Understanding carbon capture and storage in Canada

Focus on Canada

Market overview

Canada is well-positioned to be a leader in Carbon Capture and Storage (“CCS”). CCS projects are particularly well-suited for development in Western Canada due to a combination of technical expertise, a workforce capable of building CCS projects, geological suitability for CO₂ storage, and legal, regulatory, and policy frameworks¹ in that part of Canada.

Technical Expertise

Canada has ample technical expertise and a workforce to be a leader in the growth of CCS projects on the global scale. Much of the technical expertise that has been used to build out Western Canada’s hydrocarbon and petrochemical infrastructure overlaps with the expertise needed to develop CCS projects.² Traditional CCS projects are typically connected to a source of industrial exhaust, for example, oil and gas facilities or coal power plants. CO₂ from these industrial projects which would typically be vented to atmosphere is instead captured, compressed, and sent to a geological reservoir for permanent storage.³

Geological Suitability

Canada’s subsurface geology is uniquely well-suited for constructing permanent reservoirs for CO2 storage. The Canadian geological landscape has capacity for an estimated 389 gigatonnes of stored compressed CO₂.⁴ Much of this is located in Western Canada. The west is home to large porous structures in the subsurface rock geology. Canada’s largest geologic basin, the Western Canadian Sedimentary Basin, lies beneath the subsurface of British Columbia, Alberta, Saskatchewan, and Manitoba. These provinces are also home to several saline aquifers, which are large porous formations in deep subsurface rock filled with brine, in which CO₂ can be stored.⁵ Collectively, these provinces have a potential storage capacity of 385 gigatonnes of CO₂.⁶

Legal, Regulatory, and Policy Frameworks

The existing and rapidly advancing legal, regulatory, and policy framework for CCS in Canada, particularly in the western provinces, provides the primary economic drivers of CCS projects. 

Federal

Federally, two pieces of federal tax legislation,^7, 8 established the new CCUS Investment Tax Credit (“CCUS ITC”). The aim of the CCUS ITC’s is to encourage the development of greenfield CCS projects in Canada by aiding with the capital costs of such projects. The CCUS ITC’s are available to corporations that incur qualified expenses from January 1, 2022, to December 31, 2040 related to the development of a “qualified CCUS project.”⁹ Several project types are eligible to receive ITCs under the regime, including those which capture CO₂ directly from ambient air (“Direct Air Capture”), those which capture CO₂ that would otherwise be vented to ambient air (“Point Source Carbon Capture”), and those which provide for the transportation, storage, or use of captured CO₂ (“TS&S”).¹⁰ The table below shows the rates at which capital expenditures for certain project types are credited:¹¹ 

The CCUS ITC program is structured in a manner to encourage early capital investment in CCUS projects; expenditures which are incurred between 2022 and 2030 are credited at a higher rate than those which are incurred between 2031 and 2040. Currently, projects must be located in Alberta, British Columbia, or Saskatchewan to be eligible to receive CCUS ITC’s,¹² but there is speculation that Manitoba’s developing CCS regulatory framework may prompt the Federal Government to allow for projects in that province to be eligible to receive the CCUS ITCs. 
Expenditures which qualify for CCUS ITC’s include:^14, 15

1. Equipment that:
   1. is primarily used for capturing CO₂ from ambient air or that would otherwise be emitted into the atmosphere (excluding equipment used for hydrogen production, natural gas processing, and acid gas injection);
   2. prepares or compresses captured CO₂ for transportation;
   3. generates or distributes electrical energy, heat energy or a combination of electrical and heat energy, that directly and solely supports a qualified CCUS project;
   4. transmits electrical energy for the sole use of supporting a qualified CCUS project;
   5. delivers, collects, recovers, treats, or recirculates water used solely to support a qualified CCUS project (subject to some dual-use exceptions);
   6. is used to transport or store captured carbon in the subsurface;
   7. is used for system safety, integrity, monitoring, and control of eligible equipment; and
   8. is ancillary to the foregoing equipment and is used solely to support the eligible project;
2. Buildings or structures, substantially all of which are used for the installation or operation of equipment pertaining to a qualified CCUS project; and
3. Property that is used solely to convert another property into any of the above equipment or buildings, or to refurbish any of the above equipment or buildings.

Provincial

Provincially, the generation of valuable carbon offset credits (“offsets”) provides a second economic driver for CCS projects. Alberta, British Columbia, and Saskatchewan each have an offset trading program^{16, 17, 18} which allows project developers to build CCS projects and generate offsets, which can then be i) retired against a project developer’s own emissions obligation, or ii) sold to other high emitters for, potentially, a profit.¹⁹ This provides incentive for producers in the oil and gas industries to invest in CCS technology.

Canada: CCUS projects

Western Canada

Canada is a leader globally in CCS, and is home to 5 of the 30 commercial scale CCS projects in the world.^{20, 21} Presently, all operational commercial-scale CCS projects in the country are located in Western Canada. These projects include:

1. The Alberta Carbon Trunk Line (operated by Wolf Midstream Canada LP and Enhance Energy Inc.);
2. Boundary Dam (operated by Saskatchewan Power Corporation and Whitecap Resources Inc.);
3. Glacier (operated by Advantage Energy Ltd. and Entropy Inc.); 
4. QuestCCS (operated by Shell Canada Ltd.); and 
5. Weyburn Midale CO2 Storage Facility (operated by Whitecap Resources Inc.) 

As well, there are approximately 60 other CCS projects that are either planned or under construction in Canada.²²

Highlight: Pathways

One notable project that NRF is proud to be assisting on is the Pathways Alliance Carbon Capture and Storage Hub. Pathways Alliance (“Pathways”) is a consortium made up of six of Canada’s leading oilsands producers, including Canadian Natural Resources Limited, Cenovus Energy Inc., ConocoPhillips Canada Resources Corp., Imperial Oil Limited, MEG Energy Corp., and Suncor Energy Inc.²³ Pathways is aiming to build a CCS pipeline network that, when operational, will have the capacity to transport captured CO₂ from multiple oil sands facilities to a hub in the Cold Lake area of Alberta for permanent deep underground storage.²⁴

A goal of Pathways’ project is to construct the pipeline network on an open source basis so that other oilsands and industrial emitters will be able to connect to Pathways’ CO₂ pipeline network, and inject their respective captured CO₂ emissions underground, much like the Alberta Carbon Trunk Line. The completed project is intended to operate like a utility service for industrial and oilsands facilities. 

Canada: Development and Support Regime

Due to its geological subsurface and proximity to major oilsands producers, most of the CCS development in Canada is expected to take place in Alberta. CCS projects in Alberta are governed by a patchwork of legislation, and are largely overseen by two provincial agencies: the Department of Energy and Minerals (“DOE”) and the Alberta Energy Regulator (“AER”). The typical process of developing a CCS project in Alberta includes the following steps:²⁵

1. The project developer submits a proposal to the DOE’s competitive process to obtain evaluation rights to the Crown owned pore space;
2. The project developer applies to the DOE for an evaluation permit, also referred to as a Carbon Sequestration Evaluation Agreement, under the Carbon Sequestration Tenure Regulation; 
3. The project developer secures licences and approvals from the AER to conduct the evaluation operations (e.g., licences to drill evaluation wells);
4. The project developer applies to the DOE to have all or a part of the lands held under the evaluation permit converted to a carbon sequestration lease, also referred to as a Carbon Sequestration Agreement (“CSA”); and
5. The project developer secures facility and pipeline licences, a CCS scheme approval and approval of the project’s Monitoring, Measurement and Verification (“MMV”) plan from the AER and surface access to conduct injection operations.

Canada: Opportunities

Government Commitment to Carbon Capture Technology

Both the Provincial and Federal Governments are strong supporters of CCS project development. As discussed above, both the Federal Government’s CCUS ITC’s and the provincial offset regimes provide most of the financial incentive to invest in CCS projects. In addition to these programs, there has also been significant financial investment by both levels of government in research and development of CCS technology.

As part of Budget 2021, the Federal Government at the time announced plans to invest $319 million over seven years into research and development of CCS technologies in an effort to encourage investment in this sector.²⁶ These funds have been earmarked to support businesses, non-profits, academia, government, and federal laboratories whose research supports the Federal Government’s goal of reaching Net-Zero by 2050.²⁷ The newly-elected Federal Government has maintained the previous government’s support for CCS projects; on July 4, 2025, the Federal Government announced more than $21.5 million in funding for several CCS and low-carbon technology projects, including the:²⁸

1. Bow Valley Carbon Cochrane (to be built and operated by InterPipeline Ltd. and Entropy Inc.);
2. Open Access Wabamun Hub (to be built and operated by Enbridge Inc.);
3. Origins CCS Hub (to be built and operated by Enhance Energy Inc.);
4. Geophysical Subsurface Imaging Technology Validation for CCS MMV (currently being developed by OptiSeis Solutions Ltd.); and
5. Development of Oxy-fire Combustion for Diesel Generator CO₂ Capture (currently being developed by Occam's Technologies Inc.)

Alberta’s Provincial Government has been similarly supportive of CCS technology, and has invested a total of $1.8 billion to support CCS projects over the past 10 years.²⁹ The Alberta Carbon Capture Incentive Program (“ACCIP”) was launched to support the engineering design and construction of CCS projects in Alberta.³⁰ Although not yet finalized, the program will be designed to align with the Federal government’s CCUS ITC program. ACCIP will aid project developers in providing a grant of 12 percent for new eligible CCS capital costs. Eligible capital costs will include things such as: converting CO₂ monitoring equipment to be used for CCS projects, purchasing new equipment, and installing approved equipment.

Canada: Challenges

Regulatory Inconsistency

Presently, one potential hurdle to developing CCS projects in Canada, particularly in Alberta, may be the lack of consistency between Federal and Provincial CCS regulatory regimes. To be eligible to receive the Federal CCUS ITC’s, a given CCUS project must be operational for at least 20 years.³¹ This contrasts with the recently-released form of Alberta’s CSA.³² The CSA, which grants the project developer the right to drill wells, conduct evaluation and testing, and inject captured CO₂, is subject to a mandatory renewal 15 years after the CSA is signed. In order to renew the CSA, the project developer must go through a lengthy application process, which includes:³³

1. Applying for an extension in accordance with the Carbon Sequestration Tenure Regulation;
2. Providing evidence to the Minister that the project developer holds all necessary approvals, permits, and licences; and
3. Providing any other information required by the Minister. 

As the ability to continue the CCS project after 15 years hinges on the project developer successfully completing their application to renew the CSA, this may prevent them from being eligible for the Federal CCUS ITC’s. A resolution to this inconsistency remains unclear.

Indigenous Duty to Consult

Canada’s Constitution recognises and affirms existing Aboriginal and treaty rights, and thus Indigenous peoples benefit from special protection in law. The Crown has a constitutional duty to engage with Indigenous peoples in Canada in meaningful consultation and often accommodation where its actions (including the issuance of regulatory permits) may adversely affect established or credibly asserted Aboriginal and/or treaty rights. The Supreme Court of Canada has also confirmed that decisions related to permits or other approvals issued by a regulatory tribunal (including energy regulators) can trigger the duty to consult. In such cases (and subject to the legislation governing such regulator), the regulatory tribunal may consider that duty to consult through a regulatory hearing process. The Duty to Consult may be especially relevant to the construction of CO2 pipelines which cross over Aboriginal treaty land.³⁴

Uncertainty of National Carbon Price

The most recent Canadian Federal Election was held on April 28, 2025. During the election, carbon taxes were a central topic of discourse. In the lead-up to the election, the consumer-facing carbon tax was removed but the federal backstop price on carbon for industrial emitters remains in place.³⁵

The Greenhouse Gas Pollution Pricing Act (“GGPPA”), enacted in 2018, established the federal Output Based Pricing System (“OBPS”) which sets a price per tonne of CO₂ emitted by industrial facilities whose annual emissions exceed a certain benchmark amount. Facilities whose emissions exceed this benchmark amount must i) pay a tax per tonne of CO2 emitted by the facility, or ii) satisfy these emissions through the purchase and retirement of offsets.³⁶ Conversely, for facilities whose emissions fall under an annual threshold amount, such facilities are issued offsets that can either be banked or sold to other industrial facilities.³⁷

The GGPPA holds that each province or territory must either have its own provincial carbon pricing system or be subject to the federal OBPS. However, the GGPPA sets the minimum backstop price-per-tonne of CO₂ emissions that each provincial or territorial carbon pricing scheme must adhere to. The current backstop price for carbon is $95 per tonne, and it set to increase $15 per year until 2030.³⁸ Most provinces administer their own respective carbon pricing systems, with the exception of Manitoba, Prince Edward Island, Nunavut and Yukon, which are subject to the OBPS.³⁹ The new federal government has indicated its desire to review, maintain, and harmonize the existing industrial carbon pricing system, but has yet to announce whether it will raise the price, lower it, or keep it as-is.⁴⁰

On March 18, 2025, five of the six Pathways signatories penned a letter to the leaders of Canada’s Federal party leaders advocating for the federal carbon backstop price to be repealed, and to allow provincial governments to set more suitable carbon regulations.⁴¹ On May 12th, 2025, the Government of Alberta announced that it will freeze the price of carbon emissions under the Technology Innovation and Emissions Reduction Regulation (“TIER”) program at $95 per tonne, and not increase the price from 2026 - onwards.⁴² While there is no explicit request for a total removal of a levy on emissions, a decrease in the provincial carbon price could challenge the economic feasibility of CCS projects moving forward. Further, if numerous CCS projects are developed the carbon market may be flooded with offset credits, further driving down prices.

Canada: Hot Topics

The Building Canada Act

On June 26, 2025, the federal government enacted the Building Canada Act (“BCA”). The BCA is a piece of legislation aimed at streamlining the regulatory approval process for projects the federal cabinet deems to be in the “national interest.”⁴³

Classification of National Interest Projects

The BCA allows the federal cabinet to, on the recommendation of the minister, classify certain infrastructure projects as being in the national interest, and place such projects on a list in Schedule 1 of the BCA (the “List”). 

The BCA includes a non-exhaustive list of factors the cabinet may consider when deciding whether to place a project on the List, namely whether the project will:⁴⁴

1. strengthen Canada’s autonomy, resilience and security; 
2. provide economic benefits;  
3. have a high likelihood of success; 
4. advance the interests of Indigenous peoples; and  
5. contribute to clean growth and Canada’s climate goals. 

Once a project is placed on the List, the project is deemed to be in the national interest (a “National Interest Project”) and to have every favorable determination, opinion, and finding it requires to be granted any applicable permit, licence, or approval (each an “Authorization”) required by certain prescribed federal acts and regulations set out in Schedule 2 of the Act needed to carry out the project. Notwithstanding, the proponent still must submit an application for each applicable Authorization to the appropriate agency, provide all required information, pay any applicable fees, and comply with provincial legislation.⁴⁵

National Interest Project document

After a National Interest Project has been placed on the List, the minister must issue to the proponent a document (“Document”) that enumerates all the Authorizations that the project would normally require to proceed, with the Document acting as a substitute for each Authorization. Before the Document is issued, the minister must:⁴⁶

1. ensure the proponent has taken all measures normally required to obtain each Authorization specified in the Document; 
2. consult with the minister responsible for issuing each Authorization set out in the Document to identify any conditions that should be specified in the Document; 
3. undertake a national security review for all state-owned or foreign investments and ensure measures have been taken to protect national security interests; and  
4. have consulted with any Indigenous groups who may be adversely affected by the project. 

Effectively, the BCA may have major implications for proponents of CCS projects. Should certain CCS projects be deemed to be in the national interest, proponents of such projects would be able to receive federal approvals for certain projects up front, thereby reducing regulatory uncertainty in the approval process. A stated policy goal of the BCA is to issue Documents to project proponents within 2 years,⁴⁷ however, the timelines for the issuance of Documents remains uncertain and is not specifically addressed in the BCA.

Proposed Emissions Cap

On December 7, 2023, during COP 28, the Government of Canada announced plans to cap oil and gas emissions.⁴⁸ Specifically, it introduced its draft of the Regulatory Framework for an Oil and Gas Sector Greenhouse Gas Emissions Cap (the “Framework”).⁴⁹ By enacting regulations under the Canadian Environmental Protection Act,1999, it intended to cap emissions by 2030 at levels 20 percent – 23 percent below 2019 levels (with the use of offsets) and 35 percent – 38 percent (without the use of offsets). 

On November 4, 2024, the Federal Government released its draft Oil and Gas Sector Greenhouse Gas Emissions Cap Regulations (“Draft Regulations”).⁵⁰ The Draft Regulations, as they are now, largely follow the regime proposed by the Framework. The Draft Regulations establish a national cap-and-trade system in the oil and gas industry that applies to operators of upstream oil and gas projects whose owned facilities produce a cumulative total of more than 365,000 barrels of oil annually.^{51, 52} Under the Draft Regulations, emissions allowances - whose total number is equal to the aggregate allowable tonnes of CO2 emissions allowed by the oil and gas industry - are disbursed among operators who are subject to the Draft Regulations. For each tonne of CO₂ an operator emits, the operator must remit one allowance. Covered operators are allowed to buy and sell allowances  among each other.

In 2019, the Canadian oil and gas industry emitted approximately 171 megatons (MT) of carbon dioxide equivalent (the “baseline emissions”). The Framework aimed to reduce those baseline emissions by 35 percent – 38 percent by 2030, resulting in emissions of approximately 106 – 112 megatons a year (the “Emissions Cap”). In keeping with the Framework, the Draft Regulations set an emissions target of 27 percent below 2026 levels for the years 2027 – onwards, which is estimated to be in-line with the Framework’s proposed Emissions Cap. 

Recognizing the target emissions are a stretch goal, the Draft Regulations have a legal upper bound concept that would allow operators from 2027-onwards to meet up to 20 percent of their remittance obligation using a combination of carbon offset credits and  decarbonization units.⁵³ In short, the Draft Regulations provide that industry is capped at the emissions cap, but it can emit up to the legal upper bound (emit an additional 20 percent over the cap) by utilizing compliance mechanisms, including offsets.

Shortly after the Draft Regulations were released, Alberta’s Provincial Government indicated its intention to challenge the constitutionality of the regulations if and when they come into force, on the grounds that natural resource production falls under the jurisdiction of the Provincial Governments and not the Federal Government.^{54, 55} Alberta’s Provincial Government has also indicated it may invoke additional measures to circumvent the cap, including:⁵⁶

1. Instructing the AER and other Provincial regulatory agencies to not enforce the cap;
2. Declaring oil and gas facilities owned by the Alberta Provincial Government essential infrastructure; 
3. Restricting access to oil and gas facilities to only those licensed by the Alberta Provincial Government;
4. Withholding oil and gas facilities emissions data from Federal agencies; and
5. Selling Alberta oil via a government-run royalty-in-kind program.

The Draft Regulations have not yet been enacted. As well, although the newly-elected Federal Government indicated prior to the election that it intends to move forward with the Draft Regulations, no information on them has been made public in recent months.⁵⁷ However, if the Draft Regulations are enacted and survive constitutional challenge, the fact that the cap on industry-wide emissions is expected to decrease substantially post-2026 could provide more incentive to invest in CCS projects. Because offsets will be allowed to satisfy a significant portion of emitters’ allowable emissions in a given year, the offsets from CCS projects could play a pivotal role in the years to come.