Ottawa unveils $2.6B carbon capture tax credit for energy sector

Ottawa is urging oil and gas companies to move quickly to take advantage of a major new tax credit for carbon capture and storage technology.

In the federal budget announced Thursday, the Liberal government said it will allocate $2.6 billion over five years to a tax credit for companies investing in projects that employ the technology, which traps greenhouse gas emissions from industrial sources and stores them deep in the ground to prevent them from being released into the atmosphere.

Starting in 2022, companies will be able to claim a tax credit of up to 60 per cent for direct air capture projects and 50 per cent for all other eligible carbon capture projects. The government will decrease the tax credit rates by 50 per cent in 2031 in an effort to get companies to build their carbon capture projects now, not later.

"It is the right time to do this, and they have the profits to do this," said a senior government official discussing the budget.

Canadian oil and gas companies have reported record profits in recent months due to soaring commodity prices. But while many companies have proposed investing in carbon capture as a way to reach their emissions reduction goals, most projects are still in the development phase.