Royal Dutch Shell PLC inked a deal Friday with the Canadian government to develop technology to control oil emissions.

The province of Alberta announced it would provide C$745 million to test carbon capture and sequestration technology on Shell's Scotford Upgrader, which is similar to a refinery for processing heavy oil. The Canadian government will chip in an additional C$120 million, making the project one of the most expensive attempts to control carbon dioxide output from Alberta's oil sands region.

The deal, which comes as debate rages about the carbon footprint of the Canadian oil sands, is the first test of whether greenhouse gas output from upgraders can be controlled, according to Shell. The project -- which will receive the money over a 15-year time span -- would inject 1 million metric tons of C02 underground for permanent storage in saline rock formations. The injections would start in 2015.

"By continuing to move CCS technology forward, Alberta is demonstrating its ongoing leadership in realizing the commercial-scale deployment of this technology and greening our energy production," said Albertan Premier Ed Stelmach in a statement.

The project is part of a $2 billion initiative by the province to deploy carbon capture and sequestration, or CCS, a technology that has never been proven at scale. It typically is associated with coal plants, but also is being looked at increasingly to curb emissions from other fossil fuels.

The carbon footprint of Canadian oil sands is a source of debate on both sides of the border, since oil from the oil sands is more carbon intensive to produce than oil from traditional drilling. Oil sands crude must be blasted or heated out of thick sand formations.

According to a January report from a Canadian government panel, oil sands production is a chief factor why Canada's emissions are growing at a faster rate than those of the United States.

In the United States, much of the focus of critics has been on the Keystone XL pipeline. If built, it could double the amount of Canadian crude imported to the United States.

In a public letter in June, NASA scientist James Hansen wrote that "if the tar sands are thrown into the mix" with other fossil fuels, "it is essentially game over" for the planet.

Enviro groups say deal will increase emissions
On Friday, other environmentalists complained that the CCS proposal actually would raise Alberta's emissions over time, since the province simultaneously changed the way companies can receive offset credits under a provincial greenhouse gas law as part of the announcement.

Now, they will be able to receive double the credit to reduce overall emissions for every metric ton of pollution reduced via CCS projects that store carbon dioxide permanently.

That means companies will be able to avoid more emissions at their own facilities simply by counting CCS as a "double" offset under provincial law, said Chris Severson-Baker of the Pembina Institute, a Canadian environmental think tank.

"This defeats the whole purpose of doing CCS in the first place," said Severson-Baker. He said his organization is not opposed to testing the technology but said Canada should do so in a way that will actually decrease greenhouse gas emissions.

Alberta currently requires industrial companies to pay $15 a metric ton of carbon if their emissions rise above a certain level, which many environmentalists say is too low of a price to alter corporate behavior. According to Severson-Baker, the province had the option of raising the carbon price if it wanted to give a financial boost to carbon capture and sequestration.

But supporters of oil-sands production have long said that criticism of the industry is overblown, considering that Canada constitutes 2 percent of global emissions, with the oil sands contributing a tiny fraction -- 5 percent -- of that number.

The industry also has repeatedly said that the United States will gobble up carbon-intensive oil from other countries such as Venezuela if Canadian crude is cut out of the equation.

On Friday, Stelmach said that other options to provide a financial incentive for carbon capture, such as raising the province's carbon price, would put Alberta at a disadvantage when the rest of North America is not doing the same.

"Our willingness to update our program is an example of Alberta taking action to reduce emissions while others continue to talk," Stelmach said.

Reprinted from Climatewire with permission from Environment & Energy Publishing, LLC., 202-628-6500