Canada strikes first deal to backstop carbon credit prices

(Reuters) -Canada on Wednesday signed its first deal to backstop future carbon prices, a step that would help bring price certainty to firms looking to invest in carbon capture and storage projects that are key to cutting emissions.

The Canada Growth Fund (CGF), a federal clean-tech financing agency, would invest C$200 million ($150 million) in carbon capture and storage developer Entropy Inc, a unit of oil and gas producer Advantage Energy, the fund said in a statement.

Canada is the world's fourth-largest oil producer and carbon capture and storage projects are seen as vital to cutting emissions from Alberta's highly-polluting oil sands without slashing production.

Under the terms of the 15-year deal, the CGF has agreed to buy up to 1 million tonnes a year of carbon credits generated by Calgary-based Entropy.

The CGF will initially buy 185,000 metric tons of carbon credits per year at C$86.50 per ton, generated by the second phase of a carbon capture and storage project at Advantage's Glacier gas plant in Alberta.

Last year Entropy signed a C$300 million deal with infrastructure firm Brookfield Renewable. Entropy CEO Mike Belenkie said in the statement that the company has a clear path to accelerating growth and reducing emissions in Canada.

National Bank analysts said the deal was a "massive milestone" for Entropy.

Canada has been working on ways to provide carbon price certainty to firms looking to invest in carbon capture and storage to reduce their emissions, in addition to providing investment tax credits.

The U.S. Inflation Reduction Act (IRA) has offered massive incentives to clean tech companies, leaving Canada behind in attracting investments in new, low-carbon technologies.

Canada set up the C$15 billion CGF last year to help attract private investment in clean tech by mitigating financing risks. Oil and gas sector is Canada's highest-polluting industry, accounting for more than a quarter of all emissions.

The second phase of the commitment would see the fund buy another 415,000 metric tons - for a total of 600,000 - annually from Entropy at a similar fixed price for projects using its technology elsewhere in Canada.

Dale Beugin, executive vice president with the Canadian Climate Institute, said the investment will help minimize risk in clean growth projects and make carbon pricing work better in Canada.

"By guaranteeing value for Entropy Inc's carbon credits, this investment drives emissions reductions, without crowding out private investment," Beugin said.

($1 = 1.3358 Canadian dollars)

(Reporting by Nia Williams; Editing by Michael Perry)

By Nia Williams