Deputy Prime Minister welcomes the Canada Growth Fund’s first carbon contract for difference
Government guarantees price of carbon for Canadian-made carbon capture technology
December 20, 2023 - Calgary, Alberta - Department of Finance Canada
Today in Calgary, the Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, welcomed the announcement of the second investment by the Canada Growth Fund—and the world’s first carbon credit offtake agreement of its kind.
The Growth Fund’s $200 million direct investment and complementary carbon contract for difference in a world-leading carbon capture and sequestration company, Calgary’s Entropy Inc., will support more than 1,200 good jobs for Albertans and grow the company’s Canadian-based activities.
Entropy, in partnership with the University of Regina, has developed a first-of-its-kind modular carbon capture, utilization, and storage technology to reduce emissions in hard-to-abate industries.
This investment by the Growth Fund will enable Entropy to scale-up its technology to reduce emissions at Advantage Energy’s Glacier Phase 2 plant in Alberta’s Peace Country by approximately 2.8 million tonnes over 15 years, as well as commercialize its proprietary technology for implementation at future projects in Canada and around the world.
To provide Entropy with the certainty needed to make its investment decision in Glacier Phase 2, the Growth Fund will—in addition to the $200 million direct investment—purchase up to 185,000 tonnes per year of carbon credits for 15 years at an attractive, precedent-setting initial price of $86.50 per tonne. A form of carbon contracts for difference, carbon credit offtake agreements de-risk emissions-reducing investments by guaranteeing the purchase of carbon credits for abated emissions at a fixed price.
Beyond Glacier Phase 2, today’s investment allows for the Growth Fund and Entropy to further reduce emissions with additional carbon credit offtake agreements for future Canadian projects that use Entropy’s carbon capture, utilization, and storage technology. The Growth Fund has provided Entropy with a precedent-setting large-scale, long-term, fixed price carbon credit offtake framework of up to 1 million tonnes per year. This offtake commitment will support Entropy’s pipeline of future carbon capture and sequestration projects in Canada, which could reduce emissions by up to 9 million tonnes over 15 years.
This project could also benefit from additional federal support through the Carbon Capture, Utilization, and Storage investment tax credit, which was introduced in Parliament in the Fall Economic Statement Implementation Act, 2023.
“Our government’s economic plan is making significant investments in the future of our economy—and in the good-paying jobs that innovative and growing Canadian companies are creating. Today’s investment in Entropy by the Canada Growth Fund is great news for Alberta, for Canada, and for the workers who are helping to build a cleaner, stronger economy from coast to coast to coast.”
- The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance
Carbon contracts for difference and carbon credit offtake agreements reduce risk for businesses investing in clean technologies by guaranteeing the price of carbon or credits for a fixed period of time, regardless of the actual market price at the time.
Carbon contracts for difference guarantee a fixed minimum price of carbon when a company sells credits for its abated emissions on the carbon market.
- If the carbon market price is lower, the entity offering the carbon contract for difference (e.g., the Growth Fund) pays the difference to the company, which de-risks the company’s investment.
- If the carbon market price is higher, the company could provide the difference of the sale of its credits back to the entity offering the carbon contract for difference (e.g., the Growth Fund), allowing profits to be shared between both parties.
Carbon credit offtake agreements guarantee that an entity (e.g., the Growth Fund) will purchase credits at a fixed price directly from a company (e.g., Entropy) for abated emissions. Should the market value of those credits exceed an entity’s purchase price over time, it would benefit from an economic upside.
The Growth Fund announced its first investment on October 25, 2023—a $90 million investment in a groundbreaking geothermal energy company, Calgary’s Eavor Technologies Inc., to create good jobs for Albertans and secure the Canadian future of a company at the leading-edge of the global economy.
The 2023 Fall Economic Statement announced that the Growth Fund will be the principal federal entity to issue carbon contracts for difference including allocating, on a priority basis, up to $7 billion of its current $15 billion in capital to issue all forms of contracts for difference and offtake agreements.
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Office of the Deputy Prime Minister and Minister of Finance
Department of Finance Canada
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