CRA reviews whether there can be an agreement for the sale of electricity between two carbon capture companies through a utility

Two companies (A and B) are each constructing, in Alberta, a “qualified CCUS project” as defined in s. 127.44(1). A's project will use “dual-use equipment” as defined in s. 127.44(1), to both power its carbon capture equipment and also generate surplus electricity, which it will agree to sell to B pursuant to a “direct sales agreement”. This will be accomplished by A delivering the surplus electricity to the Alberta grid and B taking delivery of equivalent electricity from the grid for use in its project.

Whether the cost of the portion of A's power generation equipment that produces the surplus electricity constitute a “qualified carbon capture expenditure” turns on whether under A(b)(i) of that definition, the surplus electricity qualifies as “energy expected to be produced for use in a qualified CCUS project”.

In this regard, CRA indicated that although there is no restriction on counting energy delivered through an electrical utility grid in determining whether the quoted phrase is satisfied, “the energy must be sold by the taxpayer to the owner of the other qualified CCUS project (e.g., through a direct sales agreement), and such energy must be necessary for the operation of the other project.”

The point may be that this could work if it is analogous to A selling oil to B through a pipeline even though in physical reality B is only acquiring linefill. It seems unclear whether the above “direct sales agreement” would satisfy the quoted conditions if, in legal reality, A was agreeing with B that it would sell electricity to the utility for $X per kWh and B was agreeing with A that it would purchase a minimum of the same number of kWh from the utility for $Y per kWh.

Neal Armstrong. Summary of 5 June 2025 External T.I. 2025-1055221E5 under s. 127.44(1) - qualified carbon capture expenditure – s. A(b)(i).