devin Shaw, Commercial Director – CO₂ Capture & CCS, and Laurent Thomas, Licensing Technology Manager – Gas Processing and CO₂ Capture Technologies on Jan 29, 2021

As momentum is building for hydrogen strategies across the world, the Government of Canada released the “Hydrogen Strategy for Canada” in December 2020.1

Low-carbon hydrogen can act as a key enabler for the country to reach its net-zero emissions goal by 2050, the strategy states. The Canadian government announced its ambition to not only modernise the country’s energy systems through building new hydrogen supply and distribution infrastructure, but to also become a world-leading supplier of hydrogen technologies.2

While much of the hydrogen currently produced globally is grey hydrogen – hydrogen produced from fossil fuels with carbon pollution released into the atmosphere – blue hydrogen is produced through traditional methods in conjunction with carbon capture and storage (CCS). Blue hydrogen produces little to no greenhouse gas emissions and can be a link between grey and green hydrogen production as demand is established.

To learn more about CCS and blue hydrogen projects in Canada, we spoke with Devin Shaw, Commercial Director – CO2 Capture & CCS, and Laurent Thomas, Licensing Technology Manager, Gas Processing and CO2 Capture Technologies. Laurent is also leading a webinar on “Retrofitting CO2 capture in existing steam methane reforming (SMR) hydrogen units” that you can access below.

Q: Shell Catalysts & Technologies’ trailblazing CCS projects in Canada were made possible by substantial government subsidies. How is CCS development being incentivised today?

Devin Shaw: The projects at Quest and SaskPower, as well as at other projects in the regions, were agreed to in the 2009–2011 timeframe when there was no, or a very non-substantial price, for CO2. The economics of the projects did not work, so funding was required to get them off the ground. The reality is that standalone projects can be economically challenging in today’s climate. The future of that might be a different story.

If you look globally at the projects in development or in deployment, many of them point to Quest and SaskPower as base cases. There are a few other leading CCS projects funded by the Department of Energy in the U.S. as well. Quest specifically has shown us that after funding, and once a certain threshold price of CO2 is considered, similar projects can be operated as economically viable projects. As recently announced by the Canadian federal government, the cost of CO2 is now slated to move above the threshold, which would make these projects economically viable.4

If the price of carbon increases as we’re expecting to see across Europe, this will allow CCS projects to break even or even generate positive Net Present Value (NPV). For example, Norway announced in January 2021 that the price of carbon will rise from $70 a tonne U.S. to $237.3 The intent of carbon tax legislation around the world is to begin penalising emitters for not capturing carbon. Canada is not far behind, with the announcement to raise CO2 tax from $30 a tonne to around $170 by 2030.4 These are very significant moves that have been lacking in the past decade, which should help to increase CCS deployment.

Q: Taking the province of Alberta, for example, the government announced plans to spend $750 million to support projects to reduce carbon emissions, with a focus on CCS.5 How does this relate to Canada’s hydrogen plans at large?

Devin Shaw: The future of the hydrogen economy is very much linked to CCS. The consumers of hydrogen will no longer have CO2 emissions, but the obligation of CO2 capture or management is now shifted to the provider of hydrogen.

The alternative is green hydrogen – hydrogen produced by the electrolysis of water – which will also play a large part in the future hydrogen economy. However, electrolysis of water is extremely intensive on electricity consumption. To be able to produce green hydrogen, your source of electricity needs to be from a renewable source, which in Canada, means hydroelectricity in areas like the British Columbia, Quebec or possibly Manitoba.

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Laurent Thomas: When we’re considering not only carbon capture and sequestration, but also utilisation, Quebec may be of further interest. Quebec’s available green electrical power can lead to the production of green hydrogen. If there is development of CO2 utilisation schemes in combination with green hydrogen, there might be some space in the future for CO2 capture and utilisation. But I would say that is further down the road. At this point, we’re excited by what we see happening in terms of incentivisation, like with the carbon tax or for low-carbon fuel standards (LCFS) that can enable projects.

Devin Shaw: The newly introduced LCFS could be potentially landscape-changing, depending on how it evolves. Analogous to what’s already in existence in California, Oregon and other places, the Canadian government is launching their own LCFS, which would incentivise low-carbon fuel production.6

A very high percentage of industrial emitters in Canada, especially in the energy sector, are located in Alberta and Saskatchewan and are linked to fuel production across the entire economy. They are ready to act because they could see the most benefit from regulation that supports lower carbon output. As the LCFS evolves along with the CO2 tax elevation, that could change the landscape in regards to CCS.

Q: What is your 5–10 year outlook for CCS and blue hydrogen production in Canada and other regions?

Laurent Thomas: If you’re looking at what’s happening in Canada in terms of CCS, projects like Quest and SaskPower Boundary Dam were precursors, but since then the region has fallen a bit behind in terms of breaking ground with actual projects. When you look at what’s happening in Europe or in the States for example, there are lots of projects that are more advanced. It points to the affordability and funding of these projects.

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What is needed for new projects to happen in Canada is a clear incentive to capture, such as a carbon tax or LCFS. That may be what’s being rolled out with this ambition to bring the carbon tax to $170. But other regions are more progressive in that sense and that’s why we are seeing more advanced CCS projects in those places.

The developments we see will depend a lot on the evolution of incentives and carbon tax. If Canada lives up to its ambition to raise its carbon tax to the level it says it will raise it to, indeed multiple projects will happen. That is the key, the cost or value of the CO2.

1“Hydrogen Strategy for Canada: Seizing the Opportunities for Hydrogen,” Government of Canada, Dec. 2020, https://www.nrcan.gc.ca/sites/nrcan/files/environment/hydrogen/NRCan_Hydrogen%20Strategy%20for%20Canada%20Dec%2015%202200%20
clean_low_accessible.pdf.

2Natural Resources Canada, “Hydrogen Strategy for Canada: Seizing the Opportunities for Hydrogen,” Government of Canada, Dec. 2020, https://www.nrcan.gc.ca/sites/nrcan/files/environment/hydrogen/NRCan_Hydrogen%20Strategy%20for%20Canada%20Dec%2015%202200%20
clean_low_accessible.pdf.

3Nora Buli and Nerijus Adomaitis, “Norway’s plans to raise carbon tax draw oil industry ire,” Reuters, Jan. 8, 2021,
https://www.reuters.com/article/us-climate-change-norway/norways-plans-to-raise-carbon-tax-draw-oil-industry-ire-idUSKBN29D1BD.

4Alan Harvie et al., “Canada to increase carbon taxes by 566%,” Norton Rose Fulbright, Dec. 15, 2020,
https://www.nortonrosefulbright.com/en/knowledge/publications/d58ef644/canada-to-increase-carbon-taxes-by-566
#:~:text=The%20Canadian%20federal%20government%20recently,of%20566%25%20over%2010%20years.

5“Alberta empties TIER fund to invest in emission-reducing innovation,” CBC News, Sep. 22, 2020,
https://www.cbc.ca/news/canada/edmonton/tier-fuding-carbon-capture-environment-industry-pollution-1.5734701.

6“What is the clean fuel standard,” Government of Canada, Jan. 11, 2021,
https://www.canada.ca/en/environment-climate-change/services/managing-pollution/energy-production/fuel-regulations/clean-fuel-standard/about.html.

Watch the webinar: Retrofitting CO₂ capture in existing steam methane reforming (SMR) hydrogen units

Join the discussion on CO2 capture options with Laurent Thomas.

Watch the webinar