The Government of Alberta released its Request for Full Project Proposals (RFPP) from Carbon Capture Utilization and Storage (CCUS) project proponents on December 2, 2021. The RFPP follows the May 2021 Department of Energy Information Letter (previously discussed in this insight), indicating that the Province wanted to establish strategically-located carbon storage hubs in Alberta and that it would commence a competitive process to distribute carbon sequestration rights for that purpose. In September 2021, the Province requested voluntary expressions of interest from companies interested in building, owning, and operating a carbon sequestration hub in Alberta. The purpose of this process was to inform the formal RFPP that the Province has now issued.

With the publication of the detailed RFPP, the next step in the competitive process is for proponents to submit their Full Project Proposals between January 4 and February 1, 2022. The RFPP provides helpful details on what the Province expects proponents to provide in this next stage of the competitive process. Among other things, Full Project Proposal submissions are expected to address:

• Business model – including details on lifecycle hub economics, project financing, proponent financial history, and socio-economic benefits and benefits to Indigenous communities;
• Project configuration and execution – including details on project design, risk identification and mitigation, design capacity, and any commercial agreements with "anchor" customers for the hub;
• Project location – including details on the geographic area of the proposed hub the current geological understanding of the formation, and potential conflicts with other subsurface operations, all to be supported by core, log, pressure transient analysis, and other data where possible;
• Operational capacity – including details on the proponents experience executing similar subsurface projects and infrastructure development as well as information on organizational structure and regulatory experience
• Emissions policy – including details on how the hub operator will deal with carbon credits generated from the project.

If successful, a proponent will enter into an evaluation permit with the Government to further assess the capacity of the chosen location as a carbon sequestration hub. After successful completion of the "evaluation permit" stage, a proponent may be chosen to enter into a further Carbon Sequestration Agreement, at the Government's discretion.

While the RFPP document provides some helpful clarification on what the Province expects in detailed submissions, a number of important questions remain unanswered.

A few examples – though certainly not the only ones – include:

• Location, location, location –Servicing CO2 emissions from Alberta's Industrial Heartland is top priority, for now. The RFPP process is only open to those planning to handle emissions primarily from a large area to the east and northeast of Edmonton. The actual sequestration can be planned for elsewhere – but the customers for the proposed hub must be primarily from the area specified by the Province. Any proponents who were planning on servicing customers in other specific areas (e.g., the oil sands) will be need to keep monitoring while the RFPP process unfolds. Outcomes from this process will undoubtedly inform any future processes.
• Sequestration Agreements – After successful completion of the evaluation stage, the Government's plan is to enter into "Sequestration Agreements" under section 9 of the Mines and Minerals Act (MMA) instead of issuing Carbon Sequestration Leases under Part 9 of the MMA and the Carbon Sequestration Tenure Regulation. This is surprising – why would the Province not use the pre-existing regulatory framework? The RFPP suggests that these "Sequestration Agreements" will reflect at least some of the existing provisions for Carbon Sequestration Leases such as contract terms, payment to the Post-Closure Stewardship Fund, monitoring, measurement and verification (MMV) plans and closure plans. But what about post-closure liability? Part 9 of the MMA requires the Crown to assume all post-closure liability for CO2 injected under Carbon Sequestration Leases and to indemnify the lessee. Is the Crown trying to avoid these post-closure provisions, and possibly others by not using the pre-existing framework?
• Open access and utility regulation – Sequestration Agreement holders are supposed to provide "open access", which presumably means that hub operators will have to accept CO2 from different sources indiscriminately. Hub operators will also have to give third parties access to sequestration pore space to undertake their own injection, subject to financial, environmental, and operational considerations. In addition, the Sequestration Agreement will limit hub operators to "fair and reasonable" cost recovery. However, as part of the  prescribed bid evaluation criteria, proponents should describe any secured emission volumes that will be sequestered at the Location. These secured volumes will likely be a key component of the hub operators commercial business model and underpin financing or investment in the project. Accordingly, proponents will likely need to seek clarification in respect of whether they can offer price discounts or other incentives to secure these volumes on a firm basis without violating the "open access" and "fair and reasonable" cost recovery bid requirements. This also raises important questions about how disputes with third parties will be resolved (e.g., with customers from the industrial heartland or third parties wanting to do their own injection). Will there be a fair and impartial way to hear those complaints? Currently, it is not clear whether the AER and the Alberta Utilities Commission can hear access or rates disputes related to CO2 infrastructure.
• Crown revenue – Proponents are required to provide details of the project’s socio-economic benefits, examples of which include proposals in respect of Crown revenue sharing or royalties. In addition, the Crown reserves the right to implement future regulatory structures establishing additional revenues payable to the Crown for the use of public pore space at any time after the expiry of a five-year term. This could have a material impact on the economics of the project and industry will likely need certainty on the scope of these proposed additional Crown revenues in order to justify the significant up front capital investment required for these project.  

Conclusion

Following shortly after the close of COP 26, there is no denying that the strategic implementation of CCUS projects in Alberta is an important part of the plan to reduce the province’s, and ultimately Canada’s, greenhouse gas emissions. While the RFPP is another step toward strengthening Alberta’s commitment to innovation and environmental sustainability, uncertainty in how projects will achieve these goals still remains at the forefront of discussion. A few things remain clear, however, and that is that there is significant interest in the operation of CCUS projects by numerous companies and in various locations across the Province, and the future of CCUS in Alberta is bright. Selection of the successful proponents is supposed to take place by the end of March 2022. Moving forward from the RFPP, we hope to soon see a shift away from initial scoping and requests for proposals, towards final, concrete regulatory changes and increased certainty for successful proponents in the next steps of this process.

Dentons Canada will continue to track the progress toward implementation of CCUS projects in Alberta and provide updates to companies as updates are announced. Please reach out to a member of Dentons’ Energy Innovation and Transition group for assistance with requesting clarifications under the bid procurement process and/or the structuring of your Full Project Proposal submission.