Good afternoon.
My comments will be about two specific instances of grants to fossil energy projects. I'll begin by talking about the tax credit for carbon capture, utilization and storage, CCUS. I will then say a few words about the Trans Mountain oil pipeline, which I believe also represents a grant to industry.
After seven years of falling prices, there has been a rebound in the price of hydrocarbons since 2021, in the aftermath of the post-COVID recovery, caused by underinvestment in extraction capacity during the downturn. In Canada, our hydrocarbon extraction companies have potfuls of money, but rather than investing it, companies decided to transfer most of the benefits from these rising prices to their shareholders in the dual form of dividends and share buybacks. It's important to have this information in mind for what follows.
I will now address the question of what the subsidy that the tax credit for CCUS projects would amount to, by asking myself what the possible economic impacts of this subsidy might be.
My model will be the tax credit formula set out in the federal government's emissions reduction plan, the ERP. The use of CO2 for the extraction of hydrocarbons is therefore excluded from my evaluation.
The initial economic impact expected is as follows: in view of high current prices, the low cost of a ton of CO2 and the absence of any major investment programs in the sector, the amount of money saved by the industry as a result of the tax credit will enable it to invest everything while maintaining high transfers to its shareholders.
Let's look now at the second expected economic impact. The statement in the ERP says that the objective of the CCUS technologies for the oil sector is to maintain its competitiveness in the medium term, during which global demand will rise. The industry's CCUS projects aim at reduced GHG emissions per barrel, and not full decarbonization. At best, the credit will get an oil sands barrel into the world average for GHG emissions. I believe that it's a commercial policy and not a policy of transitioning towards carbon neutrality.
In terms of the opportunity cost to reduce emissions, it's a weak measure compared to policies on renewable energy and electrification investment, as our colleague just mentioned.
Geological sequestration is a necessity, but the CCUS projects currently being promoted by the industry are not, according to the most recent IPCC report, the best options. There are other sequestration options that would be more efficient.
In the tax credit under discussion, there is no link between the assistance provided in the form of a subsidy and the effective performance of decarbonizing the projects. Generally speaking, these projects have not thus far been achieving the stated objectives. They are underperforming.
Given that the technology is relatively new, and given the need for long-term development and lengthy amortization periods for all projects that are implemented, and the fact that projects are often tied to hydrocarbon extraction in the oil and gas sector, the tax credit might well behave more like a sturdy bolt than a lever.
The subsidy in question is therefore effective for protecting the industry against the risk of climate policies, but not very effective at achieving our GHG emissions reduction targets.