Canada's CCUS Shift Pulls EOR Into the Tent

Canada expands CCUS tax credit to EOR projects, stacking federal and provincial support for Alberta developers

1 Jun 2026

Canada's federal government formally extended its CCUS Investment Tax Credit to enhanced oil recovery projects on April 28, 2026, reversing an exclusion written into its own 2025 budget and widening the pool of commercially viable carbon capture developments across western Canada.

Ottawa's new eligibility pathway covers oil and gas operators who inject CO₂ underground to recover additional hydrocarbons. Qualifying equipment now attracts credits ranging from 30 percent for direct air capture assets to 18.75 percent for transportation and storage infrastructure, roughly half the rates available to dedicated geological storage, which continues to qualify at the higher tier through 2035. Financing, analysts have long noted, remains CCUS's hardest structural obstacle, and the tax credit routinely determines whether large-scale projects reach a final investment decision at all. 

By adding EOR to the eligible project base, Ottawa has materially broadened the pipeline of developments, particularly in Alberta. The provincial Alberta Carbon Capture Incentive Program adds a further 12 percent on eligible capital costs, and projects meeting a 95 percent CO₂ permanence standard under provincial regulation qualify for the combined incentive stack, a threshold already embedded in regulatory frameworks across Alberta, British Columbia, and Saskatchewan.

Opposition came quickly. Environmental groups argued the expansion ties climate finance directly to continued oil production, and a cabinet resignation at the time of the announcement reflected genuine coalition friction. EOR credit rates were deliberately set below standard CCUS levels to reflect the additional revenue operators collect from recovered barrels, officials suggested, though critics said the distinction did little to address the underlying concern.

Paired with Alberta's TIER carbon pricing mechanism, now committed to reaching $130 per tonne as an effective price by 2040 under a new Canada-Alberta agreement, the federal government has assembled a competitive incentive package for industrial-scale carbon capture. Whether final investment decisions follow at pace will determine whether the policy shift proves structural or merely marginal.