The energy transition aims to reduce energy-related emissions through various forms of decarbonization.
Regulation and commitment to decarbonization globally has been mixed, but the energy transition will continue to increase in importance as investors prioritize environmental, social, and governance (ESG) factors.
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In Canada, legislation has set in place one of the most stringent and ambitious carbon pricing systems on the globe. Putting a price on carbon emissions is widely recognized as the most efficient means to reduce greenhouse gas emissions while also driving innovation, as per the Government of Canada.
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For emissions-intensive industries and businesses, maintaining compliance with emissions standards and avoiding related financial penalties will be crucial to remaining competitive in markets and attracting investment.
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Implementing carbon capture systems, adopting and utilizing available low carbon fuels such as natural gas, and improving the energy efficiency of industrial processes are market-ready, cost-effective solutions that will allow businesses to continue to grow, while also improving sustainability.
Policies & Pressure
In December 2015, Canada signed the Paris Agreement and pledged to reduce greenhouse gas emissions by 30% below 2005 levels by 2030, a drop from 730 megatonnes of CO2 equivalent in 2005 to 511 megatonnes by 2030.
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To further the 2015 commitment, at the UN climate change conference (COP26) in November 2021, Canada announced an enhanced Paris Agreement target to reduce emissions by 40-45% from 2005 levels by 2030.
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To achieve this commitment, Canada is targeting oil and gas, heavy industry, and transportation sectors with policies such as the Carbon Tax, the Output-Based Pricing System, and the Clean Fuel Standard.
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The Carbon Tax ("CT") establishes a national minimum price on carbon emissions, which started in 2019 at $20 per tonne, increasing by $10 per tonne annually to $50 in 2022. Starting in 2023, the Carbon Tax will increase by $15 annually to $170 per tonne in 2030.
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The Output-Based Pricing System ("OBPS") is designed to put a price on carbon emissions for industrial facilities that emit 50,000 tonnes or more per year. It works by setting a performance standard (i.e. a set level for greenhouse gas emissions per unit of output) for each sector under the system. Facilities that produce more emissions than the standard have to compensate for the excess. Facilities whose emissions are below the standard get credits they can sell or save to use later.
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The Clean Fuel Standard ("CFS") will require liquid fuel (gasoline and diesel) suppliers to gradually reduce the carbon intensity of the fuels they produce and sell for use in Canada over time, leading to a decrease of approximately 13% (below 2016 levels) in the carbon intensity of the liquid fuels used in Canada by 2030. The CFS will establish a credit and penalty market similar to the OBPS.
The Role of Carbon Capture
Carbon capture, utilization, and storage ("CCUS") will play an important role in meeting global energy and climate goals by serving as a solution for mitigating the most challenging emissions.
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CCUS involves the capture of CO2 from fuel-intensive sources such as power generation, natural gas processing, and heavy industries (e.g. cement, iron and steel, and chemicals manufacturing).
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Although nations are diversifying their energy portfolios, fossil fuels are expected to meet a majority of the world's energy demand for several decades, and the deployment of carbon capture technology is essential to reducing emissions-intensity cost-effectively.
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How CCUS Works:
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For industrial processes and power generation applications that lack concentrated streams of CO2 as part of normal operations, systems must be redesigned to capture and concentrate CO2, usually using one of these methods:
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Pre-Combustion Carbon Capture: fuel is gasified to produce synthetic gas, consisting mainly of carbon monoxide (CO) and hydrogen (H2). A subsequent shift reaction converts the CO to CO2, and then a physical solvent typically separates the CO2 from H2.
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Post-Combustion Carbon Capture: Post-combustion capture typically uses chemical solvents to separate CO2 out of the flue gas from fossil fuel combustion. Retrofits of existing power plants for carbon capture are likely to use this method.
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Oxyfuel Carbon Capture: Oxyfuel capture requires fossil fuel combustion in pure oxygen (rather than air) so that the exhaust gas is CO2 rich, which facilities capture.
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Once captured, CO2 must be transported from the source to a storage site. While there is an extensive pipeline system in North America for transporting CO2, additional methods of transportation are needed to make carbon capture economically feasible at a greater scale.
The Role of LNG
Decarbonization through the adoption of LNG, especially when integrating other carbon-reduction technology such as CCUS, will allow businesses such as heavy haul (class 8) trucking, mine haul trucking, rail freight, oil and gas, marine, and remote power generation to comply with emissions standards and save on fuel costs.
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Natural gas is the cleanest fossil fuel, in terms of both conventional pollutants such as particulate matter and sulfur dioxide, as well as emissions per unit of energy produced. The need for immediate emissions reductions creates an urgency to find a near-term, low-cost fuel, and the abundance and availability of natural gas make it a logical choice.
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Establishing the necessary components to develop domestic LNG fuel markets is relatively straightforward. LNG facilities can capitalize on existing energy infrastructure and natural gas reserves, natural gas engines and end-use devices are widely available, and LNG production and transport are highly economic.
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In addition, establishing LNG fuel markets also encourages the development of the Renewable Natural Gas ("RNG") industry, which will contribute carbon-negative fuel that will help industries to achieve further emissions reductions.