Ontario’s proposed regulatory framework for special carbon storage projects

Background

Among Canadian provinces, Ontario is the second highest emitter of greenhouse gases, accounting for 22% of the country’s emissions in 2021, much of which is emitted from stationary industrial sources. As the price of carbon in Ontario increases in concert with the federal backstop carbon price, these industrial sources are increasingly evaluating whether carbon capture and sequestration can be used to reduce their emissions. However, unlike Alberta and certain other provinces, Ontario does not have a regulatory regime for carbon sequestration. In fact, until March 2023, the Oil, Gas and Salt Resources Act (the OGSRA) effectively prohibited the underground injection of carbon dioxide for carbon sequestration and other activities.

Recently, the Ontario government began rolling back these restrictions. In late 2022, Ontario amended its Emissions Performance Standard (EPS) regulations to allow, in effect, carbon sequestration to be used to reduce a covered facility’s reportable emissions. And on March 22, 2023, the province amended the OGSRA to remove the prohibitions on carbon sequestration.

Barriers to carbon sequestration

However, limitations remain. The Mining Act still prohibits the permanent storage or disposal of any substance, including carbon dioxide, on Crown land. Without removing this prohibition, sequestration activities would only be able to proceed on private land, which will significantly limit sequestration opportunities in Ontario given that some of the most promising geological formations are located under Crown land, especially under Lake Erie.

There are other roadblocks. Even with the OGSRA prohibition lifted, Ontario has not clarified the ownership of Ontario’s pore space, a major impediment to the development of commercial-scale sequestration facilities. It has also not established a permitting regime for sequestration facilities. Further regulatory incentives are also needed to justify the capital and operating expenses of new projects. The federal CCUS Investment Tax Credit, for example, does not yet apply in Ontario (as it only applies in provinces with an approved regulatory framework, such as Alberta). And industry continues to push for carbon price certainty, including through carbon contracts for difference with the federal government. These hurdles will need to be overcome to facilitate commercial-scale projects.

Special carbon capture and storage (CCS) projects

While the federal and provincial governments work to overcome the barriers for commercial-scale facilities, Ontario has taken steps to authorize a more limited class of test and demonstration projects. On June 8, 2023, the OGSRA was amended to authorize future regulations that would allow the Minister of Natural Resources and Forestry (the Minister) to designate certain special carbon storage projects. These amendments will only come into force on a date that is determined by implementing regulations.

On September 1, 2023, the Ministry of Natural Resources and Forestry (MNRF) published a proposal for these implementing regulations. The proposal describes, among other things, the process proponents would need to follow to obtain authorization for special projects, including test or demonstration carbon storage projects. Key features of the proposal are discussed below¹.

Special CCS projects authorization features

1. Special project designations
   As a first step, proponents seeking authorization under the OGSRA for a special project would need to request that the project be designated by the Minister as a special project. The designation of a special project would not authorize any activities associated with the project; rather, it would mean that the project is eligible to pursue authorization under the OGSRA. To achieve designation, the following criteria, among others, would need to be met:
   
   
   • The purpose of the special project must be to test, assess, pilot or demonstrate a technology, method or activity that is new or innovative to Ontario.
   • There is a reasonable expectation, in the opinion of the Minister, that it will be possible to design, construct, operate and decommission the project in a manner that protects public safety and the environment.
   • The project must use, or intend to use, at least one existing well or proposed well to access underground geological formations of Cambrian or more recent age.
   In addition, at this time, special carbon storage projects would only be able to proceed on private land given the prohibition on permanent disposal and storage of any substance under the Mining Act (as noted above).
2. Application process for OGSRA licenses and injection permits
   Once designated, special projects would need to submit applications for well licenses and injection permits under the OGSRA. For special projects involving carbon storage, which fall within the scope of CSA Standard Z741 (Geological Storage of Carbon Dioxide), application requirements would be extensive and include the following:
   
   
   • identification of the area of review and a proposed carbon storage surface boundary area, as further described in the proposal;
   • confirmation that all necessary surface and subsurface rights have been obtained, and that all persons from whom rights or interests have been acquired for the project have been made aware of the application;
   • an assessment of existing and proposed neighbouring surface features, activities, users and uses within the area of review identifying potential impacts of the proposed project on these neighbouring activities and vice-versa; and
   • a risk assessment that addresses the full lifecycle of the project, including assessment of unmitigated or residual risks, and plans and programs to mitigate those risks.
3. Financial security requirements
   Financial security requirements for special projects would follow the same model as was recently established for compressed air energy storage projects in porous rock. The amount of the security would be equal to the amount forecasted by the proponent as a part of their closure plans, unless MNRF determines a higher amount of security reflects a more accurate estimate of the costs of abandonment and decommissioning. The form of security would be required to be provided or established in a trust or an irrevocable letter of credit.
4. Review process
   Any special project applications under the OGSRA would be subject to expert review at the MNRF’s request, and at the applicant’s expense. The Minister would also have the right to request additional application information, as deemed necessary. In addition, when making a decision to designate a project as a special project, the Minister will assess the potential for adverse impacts on the exercise of treaty or Aboriginal rights.
5. Other requirements
   All applicants seeking licences or permits would be required to notify a broad group of potentially interested parties, including government bodies, nearby landowners, Indigenous communities and nearby well owners and operators. All special carbon storage projects would also be required to follow, throughout the project lifecycle, the most protective requirements of the implementing regulations, the CSA Standard and Parts 3 through 13 of the Oil, Gas and Salt Resources of Ontario, Provincial Operating Standards.

According to MNRF’s proposal, the implementing regulations would take effect on January 1, 2024, following the closure of the current public consultation period. With many carbon sequestration projects already moving forward in western Canada, Ontario is starting to develop a regulatory framework in support of these projects as well—and we encourage project proponents to keep an eye on this developing space.