The federal government released the Spring Economic Update (SEU) on April 28, 2026, with the stated purpose of advancing its goal of building a stronger, more independent and resilient Canadian economy. Of particular interest to energy and clean-technology businesses, the SEU introduces several measures aimed at accelerating investment in low-carbon infrastructure.
Key developments from the SEU include:
- A proposed expansion of the Carbon Capture, Utilization and Storage Investment Tax Credit (the CCUS Tax Credit) to include CO2 stored through enhanced oil recovery (EOR);
- Implementation details of the accelerated capital cost allowance rates (Accelerated CCA) for low-carbon liquefied natural gas (LNG) facilities previously announced in Budget 2025; and
- A commitment to prioritize advance income tax rulings for clean economy investment tax credits.
Expansion of the CCUS Tax Credit
The CCUS Tax Credit is a refundable tax credit which supports eligible expenditures relating to carbon capture, utilization and storage (CCUS). The SEU proposes to expand the CCUS Tax Credit to include projects that store CO2 through EOR.
Enhanced Oil Recovery
In very general terms, EOR is a process whereby a fluid (such as CO2) is injected into a geological formation for the purpose of increasing oil production. In the process of EOR with CCUS, CO2 is injected into the oil and gas well, which then mixes with the hydrocarbons, improving the flow of the hydrocarbon as well as increasing pressure in the reservoir. A portion of the injected CO2 remains stored in the reservoir, while a portion is typically brought to surface with the hydrocarbon. Any CO2 brought to surface with the hydrocarbon is then typically removed from the hydrocarbon and reinjected into the well.
Expansion of CCUS Tax Credit to EOR
Previously, the CCUS Tax Credit was permitted only for storing captured carbon underground in a dedicated geological storage or using the captured carbon in certain concrete making applications (designated as "eligible uses" under the legislation), and EOR was expressly considered an "ineligible use" under the legislation. But after advocacy from the Government of Alberta and a commitment made by the federal government in late 2025 in the Canada-Alberta memorandum of understanding (which we discussed here), in the SEU the federal government has proposed to follow through on its commitment for the expansion of the CCUS Tax Credit to include EOR.
The expansion of the CCUS Tax Credit is a noteworthy development for the competitiveness of the Canadian oil and gas sector in attracting investments, as it brings Canada more in line with other jurisdictions that offer credits/incentives for EOR (e.g., in the United States, under the "One Big Beautiful Bill Act" (signed into law in mid-2025), the dollar amount of 45Q tax credits available for EOR projects that sequester CO2 was raised, creating credit parity between CCS-only projects and combined EOR / CCS projects).
CCUS Tax Credit rates Available for EOR
The SEU provides that the CCUS Tax Credit rates available for EOR will be one half of the amount available for other eligible uses, in recognition that unlike for those other eligible uses, there are additional revenue streams available to CCUS projects that perform EOR. The CCUS Tax Credit rates that will be available for EOR from April 28, 2026 to the end of 2035 are:
- 30% for eligible capture equipment used in a direct air capture project;
- 25% for all other eligible capture equipment; and
- 18.75% for eligible transportation, storage and use equipment.
The CCUS Tax Credit for EOR from 2036 to the end of 2040 is set at half of the above amounts.
Eligible Equipment for EOR Projects
Equipment required for the injection and storage of CO2 through EOR will be eligible, unless all or substantially all of the use of the equipment is to produce oil. The SEU provides that additional details on equipment eligibility will be made available through technical guidance published by Natural Resources Canada (presumably through an update or an addendum to their current CCUS Tax Credit Technical Guidance Document).
Designation of Jurisdictions
The SEU provides that the storage of captured carbon through EOR will contribute to a project's eligible use only in jurisdictions where there are sufficient regulations to ensure that the CO2 is permanently stored. The guidance appears to provide that the designation of EOR-eligible jurisdictions will be separate from the designation of jurisdictions for dedicated geological storage, but will follow similar principles; Environment and Climate Change Canada will review the relevant laws of each jurisdiction and will designate those it determines to have a sufficient regulatory regime for the storage of captured carbon through EOR.
Eligible EOR Storage Operations
In order to be eligible, EOR storage operations will be required to have a process to capture and reinject the CO2 that is mixed with the oil when EOR is performed. This process will need to be designed to provide for the permanent storage of a minimum of 95 percent of the CO2 intended for EOR storage. The projected CO2 storage rate for CO2 stored through EOR will be required to be part of the project plan of the project proponent. The SEU appears to provide that this "projected CO2 storage rate" will be a separate ratio from the projects' projected eligible use percentage, which similarly prorates the amount of CCUS Tax Credit available based on the amount of captured carbon put towards an eligible use as compared to the amount of captured carbon put to an ineligible use.
Recovery Tax
Where amounts of CO2 are released in excess of a 5% allowance, then the amounts of CO2 from EOR operations in excess of this 5% allowance would be considered an ineligible use, and the project will be subject to a recovery tax similar to the current recovery tax for where the projected eligible use percentage of the project decreases. The SEU suggests that this 5% allowance should be separate from the requirement for 95% of the captured carbon to be permanently stored, although this is not clear. This would mean that if a project is anticipated to have 95% of the captured carbon permanently stored through EOR, that it is only if the project only stored less than 90% of the captured carbon based on its actual CO2 storage rate that recovery tax would apply.
Interaction of EOR Projects with other Qualified CCUS Projects
The SEU provides that capture and transportation equipment of qualified CCUS projects that store CO2 through EOR would be eligible under the CCUS Tax Credit. Interestingly, these capture or transportation projects would also be subject to the half rates for the portion of captured carbon expected to support EOR, meaning that projects that sell their captured carbon to EOR operators must be confident that the economic value of such a sale must exceed the extra CCUS Tax Credit the project proponent will receive if they commit to storing the captured carbon in dedicated geological storage.
The SEU provides that for projects that contemplate both storage of CO2 through dedicated geological storage and EOR that they will be eligible for the CCUS Tax Credit on a weighted-average basis, and that the quantity of captured carbon intended to each eligible use would be based on the project's most recent project plan. Presumably, this will result in a prorated CCUS Tax Credit based on the amount of captured carbon intended for other eligible uses (which will receive the full CCUS Tax Credit), and the amount of captured carbon intended for EOR (which will receive the half CCUS Tax Credit).
It is also unclear whether the recovery tax will apply to all of the upstream capture and transportation projects, or if there will be some relieving rules such that this will only apply to the EOR storage project itself.
Alberta Carbon Capture Incentive Program
The CCUS Tax Credit expansion will help support businesses that already use carbon capture for EOR, or plan to in the near future. Additional government incentives may also be available for Alberta companies using carbon capture for EOR through the Alberta Carbon Capture Incentive Program (which we discuss here), which the Alberta government has previously stated will provide operators with a grant of up to 12 percent for capital costs of new facilities relating to the adoption of carbon capture, utilization and storage technologies.
Accelerated CCA for Low-Carbon LNG Facilities
The SEU also confirms implementation details for the Accelerated CCA for low-carbon LNG facilities, originally proposed in Budget 2025. These Accelerated CCA rates allow LNG operators to recover capital costs more quickly by claiming higher deductions earlier in the life of qualifying assets. The Accelerated CCA rate is 50% for LNG equipment (Class 47) and 10% for related buildings for low carbon LNG facilities (Class 1). The Accelerated CCA can be claimed only against income that is attributable to LNG at the facility.
To qualify for the Accelerated CCA, the expected emissions intensity of an LNG facility's on-site liquefaction activities cannot exceed 0.20 tCO2e/tLNG (measured in tonnes of carbon dioxide equivalent per tonne of LNG produced annually).
An LNG facility must be certified by the Minister of Energy and Natural Resources before the facility owner can claim the Accelerated CCA. Such certification will be based on a report prepared by a qualified third-party Canadian engineering firm that includes the expected emissions intensity of the LNG facility, in addition to any other information required by the Minister of Energy and Natural Resources.
The Accelerated CCA will apply to property acquired on or after November 4, 2025, and before 2035. LNG facilities can also benefit from the enhanced first-year Accelerated Investment Incentive deduction for certain capital property.
Priority Advance Income Tax Rulings for Clean Economy Investment Tax Credits
The SEU also commits the Canada Revenue Agency to prioritizing advance income tax ruling requests for investments that strengthen critical sectors of Canada’s economy. Clean economy initiatives and projects potentially eligible for clean investment tax credits are expressly identified as priorities. This commitment may help reduce uncertainty for proponents of clean energy and decarbonization projects and signals continued federal support for clean economy investment.
Looking Ahead
Many details remain outstanding and draft legislation implementing the CCUS Tax Credit for EOR and the Accelerated CCA for LNG has not been released. Bennett Jones has experience in energy, CCUS infrastructure, mining and manufacturing project development, including in power, renewables, clean technology and developing strategies for industries to capitalize on current and upcoming initiatives of a low-carbon economy.
To discuss the potential opportunities and implications of the CCUS Tax Credit, the Accelerated CCA for low-carbon LNG facilities, or advance income tax rulings for Clean Economy Investment Tax Credits, please contact any member of the Bennett Jones Tax or Energy practice groups.
