Pathways Alliance and Canada Growth Fund Reignite Talks to Drive Carbon Capture in Canada’s Oil Sands

The Canada Growth Fund (CGF), a federal financing agency, is making strides to support significant carbon-capture investments across Canada’s oil sands industry.

After previously stalled talks, CGF has now extended a formal proposal to the Pathways Alliance, a collective of Canada’s largest oil-sands companies.

Together, they represent approximately 95% of the country’s oil-sands production, and this investment could be pivotal for Canada’s carbon reduction strategy.

“This proposal represents CGF’s commitment to driving industrial-scale emissions reduction projects in Canada,” said Patrick Charbonneau, president and CEO of CGF. The discussions mark a renewed focus on carbon-capture technology, essential for achieving the nation’s ambitious climate targets.

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CGF’s Renewed Engagement and the Pathways Alliance’s Goals

The Canada Growth Fund, launched with a $15-billion mandate, aims to promote clean technology, including carbon capture, storage, and utilization (CCUS).

This recent proposal to the Pathways Alliance reflects a major step toward realizing these goals, with the alliance positioning carbon capture as the keystone of its emissions-reduction plans.

Earlier conversations between the CGF and Pathways had stalled, but renewed momentum followed CGF’s recent partnership with Strathcona Resources Ltd.

That deal saw CGF contribute up to $1 billion towards Strathcona’s $2 billion carbon-capture initiative, establishing it as a model for further partnerships. “We are creative, engaged, and active in the Canadian market,” added Charbonneau, emphasizing CGF’s mission to support projects with scalable impact.

Pathways Alliance’s Pledge to Tackle Emissions

The Pathways Alliance includes heavyweights like Cenovus Energy Inc., Suncor Energy Inc., Imperial Oil Ltd., Canadian Natural Resources Ltd., MEG Energy Corp., and ConocoPhillips Canada.

Collectively, these companies have committed to a $16.5 billion investment in carbon-capture technology to drastically reduce greenhouse gas emissions from their operations.

Despite previous federal and provincial tax incentives, Pathways has voiced concerns that additional financial support is essential to make these projects viable.

With emissions from oil-and-gas production forming Canada’s single largest share of greenhouse gases, decarbonizing this sector is seen as a cornerstone for meeting national climate goals.

“CGF’s support could be transformational for our plans,” said Kendall Dilling, president of Pathways Alliance. He described recent meetings with government officials as “very constructive” and expressed optimism about further CGF engagement.

A general view shows a Syncrude oil sands mining facility near Fort McKay, Alberta, on Sept. 6, 2022.

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The Financial and Technical Challenges of Carbon Capture

While CGF’s proposal outlines an initial framework, significant financial hurdles remain. The alliance faces logistical and operational obstacles, primarily due to the unique geographical and industrial requirements of each member company.

Unlike Strathcona, which can store carbon locally, many Pathways members will need to transport carbon to other storage sites. This presents added infrastructure costs and complexity, which Dilling emphasized in recent discussions.

Moreover, Pathways has consistently advocated for greater revenue certainty regarding the ongoing operational costs of carbon capture.

The alliance has proposed a model similar to carbon contracts for difference (CCfDs), which would stabilize the value of carbon credits and mitigate financial risks tied to potential shifts in Canada’s carbon pricing policies.

While CGF has experience with CCfDs, as shown in smaller deals with companies like Entropy Inc., Pathways’ demands for price guarantees and broader financial coverage have made negotiations challenging.

“The costs associated with transport and storage logistics are significant,” one source noted, emphasizing the need for innovative financing solutions to overcome these barriers.

CGF’s Role in Paving the Way for Future Projects

Both the Pathways Alliance and CGF are under pressure to make substantial progress. Upcoming elections and ambitious federal emissions targets add urgency to their talks.

Canada is not currently on track to meet its climate goals, and a successful partnership could act as a catalyst for further carbon-capture initiatives.

“This project could redefine carbon-capture deployment in Canada,” said Charbonneau, who remains optimistic about CGF’s role in enabling large-scale, cost-effective emissions reductions.

The CGF president stressed that “investment structures that hedge compliance costs can unlock substantial, cost-efficient emissions reductions over time.”

This partnership, if realized, could open doors for additional carbon capture infrastructure throughout the Canadian oil sands.

The Potential of Carbon Capture Contracts for Difference

CCfDs are particularly appealing for sectors facing volatile carbon credit prices, such as oil and gas.

These contracts could guarantee revenue stability for Pathways Alliance members, ensuring long-term returns on their investments in carbon capture.

In a recent public statement, CGF highlighted its existing experience with CCfDs but acknowledged that accommodating Pathways’ specific demands will require additional collaboration and flexibility.

A CCfD-based financing model could also address another critical aspect of the Pathways projects: the need to build out extensive transport infrastructure.

Pathways members, operating at different extraction sites across Alberta, require a reliable network to transfer captured carbon to designated storage locations, unlike Strathcona Resources, which benefits from local storage reservoirs.

“The uniqueness of each project means we’re dealing with a range of costs and technical complexities,” an anonymous source close to the negotiations shared.

The Path Forward: A Call for Collaborative Innovation

Both government and industry leaders acknowledge that time is of the essence.

The Pathways Alliance is urging federal agencies to finalize a framework that can expedite the funding and deployment of carbon capture projects across Canada’s oil sands.

Katherine Cuplinskas, a spokesperson for Finance Minister Chrystia Freeland, clarified that while CGF remains responsible for negotiating project financing, the federal government is committed to seeing these climate initiatives come to fruition.

A strong partnership with CGF could help Pathways Alliance push the boundaries of what’s possible in carbon capture.

Clean-energy advocates like Adam Sweet, director for Clean Prosperity’s Western Canada division, see this moment as crucial: “If everybody can realize just how good an opportunity this is right now, then we can move.”