The Government of Canada, under the leadership of Natural Resources Canada, is making a significant commitment toward innovative new uses of CO2 to reduce greenhouse gas (GHG) emissions. This is motivated by a belief that this new method of storing CO2 will play an important role in helping Canada to reduce GHG emissions that contribute to climate change.

Canada is part of an international effort to address climate change. Through the Kyoto Protocol, signed in December 1997, Canada committed to reduce greenhouse gas (GHG) emissions to 6 percent below 1990 levels by the commitment period 2008-2012.  The CO2 Capture and Storage Initiative was announced in the Economic Statement of October 18, 2000.

CO2 capture and storage involves the capture of CO2 from large single point sources, its processing, compression, transportation to a potential storage or disposal site in a geological formation, and injection into the formation. CO2 capture typically is from industrial plants that produce it as a by-product of the production process, such as a petrochemical or hydrogen plant, or that emit it as a flue gas from hydrocarbon production, such as a coal-burning power plant. The geological formations in which CO2 may be stored include oil or natural gas reservoirs, deep coal beds, or deep saline aquifers.

The CO2 capture and storage incentive is a discretionary program that is administered by NRCan. It is a contribution-based program as defined under the Treasury Board of Canada's Policy on Transfer Payments. Under this type of program, no party is entitled to payment unless the responsible department (i.e., NRCan) has entered into a contribution agreement with the party.

Detailed terms and conditions are described in the following sections of this document. NRCan reserves the right to amend the terms and conditions of the program. However, NRCan will ensure that potential project proponents are consulted and notified in advance before any such changes come into effect in an effort to minimize negative financial implications. Subject to the specific wording of individual agreements, changes to the terms and conditions would not affect contribution agreements that are already signed. Proprietary information on projects provided by prospective proponents will be kept strictly confidential within the limits set out in the Access to Information Act.

In accordance with the Financial Administrative Act and pursuant to the requirements of the Public Accounts of Canada, NRCan will make public the initial level of funding committed under individual contribution agreements and the annual amount paid to individual recipients.

The CO2 capture and storage incentive is a 2-year, $15-million program to facilitate the development of the CO2 capture and storage market. The level of funding available in each of the 2 years is $7.5-million.

The CO2 capture and storage incentive is a discretionary program. NRCan will make payments of an incentive only to eligible recipients who have signed contribution agreements with NRCan.

NRCan will consider signing contribution agreements with prospective recipients that meet the criteria outlined in the following:

ELIGIBLE RECIPIENTS

• Any for-profit firm that will operate a project that injects CO2, from a Canadian industrial source, into a geological formation for storage and/or disposal in Canada and would demonstrate reasonable economic need for the project at a predetermined rate of return through submission of detailed project economics.
• The project applicant must be the project operator
• The cost of capture, transport and injection exceeds $15 per tonne

STACKING PROVISION

The program will require potential recipients to disclose all sources of funding required for a proposed project prior to entering into a contribution agreement and, upon completion of the project, of funds received and results achieved. Negotiation of contribution levels will take account of other direct government assistance (federal, provincial, territorial, regional and municipal) for the same purpose, and limit total direct government assistance to no more than 100% of the eligible expenditures described in these terms and conditions. In the event that total government assistance exceeds the stacking limit, it will be necessary for Natural Resources Canada to recover the excess from the recipient.

ELIGIBLE EXPENDITURES

Eligible expenditures are defined as up to 50% of the cost of capital equipment and all other direct expenses required for capturing, compressing, transporting and injecting CO2. Overhead, GST, PST and HST are excluded.

Eligible costs for activities directly in support of the project or activity include:

• Salaries and benefits for staff for time spent on activities directly attributable to the agreed-upon project or activity;
• Fees for professional, scientific and contracting services;
• Printing, including paper and electronic (e.g. CD-ROM);
• Data collection, processing, analysis and management;
• Necessary licence fees and permits, if applicable;
• Testing of equipment or technologies developed under the project or activity; and
• Purchase / rental and installation of qualifying project-related equipment and products, including but not limited to:
  • Capture equipment such as compressors, dehydrators, steam generators, tanks and pumps;
  • Transport equipment/services such as pipelines and related equipment or CO2 delivery charges;
  • Injection/field equipment such as injectors and injection pads, tubing, metering equipment wellhead, packers, flare stacks/incinerators, steam generators, tanks, pumps and drivers, pipes, valves and fittings; and
  • Production related equipment including production wells, production separation and measurement equipment.

Detailed lists of eligible expenditures will be included in each contribution agreement as it is expected that the needs of each project may not be the same due to such factors as technical requirements, location and size. Acceptance of costs as eligible which are not listed above, will be at the sole discretion of NRCan.

Maximum Amount Payable

The maximum federal contribution to a single recipient is $5,000,000 over the program period.

Requirements

The following reports will be required:

• Final technical and financial report;
• Semi-annual progress and financial report
• Access to company financial and progress data for purpose of audit and evaluation; and
• Quarterly statement of eligible costs incurred and cost forecast

There are four steps required in order to be approved to receive incentive payments:

Step 1: Initial Application

Proponents who are interested in participating in the CO² Capture and Storage Incentive Program are invited to submit an application to NRCan no later than March 1, 2005. The application information should be sent to: (1 paper copy and 4 CD-Roms)

Natural Resources Canada
CO2 Capture and Storage Incentive Program
580 Booth Street, 17th Floor
Ottawa, Ontario K1A 0E4
Attn: Mr. Kevin Cliffe

The application must provide information that will establish:

Basic Information

• Name of operator applying
• Name, Title, Address, Phone Number, Fax Number, and E-mail address of the Contact Person
• Project Title (maximum 15 words)
• Abstract (maximum half-page)
• Location of project site and CO2 source - maps indicating the location of the project site and its proximity to the CO2 source
• Previous production history and a summary of its prospects, in the absence of a carbon dioxide enhanced recovery scheme

Notice of Confidential or Proprietary Information

• Any confidential or proprietary information contained in the project application should be specifically identified

Project Description or Plan

• This section contains the description of the work, and details of the process to be followed in carrying out the work. The details of the approach and methodology in order to achieve the project's work objectives, milestones, and deliverables must be described in this section. A work breakdown structure describing the project's tasks, costs, and the assigned responsibility for their execution, along with a project timelines chart is to be included, as is a technical risk assessment and mitigation plan. For the full cost/budget detail and project schedule, please provide it as Schedule "A".
• Below is an explanation of information required under this section.

Required information Pertinent to CO2

• CO2 Source Selection - Information on the reliability of the source, the number of suppliers used to spread the risk related to CO2 supply, the quantity and timing of CO2 deliverables (as well as the quantity and timing of CO2 injection), the CO2 price and terms, including anticipated allocation of potential CO2 emission credits.
• Transportation - The plans for transportation e.g., the right of way for pipeline, the use of existing versus greenfield infrastructure.
• Geological Features - The characteristics and benefits of the candidate site. Data characterizing the reservoir, including heterogeneity and production history. Complete reservoir rock and fluid properties, including but not limited to:
  • Gas cap;
  • Pay thickness;
  • Depth;
  • Temperatures;
  • Injectivity and productivity;
  • Permeability;
  • Hydrocarbon pore volume;
  • Sour versus sweet field; and
  • Any other geophysical or geochemical testing data possessed by the project proponent, which may have been performed on the reservoir, which may help in establishing its integrity;
• Economic Performance - An assessment of the net present value of the project, based on both burdened and unburdened (e.g., pre-royalty) scenarios. Provide information on the base case, existing production plans, and the enhanced recovery case. The recovery improvements, field life extensions, and other economic benefits should also be identified. An up-to-date Chenery Dobson price forecast and a Nominal Discount Rate of 12% shall be used in the applicant's assessment.

Project Cost/Budget

• Costs should be categorized as:
  • Capital costs (itemized for equipment > $10,000)
  • CO2 injectant cost or price (non-arms length vs. arms-length)
  • CO2 transportation cost
  • CO2 recycling costs
  • Consumed energy
  • Field labour costs for operators (direct salary and benefits at actual cost for staff assigned directly to the project on a full time or part time basis)
  • Other operating costs
• Additional categories may be used if applicable. The nature and purpose of the various expenditures should be explained.

Project Schedule

• The applicant should indicate when the project will begin, when the capital expenditures on the project will be incurred and when all work on the project, including preparation of the final technical report, will be completed.

Project Management

• This section outlines the capability, roles, and organizational structure that the team possesses to manage a CO2 project. This section will also include a risk analysis and mitigation plan [this means that the operator must identify under what circumstances the project would not proceed e.g., if the carbon dioxide supply is interrupted or if the oil price goes below $X per barrel], as well as reporting requirements.

Project Interim Reports (semi-annually)

• The applicant should specify information that will be included in the semi-annual progress reports. The interim reports should show the work-in-progress and the corresponding expenditures. The report shall also include the project's technical performance, breakdown of CO2 volumes (e.g., acquired volumes, injected volumes, recycled volumes, etc.) and the production response.

Final Technical Report

• The applicant should specify the information that will be included in the final technical report regarding the results of the project. This final report must be submitted within three months of project completion as defined in the conditions of approval.

Commercialization / Expansion / Replication Plan

• The applicant should include a description of the understanding of scope and scale of the potential for commercialization, expansion and replication. The specific commercial applications that may result from this proposal need to be identified and formally built into the proposal. Ideally, potential CO2 suppliers will participate in the proposed project. This section will demonstrate the potential for a good long-term return on investment and identify the commercialization risk.

Potential Economic Benefits

• The applicant should indicate the project's potential to lead to significant long-term economic benefits to Canada in areas such as employment, sales, provincial royalty and taxes, development of new commercial opportunities, new investment, increased exports, and reduction in greenhouse gas emissions.

Project Funding

• The applicant should indicate how much funding is needed for the proposed project (supported by relevant data).
• The applicant should also indicate if the project operator has applied for other funding, from whom (e.g. Alberta government, Federal government, etc.), how much funding has been requested, and whether that funding has been granted.

Additional Requirements

• The expected use of Canadian goods and services or the expected degree of transfer of foreign technology and expertise;
• The means to be used by the project operator to monitor CO2 injection and storage and to verify the integrity of storage;
• The possible adverse environmental effects of the project;
• The means to be used by the project operator to inform sponsors of other actual and potential projects (including provincial governments and Natural Resources Canada) of the non-proprietary technical learnings as a result of the project;
• Supporting material will include disclosure of the involvement of former public servants who are under the Conflict of Interest and Post-employment Guidelines.
• Operational safety risk analysis
• Proponents must also include an EXCEL Spreadsheet of required project information in the format provided in Annex B

Step 2: Assessment Process

• Project proposals will be assessed by an assessment committee based on the criteria located in Annex C. This committee will be comprised of representatives from Natural Resources Canada, Environment Canada, and an independent third party.
• During the assessment process, the project applicant may be asked to provide additional information, to respond to questions about the project proposal, or to make him/herself available for meetings. The assessment committee will be under no obligation to receive further information whether oral or written from any proponents. Modifications to proposals will not be accepted after the closing date and time, and no word or comments will be added to the proposal unless requested by the assessment committee.

Step 3: Project Selection Notification

• All project proponents will be notified by e-mail on April 8, 2005 of the status of their incentive application.
• The project approval decisions are final and not subject to appeal. Subject to available funds, a project proposal that is not approved may be revised and submitted for consideration in a subsequent period.

Step 4: Environmental Assessment

• Prior to the signing of a contribution agreement, proponents will be responsible to meet any requirements under the Canadian Environmental Assessment Act (CEAA). For more information, please visit the following website: www.ceaa.gc.ca.
• Please provide any existing environmental assessment that you may have for the project.

Step 5: Contribution Agreement

• Successful project proponents will be required to enter into a contribution agreement in order to qualify for incentive payments.
• If a contribution agreement cannot be concluded within 60 days of notification to a successful proponent, the Government of Canada reserves the right to award the the contribution to the next highest ranked proposal.

PAYMENT

Payment will vary, according to the scope of project deliverables contained in the contribution agreement, and will be made as expenses are incurred by the recipient to meet a schedule of deliverables. Payment will be made based on claims submitted by the recipient and reviewed and approved by Natural Resources Canada.

PARTNERSHIP OR JOINT VENTURE

The general or operating partner of a joint venture (eligible recipient) should apply for the incentive on behalf of all the owners, with appropriate disclosure of the owners and their proportionate ownership in the project. The operator will be responsible for all of the record keeping and audit requirements on behalf of the joint venture.

NRCan will ensure that the maximum payable to the eligible recipient for the duration of the program does not exceed the set maximum payable as noted in the contribution agreement.

REPAYABLE CONTRIBUTION CLAUSE

Contribution agreements under this program will serve to stimulate the growth of the entire Canadian CO2 capture and storage industry. The initiative encourages oil and gas producers to incur higher costs of production in order to stimulate large net reductions in CO2 emissions consistent with Canada's climate change objectives. However, every contribution agreement will include a repayable clause that will apply if the eligible recipient (ER), during the 2-year program, is able to capture, transport and store CO2 at $15 per tonne or less as it would fall within the range of what industry is expected to pay.

Therefore, if an ER is able to capture, transport and store CO2 at $15 per tonne or less during the 2 year period from start of injection, that portion of the incentive received by the ER will be repayable in equal monthly payments over a 2 year period.

Every ER will have to provide to Natural Resources Canada information allowing the assessment of a cost per tonne during the period of April 1, 2004 to March 31, 2006, according to a methodology to be determined by NRCan. The cost per tonne information will be subject to audit.

CONFIDENTIALITY

The federal government will exercise reasonable efforts to keep the disclosure of information confidential. However, the federal government is subject to the provisions of the Privacy Act and the Access to Information Act. Generally speaking, the federal government is prohibited from disclosing your confidential personal and business information where disclosure is reasonably likely to be harmful to your interests or would be an unreasonable invasion of your personal privacy.

Nevertheless, knowledge transfer will be a condition of approval under the program and interim and final reports must be submitted. Such provisions will not unreasonably withhold the submission of such reports, which eventually will be made available to the public. You may claim confidentiality for such reports for a period of one year from the date the report is received by the federal government. On approval of your project, you will be required to provide a waiver of confidentiality for all such reports for any time period beyond that one year period.

MONITORING

Applicants will be required to include a CO2 monitoring plan that helps establish additional confidence that injected CO2 remains stored in the reservoir for the duration of the project.

This monitoring plan can include, but is not limited to:

• Measurement of key pressure and flow variables at the injection site to ensure that reservoir parameters are not exceeded;
• Measurement of ambient CO2 fluxes, either on a continuous or periodic basis at the injection site and any other potential leak site which has been identified. These leak sites could include: particular geologic formations which have been known to leak in the past, improperly capped suspended or abandoned wells, capped wells that are older than 50 years, etc.

In addition, project proponents will allow researchers to perform monitoring and storage research activities, as may be agreed between the project proponent and the Government of Canada. This agreement would be initiated under separate cover and would respect project proponents' desires with respect to commercially confidential information.

In all cases, a rationale for selection of a particular methodology and a complete detailing of the estimation methodology should be provided in the proponent's application package.

AUDIT RIGHTS

The recipient must:

• keep proper accounts and records of the CO2 injected and net CO2 stored;
• permit the Minister's representatives to audit, inspect and make copies of accounts and records at all reasonable times up to six years from the date of termination of the incentive payments;
• grant NRCan's authorized representatives access to audit and inspect the project site and related facilities;
• furnish NRCan's authorized representatives with such information as they may from time to time reasonably require with reference to the documents referred to herein; and
• promptly refund to NRCan any overpayments of the contribution disclosed by an audit.

APPLICATION FOR INCENTIVE PAYMENT

• Once a CO2 project is approved and injection of CO2 has begun in accordance with the project plan, the operator of each approved CO2 project will submit quarterly claim forms to receive the incentive payment.

Note: Please contact Mondher Benhassine at mbenhass@nrcan.gc.ca if you would like this document electronically or if you have any questions.

Note: Please contact Mondher Benhassine at mbenhass@nrcan.gc.ca if you would like this document electronically or if you have any questions.

Note: Please contact Mondher Benhassine at mbenhass@nrcan.gc.ca if you would like this document electronically or if you have any questions.

Note: Please contact Mondher Benhassine at mbenhass@nrcan.gc.ca if you would like this document electronically or if you have any questions.

Assessment Grid for AP 2000 CO² C&S Incentive