Alberta Plans to Introduce a Competitive Process for Carbon Sequestration Tenure

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Bennett Jones LLP[co-author: Kenryo Mizutani, Articling Student]

On May 12, 2021, the Government of Alberta issued a statement to announce that it will now be granting carbon sequestration rights through a competitive process. Carbon capture utilization and storage (CCUS) is a method where a large volume of carbon dioxide is captured, transported, and injected into the ground to be permanently stored.

CCUS is considered an integral technology for reducing global greenhouse gas emissions. Recently, for example, CCUS has gained attention as an integral component for "blue hydrogen," a method of producing hydrogen from hydrocarbons through steam methane reforming whereby carbon dioxide is stored underground using carbon sequestration to mitigate environmental impacts. As we noted in a prior post, Alberta's Industrial Heartland is considered to become Canada's first hydrogen node, given its existing energy infrastructure and favourable geology for CCUS. For an overview of the hydrogen economy, see our series of blog posts and podcasts on the New Energy Economy.

Overview of the Announcement

The announcement from the Government of Alberta outlines a general framework for the competitive process which will govern the issuance of carbon sequestration rights. The overarching goal of the competitive process is to encourage the development of strategically located carbon storage "hubs" (i.e., as distinguished from limited/one-off sequestration projects which do not have the capability of supporting CCUS for multiple industrial facilities).

The current announcement applies to dedicated geologic carbon dioxide storage hubs only, and does not apply to projects such as enhanced oil or gas recovery that injects carbon dioxide for improved recovery.

Alberta Energy has received a large number of inquiries about carbon sequestration tenure for CCUS projects in recent months.

Given that carbon sequestration tenure can require large areas and that CCUS projects may impact adjacent resource development activities, the Government of Alberta aims to use the competitive selection process to ensure both efficient pore space management and strong risk management. While specific guidelines for the competitive process are noted as being still under development, the announcement signals that the bar will be set high for potential hub operator proponents, in that requisite technical, financial, and operational capabilities will need to be demonstrated as part of carbon storage hub proposals.

In addition, the hub operator will be required to provide services on an open access basis at fair service rates, and will be required to manage carbon offsets or future credits for hub participants.

While the details of this competitive process are under development, once the process is completed, the Government of Alberta plans to enter into further discussions with successful project proponents to discuss access to the hub, service rates and impacts on carbon offsets and carbon credits.

Next Steps

Currently, carbon sequestration rights in Alberta are awarded on application. Since the amendment of the Oil and Gas Conservation Act by the Carbon Capture and Storage Statutes Amendment Act, 2010, the Alberta Energy Regulator has the power to approve or deny CCUS projects on the basis of the potential impacts to the recovery or conservation of oil or gas, or to an existing use of the underground storage formations for oil and gas. This process will introduce a new competitive as well as cooperative aspect to the regime through asserting the role of hub operator to certain applicants. It also follows the approach being taken in the United Kingdom which establishes CCUS clusters where emitters will share infrastructure.

For now, the Government of Alberta is not contemplating changes to the existing legislation or regulations. The competitive framework for awarding carbon sequestration tenure is expected to be released in late spring of 2021.

Once the new process is released, the Government of Alberta encourages project proponents to consider submitting CCUS proposals. It is expected that such proposals should outline the transportation of captured carbon dioxide to the project sites, and identify approximate geographic and geologic locations for carbon dioxide injection and storage.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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