Canada's CCUS Boom Hits a Wall: Why EOR is Missing the Tax Credit

Canada's push to become a global carbon capture leader faces an unexpected road>block. While the federal government's Carbon Capture Utilization and Storage (CCUS) Investment Tax Credit has sparked billions in clean energy investment, a glaring policy gap is holding back the industry's full potential.

The problem? Enhanced oil recovery (EOR) projects can't access the lucrative federal tax credits, even though they represent the majority of Canada's existing CCUS infrastructure. It's a disconnect that's frustrating industry players and limiting the program's environmental impact.

The Federal Framework: Generous Credits with Strings Attached

Ottawa's CCUS Investment Tax Credit is nothing if not generous. The program offers refundable tax credits with rates of 60% for direct air capture projects, 50% for other carbon capture equipment, and 37.5% for transportation, storage, and use components. Projects must be initiated between 2022 and 2040 to qualify.

But there's a catch. The incentive applies only to CCUS projects that permanently store captured CO2 via dedicated geological storage, or storage of CO2 in concrete. Enhanced oil recovery projects are not eligible.

The Technology Behind EOR: Proven but Excluded

Enhanced oil recovery isn't experimental technology, it's proven industrial practice. The process involves capturing CO2 from industrial sources, transporting it to oil fields, and injecting it underground where it mixes with and displaces oil from porous rock formations.

What makes EOR particularly compelling from a climate perspective is its dual benefit. The CO2 gets permanently trapped in geological formations while simultaneously boosting oil production. This creates revenue streams that help offset the high costs of carbon capture infrastructure.

Canada's Existing EOR Landscape

Current Canadian CCUS projects already demonstrate EOR's commercial viability. These facilities show that EOR is a natural extension of CCUS operations, not a separate technology requiring different infrastructure.

The most prominent example is SaskPower's Boundary Dam Unit 3 (BD3) carbon dioxide capture project, which opened in 2014. BD3 is the world's first fully integrated post-combustion CO2 capture and storage project and has captured over four million tonnes of CO2 to-date.

Beyond Boundary Dam, Saskatchewan currently has 12 CO2 EOR projects in operation, making it a global leader in the field.

Provincial Leadership: Saskatchewan Shows the Way

While Ottawa excludes EOR from federal tax credits, Saskatchewan has embraced the technology through its Oil and Gas Processing Investment Incentive (OGPII). This program offers transferable crown royalty and freehold production tax credits specifically for CCUS projects involving EOR.

Saskatchewan's approach is cost-sensitive and results-oriented:

1. Pre-payout phase: Crown royalty rates of just 1% of gross EOR revenues, with zero production tax on freehold lands
2. Post-payout phase: Rates increase to 20% of EOR operating income for Crown lands and 8% for freehold lands
3. Streamlined compliance: Projects use the Ministry of Energy and Resources' IRIS Self-Service module for reporting

The provincial system recognizes that using CO2 for EOR also improves the economics of the overall project because the oil producer will pay to use the CO2 for EOR. This revenue sharing makes CCUS projects more financially viable from the start.

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The Environmental Case for Including EOR

Critics might question whether using captured CO2 to extract more oil aligns with climate goals. But the environmental math is compelling. CO2 EOR emits 82 per cent fewer emissions than traditional extraction methods, according to Saskatchewan government data.

The province's track record speaks volumes. Over the last 25 years, Saskatchewan EOR projects have sequestered more than 40 million tonnes of CO2, which has also resulted in over 100 million barrels of incremental oil production. That's permanent carbon storage happening at commercial scale.

Global Context: Learning from U.S. Success

Canada isn't alone in grappling with EOR policy. The United States' 45Q tax credit initially excluded EOR projects but later evolved to include them, recognizing their role in scaling CCUS infrastructure and creating the industrial base needed for broader carbon capture deployment.

American experience shows that EOR projects often serve as stepping stones to dedicated geological storage, providing the technical expertise and infrastructure networks that pure storage projects can later utilize.

Saskatchewan's EOR Track Record

Metric	25-Year Performance	Future Projections
CO2 Sequestered	40+ million tonnes	2+ million tonnes annually
Oil Production	100+ million barrels	200+ million barrels total
Investment	Billions in infrastructure	$2+ billion anticipated

The Path Forward: A Simple Fix with Big Impact

Amending the federal ITC to include EOR wouldn't require a complete policy overhaul. The changes are straightforward:

• Remove EOR from excluded uses in the current legislation
• Add EOR as a third eligible use alongside geological storage and concrete production
• Leverage provincial frameworks like Saskatchewan's OGPII as implementation models

The business case is clear. Including EOR would incentivize further investment in EOR technology, making it more financially viable for traditional energy producers while accelerating the buildout of CCUS infrastructure that benefits all carbon capture applications.

Industry Readiness and Infrastructure Benefits

Canada's energy sector isn't waiting for policy changes to embrace CCUS. Companies like Whitecap Resources are already operating large-scale EOR projects that demonstrate commercial viability. What they need is policy alignment that recognizes EOR's environmental benefits.

Including EOR in federal tax credits would create a network effect. More projects would become economically viable, leading to expanded pipeline infrastructure, shared transportation systems, and industrial clusters that reduce costs for all CCUS applications.

Beyond Policy: Building Canada's Energy Transition

The stakes extend beyond tax policy. Canada is positioning itself as a global CCUS leader, with ambitions to export both technology and expertise. Excluding the country's most established CCUS application from federal incentives sends mixed signals to international partners and investors.

Countries around the world are watching Canada's approach to CCUS policy. A comprehensive framework that includes EOR would demonstrate policy sophistication and technological pragmatism, potentially influencing global standards for carbon capture incentives.

The opportunity is significant. With six of eight existing Canadian CCUS projects already using EOR technology, federal policy alignment could accelerate deployment timelines and reduce technology risks for new projects. That's exactly the kind of industrial momentum Canada needs to meet its 2030 climate targets while maintaining energy sector competitiveness.

For policymakers, the question isn't whether EOR deserves inclusion in federal CCUS incentives. It's whether Canada can afford to exclude a proven technology that's already delivering environmental benefits at commercial scale, as demonstrated by facilities like Boundary Dam and projects across Western Canada.